From Greg Mankiw,
Is the White House bullying hedge funds?
A hedge fund manager defends the rule of law:
Cliff Asness, whose firm manages some $20 billion of assets, has written an open letter blasting President Obama for his attack on the hedge fund industry in the wake of the Chrysler bankruptcy.
As you'll recall, hedge funds, which hold approximately $1 billion in Chrysler bonds, refused the government's offer to take approximately thirty cents on the dollar. Obama accused hedge funds of holding out "for the prospect of an unjustified taxpayer-funded bailout."
These comments have enraged many in the industry but few have spoken out publicly. Asness, whose firm doesn't hold Chrysler bonds, says the industry is genuinely afraid in the face of Obama's power. Stating that he himself is "fearful writing this," Asness still pulls no punches:
"Let’s be clear, it is the job and obligation of all investment managers, including hedge fund managers, to get their clients the most return they can. They are allowed to be charitable with their own money, and many are spectacularly so, but if they give away their clients’ money to share in the “sacrifice”, they are stealing."
"The President screaming that the hedge funds are looking for an unjustified taxpayer-funded bailout is the big lie writ large. Find me a hedge fund that has been bailed out. Find me a hedge fund, even a failed one, that has asked for one. In fact, it was only because hedge funds have not taken government funds that they could stand up to this bullying. The TARP recipients had no choice but to go along."
"The President's attempted diktat takes money from bondholders and gives it to a labor union that delivers money and votes for him. Why is he not calling on his party to "sacrifice" some campaign contributions, and votes, for the greater good? Shaking down lenders for the benefit of political donors is recycled corruption and abuse of power."
The second is from is KeithHennessey.com. This one is related to the post I put up last night concerning the President's new proposal on taxing the foreign profits of US multinationals.
Understanding the President’s international tax proposalBoth are really good pieces, written by some subject matter experts, and with politics, to some degree, put aside.
Let’s look at three factories, each of which produces $100 of income.
1. Your factory A is in the U.S. Your corporation pays a 35% U.S. corporate income tax rate ($35).
2. Your factory B is in China. Your corporation pays a 15% Chinese corporate income tax rate ($15). You owe the U.S. government $35 in taxes, minus a credit for the $15 you paid to China. China gets $15, and the U.S. government gets $20.
3. Your British competitor’s factory C is also in China. He pays a 15% Chinese tax rate ($15), and no taxes to his home government.
Factory B shows the effect of a worldwide tax system, in which the firm pays the same total tax wherever the income is earned. Taxes are based on the nationality of the payor, not the location at which the income is earned.
Factory C shows the effect of a territorial tax system. Income is taxed only where it is earned.
The U.S. actually has a hybrid. You can defer the taxes you owe from factory B until you bring that income back to the United States. This is an advantage relative to a pure worldwide system.
Left-leaning and other protectionist elected officials like to argue that a worldwide system “discourages U.S. firms from moving their factories overseas.” Senator Kerry argued this in the 2004 Presidential campaign. A worldwide system also raises more money for the home government to spend on other programs.
The territorial system creates a level playing field for American firms when they are competing overseas. Your factory B in China is at a severe disadvantage compared to the British factory C in China. You might consider moving your headquarters to London and turning your firm into a British corporation. As the global economy grows more interconnected this is increasingly easy to do. read more...