If Economics isn't the most boring subject known to man, it's certainly up there with plate tectonics and the sex life of a river stone. Boredom with the subject probably is the main reason Americans of all intellectual levels can so easily be snookered by the political establishment.
Most politicians don't know their gluteus maximi from their olecranona, however, they do understand how to extract blood from a turnip. Or rather how to tax the middle class in order to fund the government and feather their own nests. Since their nest feathers are provided by those often referred to as "the 1%", they know better than to to go poking at skunks.
Today the cool cat had her hedges clipped. For some reason, twenty-four years ago, it seemed like a good idea to plant ligustrum. Who knew hedges tend to take over! When first planted, the sweet little bushes were actually quite tame. Had they shown their true nature then, we'd have ripped them out by the roots. But after nearly a quarter of a century, they're dug in, and ripping them out now would be a monumental job. So, instead, we hire someone to clip the hedges back.
And that, dear readers, is exactly what Donald Trump is up to. If Mr. Trump keeps his campaign promise, he means to see to it that hedge fund operators/managers, some of whom receive up to $1.70 billion/year in income --yes you read that right. Billion with a b --pay the same marginal tax rate as the neurosurgeon who fixed your slipped disc. Which also explains why that same 1% and the remoras at the Wall Street Journal and Fox News now support Hillary Clinton. They understand Mr. Bill's wife has to raise taxes, but that she'll raise it on the upper income earner, not the 1% to which both she and Mr. Trump belong (1).
Like all politicians, Mr. Trump promises to reform the tax code, and that is just fine with the 1% so long as it isn't their ox being gored or their tax code being reformed.
Currently hedge fund managers use a loophole called "carried interest" which taxes their incomes at the capital gains rate of 20% (2) while the neurosurgeon's income is taxed at 39.6%. So what is carried interest? Those whose eyes do not glaze over reading this stuff can look it up in Wikipedia. A shortened version appears as follows: ...Typically, a partner is not taxed upon receipt of a carried interest because it is difficult to measure the present value of an interest in future profits....Because this compensation can reach, in the case of the most successful funds, enormous figures, concern has been raised, in both the U.S. Congress and the media, that managers are taking advantage of tax loopholes to receive what is effectively a salary without paying the ordinary 39.6% marginal income tax rates an average person would have to pay on such income.
Last year, the highest-paid executives in the hedge fund industry were paid collectively more than the value of the entire economies of Namibia, the Bahamas or Nicaragua (2). And while your hardware store owner is going to lose business if s/he doesn't deliver, hedge fund operators' income is not dependent on performance. "...a number of managers making ever larger pots of money, even when performance is poor and investors' money is being lost." (2)
A nearly 20% increase in taxation for hedge fund managers is not beanbag, dear readers, and that explains why they can be expected to fight Mr. Trump's election teeth, hair and eyes. And why hedges have to be clipped sometimes.
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(1). Mr. Trump has been referred to as the "blue collar billionaire" by his son.
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