WEEKLY NEWS DIGEST (September 12-18, 2011)

LAW & PUBLIC POLICY

Capital gains tax rates benefiting wealthy feed growing gap between rich and poor.” By Steven Mufson and Jia Lynn Yang. Washington Post. September 11, 2011. The K Street office of Mark Bloomfield, president of the American Council for Capital Formation, is full of knickknacks collected in three decades of lobbying for cutting the capital gains tax. The coffee table has campaign buttons that read “Capital Gains = Better Jobs.” One wall displays a blown-up cartoon retracing the steps that led President Jimmy Carter to reluctantly sign a cut in the capital gains tax rate. On a shelf sits a framed, handwritten note from President George W. Bush in December 2003 that says: “Dear Mark, I got your treatise on taxes — many thanks. I will look it over with keen interest. Merry Christmas.” For the very richest Americans, low tax rates on capital gains are better than any Christmas gift. As a result of a pair of rate cuts, first under President Bill Clinton and then under Bush, most of the richest Americans pay lower overall tax rates than middle-class Americans do. And this is one reason the gap between the wealthy and the rest of the country is widening dramatically. Advocates for a low capital gains rate say it spurs more investment in the U.S. economy, benefiting all Americans. But some tax experts say the evidence for that theory is murky at best. What is clear is that the capital gains tax rate disproportionately benefits the ultra-wealthy. Most Americans depend on wages and salaries for their income, which is subject to a graduated tax so the big earners pay higher percentages. The capital gains tax turns that idea on its head, capping the rate at 15 percent for long-term investments. As a result, anyone making more than $34,500 a year in wages and salary is taxed at a higher rate than a billionaire is taxed on untold millions in capital gains

For-Profit Lawsuits; The government enlists the plaintiffs bar against for-profit colleges.” No by-line. Wall Street Journal. September 12, 2011. Where there’s money, there are trial lawyers, and their latest hope for a jackpot is a lawsuit against an industry in political disfavor with the Obama Administration: for-profit colleges. Under a Civil War era law known as the False Claims Act, the federal government can sue contractors or other groups it thinks have defrauded it. Used properly, the law can serve a good purpose, protecting against waste and misuse of taxpayer dollars. Used improperly, it can become a flamethrower in the hands of plaintiffs lawyers filing frivolous suits in hopes of a big payday. Under the False Claims Act the Justice Department may bring its own cases against suspected fraudsters or it can join cases brought by individuals in so-called “qui tam” actions. In a qui tam case, claims are filed by private citizens (enter, trial lawyers) and the Justice Department must review the claims and decide whether to get involved. The facts of the case involve the Education Management Corporation, a Pittsburgh company that runs dozens of for-profit schools in the U.S. and Canada. According to the plaintiffs, the company broke federal law by paying its admissions recruiters on the basis of student enrollment. While the schools are allowed to take recruiters’ success into account, they are not permitted to use it as the only factor determining compensation. The company says its compensation plan, which included a legally vetted matrix of enrollment numbers combined with factors including good employee qualities like professionalism, customer service and initiative complied with the regulations issued by the Department of Education in 2002. In the preamble to the regulations, the Department acknowledged that “by the very job description, a recruiter’s job is to recruit,” and that Congress’s new provision on employee compensation “did not imply that institutions could not base salaries or salary increases on merit.” By this year, Justice had apparently had a change of heart. In May, it announced it would intervene in the 2007 case, despite having passed up involvement in some 30 cases filed against for-profit and non-for-profit institutions since 2002. The new activism comes in the wake of other Administration broadsides against the for-profit industry. In June, the Department of Education issued new rules by which schools can qualify for federal financial aid, ostensibly to protect students from taking on too much debt.

Soaring Poverty Casts Spotlight on ‘Lost Decade’.” By Sabrina Tavernise. New York Times. September 13, 2011. Another 2.6 million people slipped into poverty in the United States last year, the Census Bureau reported Tuesday, and the number of Americans living below the official poverty line, 46.2 million people, was the highest number in the 52 years the bureau has been publishing figures on it. And in new signs of distress among the middle class, median household incomes fell last year to levels last seen in 1997. Economists pointed to a telling statistic: It was the first time since the Great Depression that median household income, adjusted for inflation, had not risen over such a long period, said Lawrence Katz, an economics professor at Harvard. “This is truly a lost decade,” Mr. Katz said. “We think of America as a place where every generation is doing better, but we’re looking at a period when the median family is in worse shape than it was in the late 1990s.” The bureau’s findings were worse than many economists expected, and brought into sharp relief the toll the past decade — including the painful declines of the financial crisis and recession —had taken on Americans at the middle and lower parts of the income ladder. It is also fresh evidence that the disappointing economic recovery has done nothing for the country’s poorest citizens. The report said the percentage of Americans living below the poverty line last year, 15.1 percent, was the highest level since 1993. (The poverty line in 2010 for a family of four was $22,314.) The report comes as President Obama gears up to try to pass a jobs bill, and analysts said the bleak numbers could help him make his case for urgency. But they could also be used against him by Republican opponents seeking to highlight economic shortcomings on his watch.
Related stories:
Nearly one in six in poverty in the U.S.; children hit hard, Census says.” Washington Post. September 13, 2011.
Income Slides to 1996 Levels; Median Household Earnings Fall for Third Year, Census Says.” Wall Street Journal. September 14, 2011.
How to Accurately Measure The Poor Remains Elusive.” Wall Street Journal. September 14, 2011.

Soak the Rich? No, Soak the Needy; Obama’s proposal to limit charitable tax deductions punishes those who receive, not just those who give.” Op-ed. By Fay Vincent. Wall Street Journal. September 15, 2011. I am one of those people President Obama continually tries to tax more aggressively. And I’m willing to pay more if the additional taxes are part of a sensible tax policy. But Mr. Obama wants to pay for much of his new jobs legislation by restricting the deductibility of charitable contributions (along with other items such as home mortgage interest and state taxes) by those he has defined as wealthy. In my opinion his willingness to punish churches, synagogues, schools and other charitable organizations is badly considered.

Cuomo Charity Chief Resigns.” By Jacob Gershman. Wall Street Journal. September 16, 2011. The chief executive of a $70-million nonprofit group founded by Gov. Andrew Cuomo and overseen by Mr. Cuomo’s sister has resigned his position. A spokesman for the organization said Thursday Laurence Belinsky stepped down from HELP USA in early August to embark on a career in private housing development. “He resigned to his pursue his own business,” said Lawrence Cann, director of development and external affairs for HELP, a homeless advocacy group founded by Mr. Cuomo in the 1980s. Mr. Cuomo’s sister, Maria Cuomo Cole, is the organization’s chairwoman. Mr. Cuomo no longer plays a formal role with the group. It’s one of many nonprofits that has come under the scrutiny of a new task force set up by Mr. Cuomo in early August that’s looking at the pay scales and compensation policies at state-funded non-profits. The Wall Street Journal reported that HELP paid Mr. Belinsky $546,000 in 2008—including a $157,000 bonus—and $508,000 in 2009, according to IRS filings. At least 10 other employees at HELP earn more than $125,000 a year, according to its most recent filing. Mr. Cann said Mr. Belinsky completed his last day of work at the group a week ago. His departure was not related to the governor’s review of nonprofits, Mr. Cann said.

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