If Congress does nothing and the Bush tax cuts of earlier this decade  expire on schedule, the long term capital gains rate will revert automatically to 20 percent at the end of the year (from the current 15 percent) while dividends would be taxed at income tax rates, perhaps as high as 39.5 percent by 2011 assuming the upper income Bush tax cuts are allowed to expire, which is a pretty safe bet.

 Even this understates the case because of the recently enacted 3.8 percent Medicare tax on “unearned income” of so-called upper income taxpayers (above $250k) that will come into effect in 2013.  Geithner did not include this in his remarks but in fact it means that, absent legislative action, by 2013 long term capital gains could be taxed at 23.8% and dividends above 40%.

In this limited sense, I suppose that Geithner’s comments, particularly as they pertain to dividends, ought to be welcomed.  It’s not clear, however, that either the Democrats or Republicans on the Hill will go along, although for different reasons.  The Republicans (whose votes the Administration will need) will hammer any increase on the taxation of saving and investment, particularly given the 3.8% rise that is already in the law.  Democrats will attack either in class warfare or fiscal prudence terms, any movement away from allowing the Bush tax cuts to expire completely. 

One way or another, we are facing yet another ping pong match in regard to how to tax saving and investment.  And that’s unfortunate.  Until Washington gets smart and comes up with an income tax that has as its base consumption, we will be embroiled in a fruitless debate that inevitably invokes the false choice between fairness and growth.  In the meantime,  China is moving full steam ahead in becoming the world’s leader in IPO’s and, by extension, cutting edge companies.  Good for China, bad for the United States where we are slowly but surely squandering our economic leadership.

Section 9006 would make virtually all business-to-business transactions reportable to the IRS, resulting in a paperwork nightmare for the private sector.  Every business would have to send a Form 1099 to every vendor to which the business had paid more than $600 a year.  And before the 1099s can be sent out, a business would first have to send a Form W9 to those vendors in order to obtain their tax identification numbers. 

This absurd paper chase is being sold as an effort to close the so-called “tax gap” – that is, underreporting of tax liabilities.  The “tax gap” is real enough, but this mandate, if its meant to be a cure, is as bad as the disease.

Fortunately, there is an effort to repeal Section 9006 before it comes into effect in 2012.  The effort is being led by Rep.Dan Lungren (R, CA).  ABC’s letter of support to Mr. Lungren can be found here.

Recently, ABC’s president, John Endean, gave a talk at Wharton about effective business representation in Washington.  A summary of his remarks were published in Directors and Boards and can be found here. 

An expanded version of this essay has been published by the Manhattan Institute.  That longer version is available here.

The cliche is true:  politicians increasingly choose their voters rather than the other way around, via clever redistricting made possible by sophisticated demographic software.  This is why, if you look at an outline map of various Congressional districts, you will see so many that are oddly shaped because they have been drawn to capture voters from one party at the expense of voters in the other.  It is why, also, so few seats in the House of Representatives are truly competitive, a disgraceful situation that flies directly in the face of the intentions of the Founding Fathers.

Democrats and Republicans collude in gerrymandering, with both parties making sure they have their share of safe districts.  

Of course this is an old story:  after all, Elbridge Gerry, for whom the practice of dodgy districting was named, was a signer of the Constitution and James Madison’s vice president.  But that it is an old story does not make it any less egregious.

It may be too much to hope that real reform will attend the national redistricting that will follow the 2010 census.  But the matter deserves greater attention and public discussion, perhaps with an eye to enacting reform legislation with the goal of changing the redistricting process in 2020.  It would be worth the wait.

Judge Rakoff’s decision to throw out the settlement agreement was based on an elementary sense of fairness.  In his view, shareholders, having been obliged to pay the Merrill bonuses, were now being asked to pay the fine as well.  Judge Rakoff quite properly interpreted the settlement as a evidence of a “cynical” relationship between the Commission and BofA management, whereby the Commission would claim a much-needed enforcement trophy, BofA would avoid further investigation, and the check would be picked up by the shareholders.

Judge Rakoff’s opinion points up the problem that few others in this age of good corporate governance tackle:  namely that the cost of many feel-good reforms is inevitably borne by the shareholders for whom so many corporate governance experts and regulators cry crocodile tears.

Perhaps we can begin now to think about corporate governance reform as something other than a free good and evaluate proposals in that light.  After that,  maybe we can advance to another related matter:  that people, not corporations, pay taxes and that efforts to stick it to corporations inevitably result in the costs being borne by individuals.

ABC opposes the SEC’s proxy access  proposal and our comment letter explaining our pespective can be found here.