The Way We Live Now II
Predictably, members of Congress from New York, New Jersey and Florida have begun to agitate for taxpayer relief for people who lost money with Bernie Madoff. Which is to say that they want to take money from people who could never have afforded to get into the Madoff investment club, and/or did not put their money in with a guy who produced magical 15% returns every year with close to zero variance and were surprised that this was riskier than advertised, and give it to wealthy people who lost money in this investment vehicle.
Rep. Kendrick Meek (D-FL) noted that his proposal for special tax relief “would benefit elderly investors who parked money with Madoff and others for years.” What about all those blind elderly WWII combat veterans who had invested the money they saved from working in a dry cleaner for 45 years with Madoff so that they could have as much money as possible to give to small children with incurable diseases?
Of course it is outrageous. And of course I’m happy to have any excuse to be outraged. But this has a very same as it ever was feel to it, and with every revelation of who’s tab I’m being asked to pick up, I find it harder and harder to get worked up. (Oh wait, I’m getting a tax cut. It’s my children who are being handed the bill.)
Anyway, of course NY, NJ, and FLA representative are agitating on behalf of their constituents. (Some of them live in my town and used to give lots of money to our community center. Tax relief or not, I expect we’ll have to wait till the next boom to get that pool we were all looking forward to swimming in during the long grey Winter.)
The way we live now? Has it ever really been any different?
— Tony Comstock · Mar 17, 03:02 PM · #
To be clear, what these Congressmen are looking for is “taxpayer relief” in the sense that Madoff investors were taxpayers, who paid taxes on what they believed to be their “earnings” for many years, and who are now looking for a refund of the taxes they paid on that nonexistent income. Under existing law, to the extent they paid taxes in recent years, they will be able to recover those taxes. However, they would need a change in law to go back further in time. (They’d also like to be able to claim theft losses in prior years, which is apparently something the tax code is vague on.)
I don’t really have a view on whether this is a good idea or not, but it seems like something less than a straight-up bailout for investment losses.
FWIW, I tend to think that very little if anything should be done for charities that were invested with Madoff, which is the subject of another proposal.
— alkali · Mar 17, 05:15 PM · #
If my neighbor paid taxes on income that was never received, and so they want that tax money back, how is that taking money out of my pocket? Isn’t this exactly like the government keeping my tax return (i.e., I didn’t estimate my income correctly so I overpaid, and I’m owed the difference)?
— bcg · Mar 17, 06:22 PM · #
I have no problem refunding them tax payments on income that never existed. I do have a problem with the government stepping in to make them whole in any way other than by seizing and distributing Madoff assets.
— Serolf Divad · Mar 18, 07:39 PM · #
Some $60B of money funneled into Madoff is still missing. A lot of that money is from banks and hedge funds. Why do I have the feeling that money is waiting in the Caymens for the bank and hedge fund managers to retrieve at a time of their choosing?
I don’t have a problem with some relief for smaller investors (I know where the IRS can find $165M to send their way) but it needs to be limited to those whose net worth is now below some reasonable threshold. But I’m surprised the government is moving at all without having found the rest of that money.
— Martin · Mar 18, 07:46 PM · #
You’re wrong that this is different. If I earned income (say $1M) and paid taxes on it, and invested it in a mutual fund, and it is now gone, I have NO WAY to go back and get back the taxes on money that no longer exists.
The IRS is saying that if you put that $1M in Madoff and lost it, you can deduct the entire $1M against your total income, not just now, but going back five years, and pay NO taxes until your $1M is paid off.
For the guy who lost his money in the tumult of 2008, he has to take only $3,000 a year against ordinary income; his $1M will take 330 years to reclaim.
Either kill the Madoff fix or, better yet, allow all capital losses (realized losses, not dips in price) be taken against ordinary income.
— Michael · Mar 18, 09:59 PM · #
Whoa, hold the outrage and try to understand for a second. The IRS is not making substantial new policy for Madoff victims. Taxpayers always could claim a ‘theft loss’ against their income. Losses by Madoff appear to have been “thefts” and NOT investment losses. The IRS is merely clarifying how and when victims can claim these theft losses.
— Dave · Mar 18, 10:31 PM · #
These people chose to become members of Bernie’s super-secret “I’m Better Than You Club”. It’s not up to the rest of us to compensate them for their greed and lack of due diligence.
— tuna · Mar 19, 02:54 PM · #