Steve Kornacki, “The Red and The Blue”

Steve Kornacki discusses his book, “The Red and The Blue, at Politics and Prose on 10/5/18. Kornacki’s lively political history of the 1990s is both an absorbing chronicle of the parallel rises of Bill Clinton and Newt Gingrich and a look at some of the key events, debates, and figures that laid the ground for today’s political landscape. In many cases—Trump, Schumer, Hillary Clinton—the cast of characters overlaps both eras. Kornacki, national political correspondent for NBC News and MSNBC, shows how, for instance, Ross Perot’s 1992 presidential bid gave Trump his first taste of electoral politics in 1999, and how Hillary Clinton’s role in the 1998 midterm elections put her on track to run for the Senate two years later. Kornacki is in conversation with Hallie Jackson, NBC’s chief White House correspondent.

Joe Biden Used Tax-Code Loophole Obama Tried to Plug

Democratic presidential candidate Joe Biden used a tax loophole that the Obama administration tried and failed to close, substantially lowering his tax bill.

Mr. Biden and his wife, Dr. Jill Biden, routed their book and speech income through S corporations, according to tax returns the couple released this week. They paid income taxes on those profits, but the strategy let the couple avoid the 3.8% self-employment tax they would have paid had they been compensated directly instead of through the S corporations.

The tax savings were as much as $500,000, compared to what the Bidens would have owed if paid directly or if the Obama proposal had become law.

There’s no reason for these to be in an S corp—none, other than to save on self-employment tax,” said Tony Nitti, an accountant at RubinBrown LLP who reviewed the returns.

“As demonstrated by their effective federal tax rate in 2017 and 2018—which exceeded 33%—the Bidens are committed to ensuring that all Americans pay their fair share,” the Biden campaign said in a statement Wednesday.

The technique is known in tax circles as the Gingrich-Edwards loophole—for former presidential candidates Newt Gingrich, a Republican, and John Edwards, a Democrat—whose tax strategies were scrutinized and drew calls for policy changes years ago. Other prominent politicians, including former President Barack Obama and fellow Democrat Hillary Clinton, as well as current contenders for the 2020 Democratic nomination Sens. Elizabeth Warren and Bernie Sanders, received their book or speech income differently and paid self-employment taxes.

Some tax experts have pointed to pieces of President Trump’s financial disclosures and leaked tax returns to suggest that he has used a similar tax-avoidance strategy.

Unlike his Democratic rivals and predecessors in both parties, Mr. Trump has refused to release his tax returns, and his administration is fighting House Democrats’ attempt to use their statutory authority to obtain them. Democratic presidential candidates have released their tax returns and welcomed criticism to draw a contrast with Mr. Trump.

Mr. Biden, who was vice president from 2009 to 2017, has led the Democratic field in polls since entering the race. He is campaigning on making high-income Americans pay more in taxes and on closing tax loopholes that benefit the wealthy.

Mr. Biden has decried the proliferation of such loopholes since Ronald Reagan’s presidency and said the tax revenue could be used, in part, to help pay for initiatives to provide free community-college tuition or to fight climate change.

We don’t have to punish anybody, including the rich. But everybody should start paying their fair share a little bit. When I’m president, we’re going to have a fairer tax code,” Mr. Biden said last month during a speech in Davenport, Iowa.

The U.S. imposes a 3.8% tax on high-income households—defined as individuals making above $200,000 and married couples making above $250,000. Wage earners have part of the tax taken out of their paychecks and pay part of it on their returns. Self-employed business owners have to pay it, too. People with investment earnings pay a 3.8% tax as well.

But people with profits from their active involvement in businesses can declare those earnings to be neither compensation nor investment income. The Obama administration proposed closing that gap by requiring all such income to be subject to a 3.8% tax, and it was the largest item on a list of “loophole closers” in a plan Mr. Obama released during his last year in office. The administration estimated that proposal, which didn’t advance in Congress, would have raised $272 billion from 2017 through 2026.

Under current law, S-corporation owners can legally avoid paying the 3.8% tax on their profits as long as they pay themselves “reasonable compensation” that is subject to regular payroll taxes. S corporations are a commonly used form for closely held businesses in which the profits flow through to the owners’ individual tax returns and are taxed there instead of at the business level.

The difficulty is in defining reasonable compensation, and the IRS has had mixed success in challenging business owners on the issue. The Bidens’ S corporations—CelticCapri Corp. and Giacoppa Corp.—reported more than $13 million in combined profits in 2017 and 2018 that weren’t subject to the self-employment tax, while those companies paid them less than $800,000 in salary.

If the entire amount were considered compensation, the Bidens could owe about $500,000. An IRS inquiry might reach a conclusion somewhat short of that.

“The salaries earned by the Bidens are reasonable and were determined in good faith, considering the nature of the entities and the services they performed,” the Biden campaign statement said.

For businesses that generate money from capital investments or from a large workforce, less of the profits stem from the owner’s work, and thus reasonable compensation can be lower. For businesses whose profits are largely attributable to the owner’s work, the case for reasonable compensation that is far below profits is harder to make.

To the extent that the Bidens’ profits came directly from the couple’s consulting and public speaking, “to treat those as other than compensation is pretty aggressive,” said Steve Rosenthal, a senior fellow at the Tax Policy Center, a research group run by a former Obama administration official.

Mr. Nitti said he uses a “call in sick” rule for his clients trying to navigate the reasonable-compensation question: If the owner called in sick, how much money could the company still make?

“The reasonable comp standard is a nebulous one,” Mr. Nitti said. “This is pretty cut and dried. If you’re speaking or writing a book, it’s all attributable to your efforts.”

The IRS puts more energy into cases where the business owners pay so little reasonable compensation that they owe the full Social Security and Medicare payroll taxes of 15.3%, Mr. Nitti said.

In a statement released Tuesday along with the candidate’s tax returns, the Biden campaign noted that the couple employs others through its S corporation and calls the companies a “common method for taxpayers who have outside sources of income to consolidate their earnings and expenses.”

Joe Biden and Hillary Clinton Generate Very Different Emotional Responses from Republicans

Biden not only doesn’t generate the emotional response Hillary did, his nomination would constitute the Democrats broadcasting to the world that they have not (yet) embraced socialism, and they have not (yet) fully-embraced the woke culture of the Online Left. So how would the Republicans generate the kind of Flight 93 urgency that helped Trump (very narrowly) beat Hillary? I’m not sure. In fact, if Joe Biden can win his way through the primaries, he’s almost lab-engineered to beat Trump. He doesn’t cause Republican panic, he has the potential to connect with white working-class voters in a way that Hillary couldn’t in 2016, and he has a potential to connect better with black voters than Hillary did.

Uncle Joe’s Family Web

.. Biden’s appeal for 2020 is that he comes across as a warm, blue-collar, touchy-feely paternal figure, sometimes talking too much, sometimes saying the wrong thing, like calling parts of Asia “the Orient.” At 76, he’s been through it all, and then some.

.. But as he prepares to present himself as a seasoned patriarch who can lead the country in a smooth, classy way, unlike the current occupant of the Oval, he must grapple with the painful reality of his life as the head of a family that has messily spilled into the tabloids, a brood that is still brooding and suffering the reverberations of 46-year-old Beau Biden’s death from brain cancer in 2015.

.. Grief aside, Barack Obama and his coterie of top aides did not think the vice president was the right person to protect and extend the Obama legacy.

But there was a school of thought that, given the monumental effort it took to dismantle the Clinton machine, it would be better to move on from Hillary. Some Biden allies felt that his powerful story of rising above personal loss — his first wife and infant daughter died in a car crash just before Christmas in 1972 — could be a superpower to connect with suffering Americans and that such a raw quest would be good therapy for him.

But Obama felt differently. He could make it up to Hillary and feminist activists for hopscotching over the New York senator who might have blown out the glass ceiling in 2008.

Also, Obama and his strategists thought Biden had hit his ceiling, had his day, had too many gaffes. Hillary, Obama thought, was an impressive and loyal cabinet member who was great in meetings.