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Taxation of Carried Interest

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Re: Taxation of Carried Interest

#181

Post by Alex3917 »

stealthmodeclan wrote: post #128
Alex3917 wrote: post #10

Earlier quoted context omitted.

> I don't necessarily buy this argument Why should risking time and risking money get taxed at different rates? I guess I don't understand the argument for why LPs should pay less taxes than GPs. Especially since entrepreneurs get to pay longterm capital gains on their stock, and the risk profile of being a founder is basically identical to the risk profile of being a GP.

Why should risking time and risking money get taxed at different rates? GP gets 2% in management fees. That's a guaranteed return for his time. Then 20% of the profits.

> GP gets 2% in management fees.

Only at the most senior level. Most GPs only get carry, and then maybe 40 - 60k a year of salary if they get any salary at all.

And for the ones that do get management fees, they pay normal taxes on that.

Re: Taxation of Carried Interest

#182

Post by treis »

jdhn wrote: post #179
chii wrote: post #165

Earlier quoted context omitted.

so the the question becomes 'why municiple bonds are not taxed?'

Because if they were taxed, municipalities would see their interest rates skyrocket. Having municipal bonds be free of taxation benefits the investor (they don't pay income tax), the municipality (more people will be interested in the bonds, hence lower interest rates), and the citizens of the municipality (their tax rates won't go up as quickly).

Seems like a wealth transfer from municipalities that don't borrow heavily to those that do.

Re: Taxation of Carried Interest

#183

Post by DenisM »

millstone wrote: post #31

What is the modern argument for preferential tax treatment of capital gains? Arguments against it seem compelling to me: 1. The American dream is achievement through hard work. But taxation of capital gains privileges ownership over labor. That's just un-American. 2. This preferential taxation creates an anti-productive industry dedicated to re-casting ordinary income as capital gains, leading to misallocation of res…

It used to be that we had shortage of capital for large projects. So capital accumulation was incentivized over consumption. This is probably no longer true with some companies sitting on hundreds of billions of dollars, but the system persists.

Re: Taxation of Carried Interest

#184

Post by MR4D »

freeone3000 wrote: post #110
MR4D wrote: post #48

Earlier quoted context omitted.

Uh, what? You want to make it more expensive to increase productivity? (Because that’s what capital does - it gets invested to increase profits). The logical path you’re going down would replace road builders with people with spoons to move dirt around and file down rocks with spoons to put them in the ground to walk on. Seriously, if you consider the logical conclusion of your argument, we end up in madness.

That's nonsense. The gains of investing in a work crew still make money for capital. They still get their income. The increase in productivity is its own reward - the road gets built faster or with less labor, you're able to out-bid your competition. It makes more sense to extract money from the people who contributed money than from people who contributed labor.

Nonsense?

#1 You’ve just discouraged capital investment.

#2 you’ve just agreed with my initial statement that there is a reason carried interest is taxed the way it is. If you tax capital more than labor, then by definition, carried interest is fine, because the people who pay it ARE THE PEOPLE DOING THE LABOR!!

Seriously, I realize that this is an emotional topic for many people, but you have to think through the second order effects. The first effect is pretty simple, but in this case the second order impacts have all sorts of ramifications.

I’m fine with people having their opinion and feeling that something is right or wrong - that’s healthy. What’s not healthy is having an opinion that is either self-contradicting, or made out of frustration.

Think through the scond order effects. Harry’s gave a great exam-let that showed just one simple version. There are tons more.

Re: Taxation of Carried Interest

#185

Post by imgabe »

madeofpalk wrote: post #173
chii wrote: post #167

Earlier quoted context omitted.

But for a company, they can claim taxes on expenses such as rent, but for an individual, they couldn't.

Well rent isn't an expense directly occurred while earning income. It isn't a cost of doing business.

It's hard to do any business when you're homeless. Likewise you can't do any business while you're starving.

A company's rent for their office space is considered a business expense. That's what I'm proposing for individuals. Each person is an individual "business" selling their services on the open market. Every expense that is necessary for them to be able to do that should be deductible.

Re: Taxation of Carried Interest

#186

Post by jdhn »

treis wrote: post #182
jdhn wrote: post #179

Earlier quoted context omitted.

Because if they were taxed, municipalities would see their interest rates skyrocket. Having municipal bonds be free of taxation benefits the investor (they don't pay income tax), the municipality (more people will be interested in the bonds, hence lower interest rates), and the citizens of the municipality (their tax rates won't go up as quickly).

Seems like a wealth transfer from municipalities that don't borrow heavily to those that do.

I agree. However, I can't see the situation changing anytime soon.

Re: Taxation of Carried Interest

#187

Post by Applejinx »

stealthmodeclan wrote: post #117
beat wrote: post #54

The correct solution to this problem is to abolish the distinction between capital gains and ordinary income (ie wages), and abolish the corporate income tax that justifies the "double taxation" argument that justifies the capital gains rate. Capital gains is why Mitt Romney can make 200 times as much as I do in a year, and pay half my effective tax rate. This is broad across the economy. It's a fundamentally immoral…

I don't have problem with rich people making more money. After all capital should go to people who can best use it. Did you also create as much as value as Mitt Romney? As many jobs created? If not then i think he deserves more money, so that he can continue doing that. If James and Bob both make $100 but James invested that money into company (which used his capital to create more jobs) while Bob simply hold onto th…

We are (literally or figuratively) in Silicon Valley, disrupting everything.

Why is anybody suggesting that innovating in the form of investment into companies, is creating jobs? Value, yes, by definition since it produces enormous wealth done properly. Why would anybody think this behavior creates jobs when ideally it tends to eliminate ALL jobs and charge eagerly into that Star Trek future?

'capital investment creates jobs' is a completely outdated concept that will never, ever return to validity.

Re: Taxation of Carried Interest

#188

Post by Shivetya »

beat wrote: post #54

The correct solution to this problem is to abolish the distinction between capital gains and ordinary income (ie wages), and abolish the corporate income tax that justifies the "double taxation" argument that justifies the capital gains rate. Capital gains is why Mitt Romney can make 200 times as much as I do in a year, and pay half my effective tax rate. This is broad across the economy. It's a fundamentally immoral…

Corporate income tax is just an indirect tax on the populace.

regardless, just flat tax all income equally and refund everyone a set amount that can be adjusted as needed. In other words, use the old flat tax that some have pushed to get your tax equality and basic income in one step. (no cap on income or tax from it)

in this day and age the computational power and such is such that we can easily do it all.

the reason it won't? because a flat tax/etc takes power away from politicians who use the tax code to punish and reward, it never has been fair

Re: Taxation of Carried Interest

#190

Post by Applejinx »

wycs wrote: post #153
etaty wrote: post #124

Capital gain tax or income gain tax are designed to make the wealthy wealthier. Don't tax "gain", tax the "wealth". This will make it harder and harder to hoard wealth as you gain wealth. Every other "tax" can then be removed. So with the "wealth" taxt, every year you sum all your possessions and you give X% (20%?) to the government. This look simple enough to me, did any country try that?

20% wealth tax per year? Think about what you are saying. The state would own everything after 20 years.

Yeah, it would work great and incentivize all the right things, but you wouldn't need anywhere NEAR that. Given that this would apply to individuals and companies (all forms of abstraction and consolidation), have it be 1 (one) percent.

Then if you're doing complicated finances to get all you can out of three different entities, you pay 3 percent wealth tax. And if you have basically nothing, you don't have any of these entities or holding companies so you pay just your personal one percent wealth tax.

Getting the corporate shield from personal liability would be well worth double dipping the one percent.

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