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Taxation of Carried Interest

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Re: Taxation of Carried Interest

#241

Post by merinowool »

blackguardx wrote: post #175
merinowool wrote: post #169

Earlier quoted context omitted.

I would argue that income tax is immoral - the more you care and provide for the society - the more you are punished for it. Only fair tax I can think of is a poll tax, where everyone pays the same amount regardless of their income. With this model you could think of giving 100% discount to those who can't afford it.

People at the top are usually getting more benefits from society, so they should pay more. Jeff Bezos's riches from Amazon couldn't exist without a vast highway network, regulated airspace, stable government, etc. A person digging ditches or picking strawberries in the central valley can do that without many of the previous benefits.

You are going to the extremes - most wealthy people don't pay taxes or pay what they think is right. Who is getting shafted is the middle class that pays for everyone and is bleeding money, because the poor enjoy number of benefits and exemptions and the rich can afford loopholes.

Re: Taxation of Carried Interest

#242

Post by savanaly »

colanderman wrote: post #219
savanaly wrote: post #208

Earlier quoted context omitted.

I think what we're really upset about when it comes to rich people making a lot of money through investments is not that interest isn't taxed more, but rather that they had such a high (non-investment) income in the first place. In fact, I think there should be zero investment taxes. My reasoning goes like this: If I would rather have two coconuts seven years from now than one coconut today, and I'm willing to find s…

Your post belies one of the most harmful stereotypes that many rich and right-leaning people hold, that the poor would simply "rather have just one coconut today", and it's due only to their own short-sightedness and lack of impulse control that that they are poor. For many people, it's not a fucking choice. It's eat your last coconut or starve until your next paycheck. The recent story on HN about performance on the…

I read the tone of your post as angry disagreement, you seem to be agreeing with me? My point was

>I think what we're really upset about when it comes to rich people making a lot of money through investments is not that interest isn't taxed more, but rather that they had such a high (non-investment) income in the first place.

And people having different levels of income is definitely at the heart of your objection. Rich people tend to have more flexibility with regard to their ability to choose future consumption over current. The problem we have with that is that they're rich enough to do that, not that they are making that tradeoff. The tradeoff is inherently benign and should not be discouraged through taxation.

Re: Taxation of Carried Interest

#243

Post by thinkcontext »

harryh wrote: post #230
thinkcontext wrote: post #223

Earlier quoted context omitted.

No, you have risked nothing but your time. Since you have no investment at risk you should not get preferential tax treatment meant to encourage you to do so.

(I think you might have inverted the "I" and "you" in my scenario making your comment a bit confusing. But I think I understand the point you were intending to make.) Why is the risking of money deserving of special tax treatment but not the risking of time?

I personally don't think it is but that is the logic used to justify the capital gains tax.

Re: Taxation of Carried Interest

#244

Post by rpedela »

conanbatt wrote: post #238
rpedela wrote: post #199

Earlier quoted context omitted.

If we are going to massively simplify taxes, then it needs to be done on the richest rather than the poor like a consumption tax does. By rich, I don't necessarily mean rich individuals. The richest entities in society are businesses and they benefit the most when you or I have money in our pockets. If you think about it, the most common federal tax on individuals or families, income wage taxes, is in fact a revenue…

> The richest entities in society are businesses I can never get this narrative. A business is an organization of people, of investors workers and consumers. You cant offload taxes to an abstract business, you are putting it on one of the groups of people above.

Yes except that the vast majority of the population are part of the businesses in some manner so if you tax all businesses then you are taxing the whole population (or vast majority). And as I said, personal income taxes on wages are actually a business tax. The requirement to provide workers comp, healthcare is a business tax. Businesses are taxed all the time.

And those groups of people are financially more powerful collectively than individuals which means those groups of people have a responsibility to help pay for society which they benefit directly from such as roads, power cables, etc.

If only one or a very small group "abstract business" was required to pay all the taxes for the entire society, then I would agree with you. However no one is arguing that.

Re: Taxation of Carried Interest

#245

Post by SomewhatLikely »

savanaly wrote: post #208
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 think what we're really upset about when it comes to rich people making a lot of money through investments is not that interest isn't taxed more, but rather that they had such a high (non-investment) income in the first place. In fact, I think there should be zero investment taxes. My reasoning goes like this: If I would rather have two coconuts seven years from now than one coconut today, and I'm willing to find s…

The problem comes when you are contributing labor to the underlying asset. In this case you can forgo wages in lieu of capital and that labor should be taxed the same as anyone else's.

Re: Taxation of Carried Interest

#246

Post by briandear »

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…

What are the unintended consequences of that? If a capital gain gets taxed at 35%, it follows that you will have less incentive to seek capital gains in higher risk investments. Look at the paucity of VC and angel investing in France for example — extremely high capital gains taxes result in much more conservative investing and thus a relative lack of funding for startups. Much startup investment is from quasi-government programs that require Byzantine and Kafka-esque processes that favor “safer” businesses that fit in with central planned priorities rather than businesses that might become truly disruptive.

It’s simplistic to suggest making tax rates the same. Capital gains are what drive investment. Increase the tax on investment and naturally, you will get less investment. Capital gains are a reward for risking capital. You lower the reward, you will create a reduction in investment — which has a much more deleterious economic effect than the marginal gain achieved from raising the tax.

Re: Taxation of Carried Interest

#247

Post by briandear »

zacharycohn wrote: post #204
bingoboingo33 wrote: post #200

Earlier quoted context omitted.

"If we are going to massively simplify taxes, then it needs to be done on the richest" Why? This is a built-in assumption most people seem to be operating with and I've never understood the rationale that the rich should pay more. Does a rich person wear roads out more than a poor one? And if they do, wouldn't it be better if they paid for how much they wear the road down? As in: a percentages of miles driven on it?…

If you pay 10% on $100,000 a year, you have 90,000 left over. Plenty of money to live comfortably and have your needs met. If you pay 10% on $20,000, you have $18,000. It was already hard to live on 20k, living on 18k and having your needs met is even harder. Your examples reveal your bias. Most people don't make $100,000. And it's the "most people" that you would impact hardest with the flat tax scheme.

If you looked at the Ted Cruz tax plan from the 2016 campaign, he advocated for a 10% tax on individuals with a high standard dedication and a 16% tax on business income. Taxpayers making under $50k would have paid zero under his plan.

It is possible to do a flat tax while protecting the poor.

But, as Milton Friedman said, the tax code is complex for a reason — it gives politicians a means to exert power and reward or punish. With a simple tax code, the incentive to donate to campaigns would be reduced. The Democrat and Republican establishment both oppose simplifying the tax code because they would be killing the golden geese that keep getting them re-elected. It’s no accident that the tax code changes literally every year. Politicians are busy rewarding or punishing constituencies.

Re: Taxation of Carried Interest

#248

Post by xapata »

chii wrote: post #171
phkahler wrote: post #158

Earlier quoted context omitted.

A hundred times this. If your plan is make money by selling at a higher price, you're playing the greater-fool game. If you make your return via dividends, it is a direct reflection of the value of the company.

but how does that system allow for a company that re-invest all profits into growing, if doing so is a tax disadvantage? selling at a higher price is how investors "get out" of the game, but allow other investors to "take over the reigns", all without the company having had to pay out dividends at inopportune times.

Long term investors might buy shares if they expect high dividends in the future. Eventual profit, not immediate profit.

It's not a tax disadvantage if the expectation is that the bulk of the income eventually comes from dividends, even if that time is 10 years down the road.

Re: Taxation of Carried Interest

#249

Post by briandear »

colanderman wrote: post #219
savanaly wrote: post #208

Earlier quoted context omitted.

I think what we're really upset about when it comes to rich people making a lot of money through investments is not that interest isn't taxed more, but rather that they had such a high (non-investment) income in the first place. In fact, I think there should be zero investment taxes. My reasoning goes like this: If I would rather have two coconuts seven years from now than one coconut today, and I'm willing to find s…

Your post belies one of the most harmful stereotypes that many rich and right-leaning people hold, that the poor would simply "rather have just one coconut today", and it's due only to their own short-sightedness and lack of impulse control that that they are poor. For many people, it's not a fucking choice. It's eat your last coconut or starve until your next paycheck. The recent story on HN about performance on the…

Your claim that capital gains taxes could be 99% and you’d still be better off by investing makes no sense. Because why would you risk $1,000,000 — money that you could completely lose, for the chance to earn $10,000 after taxes? That would be an insane thing to do. You would be better off simply burying the money in the backyard.

Re: Taxation of Carried Interest

#250

Post by briandear »

colanderman wrote: post #226
bluecalm wrote: post #225

Earlier quoted context omitted.

You wouldn't be ahead because there is risk in investing. The biggest capital gain tax the less sense it makes to invest. That's why the capital gain tax rate is different than income tax. Making capital gain tax progressive is a recipe for not getting any more investment from private citizens.

Since when do you pay taxes on capital losses?

You don’t. But you lose the money. Risking $10 to make $10 is much different that risking $10 to make $0.10.

You are more willing to invest at 1:1 odds than you are 100:1. Especially since the odds actually don’t reflect the actual risk of the investment itself. 100:1 on a sure thing is better than 1:1 on something that is very high risk. However, no investment is a sure thing. There is a non-zero level of risk in any investment, so if the payoff doesn’t match the risk, you simply will put the money under your mattress.

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