Taxation of Carried Interest • Hacker News Board

Re: Taxation of Carried Interest

#251

Post by briandear » Sun, Jun 10, 2018, 10:37 PM UTC

Retric wrote: post #218

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…

Alternatively, investments should have much higher tax rates. If someone invested money then they clearly did not need it, thus they need returns even less. Really, you can try to justify any tax policy by reframing the question, but the root argument breaks down to having other people pay more so I pay less which is never really justified.

So a teacher’s 401k is money they don’t really need? Because that’s an investment too you know.

Re: Taxation of Carried Interest

#252

Post by bzbarsky » Sun, Jun 10, 2018, 10:41 PM UTC

Retric wrote: post #218

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…

Alternatively, investments should have much higher tax rates. If someone invested money then they clearly did not need it, thus they need returns even less. Really, you can try to justify any tax policy by reframing the question, but the root argument breaks down to having other people pay more so I pay less which is never really justified.

This is an incredibly anti-savings policy, given that we have central banks ensuring positive inflation (except in Japan) and capital gains are calculated in nominal, not real terms.

In other words, if you just hold some money for a few years and it doesn't lose value (interest rate equals inflation), you _already_ owe tax on it. That's just broken.

If we did capital gains in inflation-adjusted dollars, the situation would be somewhat different.

Re: Taxation of Carried Interest

#253

Post by bzbarsky » Sun, Jun 10, 2018, 10:43 PM UTC

phkahler wrote: post #209

chii wrote: post #171

Earlier quoted context omitted.

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.

>> 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. No. Selling is how investors get out. No need for a higher price because they presumably got a return via dividends. If there's no increase in stock price, there will be no capital gains on the sale price either. Reinves…

> If there's no increase in stock price

Then the value of the company (and the expected dividend stream) presumably fell, in real terms, because inflation is typically nonnegative.

Re: Taxation of Carried Interest

#254

Post by bzbarsky » Sun, Jun 10, 2018, 10:46 PM UTC

phkahler wrote: post #155

tim333 wrote: post #146

Earlier quoted context omitted.

Say you buy a house for $1m. You then want to move to an identical house in another location and houses now cost $2m. By moving, on a basic capital gains tax calculation you have a profit of $500k and a tax bill of say $200k. But you don't have $200k and can't move. This not a good situation hence various fixes. That particular problem does not come up with income although there are other problems there. Tax is messy…

So provide an exemption for primary residences. There is a similar concern with stock sales causing tax payment, but in that case it's an incentive for longer term investment. You goose quote is really awesome. On a related note, I think we need to stop providing incentives for housing prices to go up. Municipalities could put caps on the percentage of value they'll enforce a lean on. This would reduce housing costs…

This is a problem for all assets, not just primary residences.

> I think we need to stop providing incentives for housing prices to go up.

While true, the main such incentive historically is inflation: housing prices have been growing at about the rate of inflation in the long run, averaged over the US.

Re: Taxation of Carried Interest

#255

Post by [deleted] » Sun, Jun 10, 2018, 10:46 PM UTC

thinkcontext wrote: post #243

harryh wrote: post #230

Earlier quoted context omitted.

(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.

[deleted]

Re: Taxation of Carried Interest

#256

Post by taysic » Sun, Jun 10, 2018, 10:49 PM UTC

WalterBright wrote: post #53

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…

1. The higher the capital gains tax rate, the less money will be invested. 2. Higher rates make for less efficient economics, because people will hold on to poorly performing investments longer. 3. A big chunk of capital gains are actually inflation.

1. The higher the capital gains tax rate, the less money will be invested.

Wouldn't that also be true if they don't have alternatives to invest? What are those alternatives?

2. Higher rates make for less efficient economics, because people will hold on to poorly performing investments longer.

Why does it matter to the government/citizens if some investments are held onto for too long? What hit would the gov take?

3. A big chunk of capital gains are actually inflation.

So?

Re: Taxation of Carried Interest

#257

Post by conanbatt » Sun, Jun 10, 2018, 11:43 PM UTC

rpedela wrote: post #244

conanbatt wrote: post #238

Earlier quoted context omitted.

> 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 powerfu…

> 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.

There is little merit in name of a tax that it gets to "the majority of people". It can fail equitability super hard because of who pays the economic burden of the tax.

> 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.

Sorry, but this is just not economic thinking, not even of the wrong kind. If the burden of a tax is on consumers, your assertion falls hard. If it falls on workers, then you are punishing labor. If it falls on investors you are punishing investment. "Being powerful parts of society" is not an argument for taxation.

Re: Taxation of Carried Interest

#258

Post by rpedela » Mon, Jun 11, 2018, 12:15 AM UTC

conanbatt wrote: post #257

rpedela wrote: post #244

Earlier quoted context omitted.

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 powerfu…

> 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. There is little merit in name of a tax that it gets t…

I think you and I fundamentally disagree on what a tax is. You seem to view it as punishment or a burden. I view it as the method for paying for things that help the collective good. Not a punishment but rather a duty for those with the means. If we aren't using taxes to collectively protect society (e.g. military, police, courts), help the less fortunate, etc then why collect them at all? The richer the entity (individual or business), the more means they have and the more they actually benefit from those taxes even if they have to pay them.

EDIT

Just to add, if you agree we need taxation to have functioning society, why wouldn't we get the money from the richest? Why wouldn't we put the burden on the richest? In terms of people inside rich organizations, it is only the already rich, owners and investors, which would feel the burden. Supply and demand will continue to give consumers high quality and low prices. Employees will still get their market-rate wages or minimum wage for low-skill jobs.

Re: Taxation of Carried Interest

#259

Post by conanbatt » Mon, Jun 11, 2018, 12:44 AM UTC

rpedela wrote: post #258

conanbatt wrote: post #257

Earlier quoted context omitted.

> 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. There is little merit in name of a tax that it gets t…

I think you and I fundamentally disagree on what a tax is. You seem to view it as punishment or a burden. I view it as the method for paying for things that help the collective good. Not a punishment but rather a duty for those with the means. If we aren't using taxes to collectively protect society (e.g. military, police, courts), help the less fortunate, etc then why collect them at all? The richer the entity (indi…

> think you and I fundamentally disagree on what a tax is. You seem to view it as punishment or a burden. I view it as the method for paying for things that help the collective good. Not a punishment but rather a duty for those with the means. If we aren't using taxes to collectively protect society (e.g. military, police, courts), help the less fortunate, etc then why collect them at all? The richer the entity (individual or business), the more means they have and the more they actually benefit from those taxes even if they have to pay them.

A tax IS a punishment. It is a charge not reciprocated by a service to the person that pays for it. Collective goods dont require individualized sacrifices, just individual collaborations. But okay, we can divert ideologically on that point, but nevertheless any effect of taxation is a cost on the person paying for it, and will have the same effects to him as if the person lost the taxed money into the abyss.

> Just to add, if you agree we need taxation to have functioning society, why wouldn't we get the money from the richest? Why wouldn't we put the burden on the richest? In terms of people inside rich organizations, it is only the already rich, owners and investors, which would feel the burden. Supply and demand will continue to give consumers high quality and low prices. Employees will still get their market-rate wages or minimum wage for low-skill jobs.

I think I've always had a curious thought about the idea of not discriminating minorities, except for the rich, you better discriminate those! If we can agree at least that taxation is the cost of government, why should the cost of government only come from a section of society? A society that achieves to make a part of it responsible for its whole will not thrive in collaboration and cohesiveness. A society where some expect to make a living at the others expense is not a free one.

In economic terms, there are multiple criteria on measuring how good a tax is. There is of course how the burden affects the person itself, but also how efficient it is to levy it, how convenient it is to pay or how predictable it is. Satisfying multiple criteria will not give you much room to tax "the rich".

There are normative arguments as well: just placing a tax on the rich doesnt mean you'll be able to raise that money, as the rich have the highest recourse to escape. Human beings are very hard to corner!

Re: Taxation of Carried Interest

#260

Post by Arbitrary4657 » Mon, Jun 11, 2018, 12:44 AM UTC

stealthmodeclan wrote: post #174

kisstheblade wrote: post #131

Earlier quoted context omitted.

By all means he deserves more money, no problem. But why with a lower tax rate?

By all means he deserves more money, no problem. But why with a lower tax rate? Low tax rate can be seen as a discount from society. So, how else do we incentivize him if not by lower tax rate? And if we don't, he will just take a lazy job and continue earning his paycheck.

Incentivize him to make money for himself? I'd like a discount from society for doing that myself. How much does Romney actually contribute to society as a whole by making so much money for himself? Why does he deserve a discount?