Taxation of Carried Interest

In my town, in addition to the normal local taxes, there is a special greenery fee/tax that all residents must pay. It is only $25/year. The purpose is to pay the upkeep of all the green spaces which there are many. I happily pay this because I like to walk through these green spaces. Individually there is no way that $25/year would pay for that, but collectively the town can afford to and it improves living here for all the residents.

There are of course many examples where tax money is not used wisely, but there are also many examples where it is. We should get better at spending it wisely which is of course easier said than done. But to say that taxes are like throwing money into the abyss just doesn't stack up to the data.

I build a company. Work my fingers to the bone for years, and take a significantly reduced salary compared to my market value. Later I sell it for a billion dollars.

That is taxed as long term capital gains. Are you saying that’s passive? Sure, you buying a few shares of Ford is passive, but tons of capital gains like in my example are not.

Also, you comment “that came out fine” is rather flippant. When you dominate the world after a world war, pretty much everything is going to go your way, whether you tax income at insane rates or make black people drink from separate fountains. Both occurred in the same time period. If you use you’re argument that “things worked out fine”, why not also keep that around? I think the reason is we’ve managed to see that correlation doesn’t drive our decisions there. And they shouldn’t in taxation either.

I'm a software engineer. My company assigns me a Macbook Pro and iPhone with data plan to do my work, use 2-factor auth, and answer PagerDuty. It doesn't make any effort to stop me from using these devices as my personal daily drivers. Anecdotally, my coworkers do. If you're the kind of person to buy a new Mac and iPhone every 2 years, having the company do it for you saves $1500+/yr. Is that compensation? Maybe it depends on how the devices are used. Well, now you've got the tax authorities poring over MDM logs trying to tell how many minutes of screen-on time were business vs. personal. Yikes.

I've been a field technician. We had a pool of company cars at the office for visiting client sites. For some jobs, it did not make geographical sense to drive my personal car to the office and switch, so a company car became my daily commuter for a while. Was this compensation? If the company car was ever the most readily accessible in the driveway, I may even have used it for a purely personal errand in the evening. Would it have been compensation then? Maybe it depends on what proportion of use this accounted for. Now you've got the tax authorities poring over GPS logs trying to determine which POIs I drove to and from were work-related, and we're arguing about whether it was my house or the office that needed toilet paper when I made a particular CVS run. Assuming there even are GPS logs.

I've been asked to take meetings and work with adjacent teams at our satellite offices. I obviously take advantage of my time in a new city to see the sights. For what proportion of the trip do I need to be in the office for it to count as work vs. work underhandedly paying for a personal vacation, and how are you going to check? Entry leaves a paper trail, exit doesn't. What if I just badge into our satellite office each day for the free coffee and then go about my vacation? Often the whitelisted hotels in our travel booking system are nicer and more expensive than anything I'd book personally. They're in keeping with the general high quality of our offices and equipment, but nicer than they need to be to fulfill the business purposes of the trip. Is this a form of compensation? Directors and above get to fly first class. Cattle class gets your ass to the meeting just the same. Is that a form of compensation? Now you're in the business of benchmarking what is a reasonable price to for travel/lodging in a given city at a given time under specific parameters (advance notice, number of travelers, etc). And what if your manager says he authorized first class so that your productivity wouldn't take as much of a hit? Does Gogo even keep good enough logs to tell whether I was really using the company VPN during the flight?

This is not to say you should throw up your hands. The IRS certainly doesn't. It gets into the weeds on all of this, at least as to whether the business can deduct the expense (not so much whether to count extra income for the employee). But this stuff is incredibly nuanced and complex, and there's more than enough room in that complexity to hide a scenario where the employer pays much of the employee's living expenses tax-free in lieu of salary.

So dont move or move when you can afford to pay the tax.

Why did the value of the neighbourhood increase, its because society aka the police keeping the area safe, the people who maintain all the infrastructure/roads etc, who is going to pay for all that?