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Taxation of Carried Interest

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Re: Taxation of Carried Interest

#271

Post by closeparen »

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…

You're responding to a technocratic argument about how to allocate taxes equitably with a moralistic argument that taxes are good. From a meta-debate perspective this is both infuriating and tragically common. Details matter. Incentives matter. "Taxes are actually good" isn't a reason to stop caring about which taxation schemes produce the best outcomes or are more fair.

"Punishment" carries some unnecessary connotation. How about "disincentive." People respond to incentives; good policy exploits this by taxing the things society wants less of. Failing that, it levies taxes that don't depend much on behavior, to avoid undesired distortions.

The argument is not that corporations have some kind of right to their income that's being unfairly abridged. It's that taxing corporations is sloppy: the true cost of the tax falls on consumers, workers, and owners in not-very-deliberate proportions. If you want to put the burden on "the richest," great, so do I. But let's tax those actual people.

Re: Taxation of Carried Interest

#272

Post by sjwright »

rpedela wrote: post #262
conanbatt wrote: post #259

Earlier quoted context omitted.

> 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…

> 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. 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…

And while we all would prefer greater efficiency in government, an inefficient government is still universally preferable to an absent or non-functioning government.

Also, if that inefficiency is in the form of salaries or domestic spending, it's only partly wasted as it adds to movement of money in the economy.

Re: Taxation of Carried Interest

#273

Post by sjwright »

bzbarsky wrote: post #254
phkahler wrote: post #155

Earlier quoted context omitted.

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.

Ideally, capital gains tax should be charged on gains above the rate of inflation.

Re: Taxation of Carried Interest

#274

Post by closeparen »

sumedh wrote: post #270
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…

> But you don't have $200k and can't move. This not a good situation hence various fixes. 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?

"Don't move" is terrible public policy. For one thing, people change jobs. Two families that end up living and working on opposite sides of town should be able to swap houses to keep the commutes sane. When they can't, congestion gets worse, and energy and infrastructure demands grow. Or worse, people stay in suboptimal jobs due to the difficulty of moving, suppressing productivity. Empty nesters hoard the family-sized houses, making things impossible for young couples. Etc, etc.

>move when you can afford to pay the tax

Why could they afford to pay the tax? Their income hasn't changed.

>Why did the value of the neighbourhood increase

Usually this kind of meteoric rise in property value happens due to changes in demand, i.e. your city suddenly becomes a tech employment center, or the fashion suddenly shifts from suburban to urban.

>its because society aka the police keeping the area safe, the people who maintain all the infrastructure/roads etc,

Nope. Typically all those things were there when you bought in, so would not explain the delta between your previous and current home value. And if the quality of your local institutions got 2x better during your stay, it's likely you had a hand in building them.

>who is going to pay for all that?

Excuse me, what? No place in America has capital gains tax on primary residences; do you imagine that we don't have police or roads? We'll pay for it like we've always paid for it: a combination of property taxes, user fees, and state income taxes remitted to the municipalities.

Re: Taxation of Carried Interest

#275

Post by closeparen »

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…

Yes, there are people at the extreme ends whose spending vs. saving behavior can't be influenced (much) by the relative favorability of investing. But there are also lots of people who will respond to this incentive, and we should be concerned about what effects that might have.

Your post belies an assumption that the new tax revenue would actually be spent on the people for whom "it's not a fucking choice." But that's orthogonal. Congress is perfectly happy to spend new tax revenue on tax cuts for the very rich, on the military-industrial complex, on seniors of all income brackets, on predominately upper-middle-class students, etc. "What are the right ways to raise revenue" is a different question from "what are the right things to spend it on," and having a compelling reason to spend has no bearing on the virtue of any particular method of raising the funds.

Re: Taxation of Carried Interest

#276

Post by closeparen »

millstone wrote: post #81
harryh wrote: post #33

Earlier quoted context omitted.

https://en.wikipedia.org/wiki/Optimal_capital_income_taxatio... is a good place to start. Right up top is a nice summary: "Starting from the conceptualization of capital income as future consumption, the taxation of capital income corresponds to a differentiated consumption tax on present and future consumption. Consequently, a capital income tax results in the distortion of individuals' saving and consumption behavi…

These arguments use a simplified model where capital income occurs as the consequence of investing wage income. They don't address the modern reality that capital income replaces wage income, through accelerated depreciation, inheritance, carried interest, etc. And yes, of course taxing capital is distorionary; but so is taxing labor, and exponentially so when capital income may be substituted for labor.

35% of all financial assets in the US are precisely the consequence of investing wage income: retirement savings.

[0] https://www.ici.org/research/stats/retirement/ret_17_q4

Re: Taxation of Carried Interest

#277

Post by bzbarsky »

sjwright wrote: post #273
bzbarsky wrote: post #254

Earlier quoted context omitted.

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.

Ideally, capital gains tax should be charged on gains above the rate of inflation.

So that still assumes that saving is risk-free (maybe) and the discount rate people apply to consumption is 0, right? The latter just doesn't match reality.

But it would definitely be a step up from where we are now, in theory. In practice, measuring inflation is an interesting exercise; there are multiple measures that differ quite a bit once your timescale is "decades" as it can easily be for savings and housing. And yrs, I know I said "the rate of inflation" -- I forget which measure those studies used. For housing specifically, one could use whichever inflation measure best matched housing prices in the past, I guess...

Re: Taxation of Carried Interest

#278

Post by stealthmodeclan »

Arbitrary4657 wrote: post #260
stealthmodeclan wrote: post #174

Earlier quoted context omitted.

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?

Incentivize him to make money for himself?

You are talking as if capital gains don't increase efficiency the company, help produce more goods and services for the people or create/eliminate useless jobs via automation. He only gets to keep money for the value he creates for the society. Society gets to keep the value.

Now he might be corrupt or using loopholes, but that's smth we need to fix.

Re: Taxation of Carried Interest

#279

Post by sumedh »

closeparen wrote: post #274
sumedh wrote: post #270

Earlier quoted context omitted.

> But you don't have $200k and can't move. This not a good situation hence various fixes. 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?

"Don't move" is terrible public policy. For one thing, people change jobs. Two families that end up living and working on opposite sides of town should be able to swap houses to keep the commutes sane. When they can't, congestion gets worse, and energy and infrastructure demands grow. Or worse, people stay in suboptimal jobs due to the difficulty of moving, suppressing productivity. Empty nesters hoard the family-siz…

Do you have any data which gives the number of people who swap houses to keep the commutes sane?

Long commutes can be reduced if you have a good public transport which again depends on tax.

> Usually this kind of meteoric rise in property value happens due to changes in demand,

which brings us back to the same points which I raised, its because of the society the demand rises, demand is not going to increase in high crime, poor infrastructure area.

> Excuse me, what?

What part did you not understand?

Re: Taxation of Carried Interest

#280

Post by xapata »

bzbarsky wrote: post #253
phkahler wrote: post #209

Earlier quoted context omitted.

>> 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.

There's also depreciation. Most assets tend to decline in real value while simultaneously inflating. Companies may have a period over which the value appreciates, but the evidence points to eventual obsolescence. They'll probably liquidate their assets and give one final dividend at that time.
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