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Taxation of Carried Interest

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Re: Taxation of Carried Interest

#111

Post by colechristensen »

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…

If you abolish corporate taxation, (rich) people will just use them to avoid taxes. Won't have to pay any tax on investment growth if you wrap all your investments in a corporation. Hiring me? No you're hiring my corporation, which pays me a meager salary. Company car? Check. Company apartment? Check.

There is another consideration, you want to motivate people with lots of money to invest it somewhere. Money sitting on a bank ledger can't do nearly as much as money in a venture capital fund. You have to be careful with taxes to make sure you don't disincentivize investment too much.

I think the goal should be _more_ people earning capital gains, and perhaps a more progressive tax rate on them independent of other income including a generous 0% bracket at the bottom. (i.e. regardless if you make $20,000 or $1,000,000 in wages, the first $10,000 in capital gains is tax free.)

Re: Taxation of Carried Interest

#112

Post by noobermin »

Alex3917 wrote: post #41
hn_throwaway_99 wrote: post #21

Earlier quoted context omitted.

Many hedge fund managers are plenty rich, oftentimes orders of magnitude more than some of their clients.

Yeah and there is that one chef at Google who made $45M. But the average wealth manager has less money than the average founder, and the average founder is broke as shit.

There are people much more broke than the average founder but they don't get wealth manager's or founder's standard of life.

Re: Taxation of Carried Interest

#113

Post by colechristensen »

millstone wrote: post #93
WalterBright wrote: post #84

Earlier quoted context omitted.

1. only if they have alternatives to work. 2. are you sure about that? Lower paying jobs tend to be more stressful. 3. they are last time I looked, though those things change over time

This sounds like the gross argument that it's more efficient to tax labor because they have no recourse. The rich can move, hire lawyers, etc. to avoid taxes, so more it's efficient to focus on the hapless poor! The rebuttal is to simplify the tax code as to eliminate loopholes, such as preferential income taxation. You're right and I was mistaken that tax brackets are indexed for inflation. I'd support indexing capi…

>1. The higher the labor tax rate, the fewer people will work.

This is what you said and is basically untrue. It is not a gross argument, we are talking about how taxation motivates people. The fact that wage income is taxed does not seem like it would make people work less.

This may be different if we ever start a significant movement towards a post-scarcity economy where automation makes necessities so inexpensive that people with even a small amount of capital do not need to work. Then you might have to do strange things to incentivize people to do the few jobs that need humans.

Re: Taxation of Carried Interest

#115

Post by icebraining »

colechristensen wrote: post #111
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…

If you abolish corporate taxation, (rich) people will just use them to avoid taxes. Won't have to pay any tax on investment growth if you wrap all your investments in a corporation. Hiring me? No you're hiring my corporation, which pays me a meager salary. Company car? Check. Company apartment? Check. There is another consideration, you want to motivate people with lots of money to invest it somewhere. Money sitting…

Company car? Check. Company apartment? Check.

All that can be taxed as well.

Re: Taxation of Carried Interest

#116

Post by colechristensen »

icebraining wrote: post #115
colechristensen wrote: post #111

Earlier quoted context omitted.

If you abolish corporate taxation, (rich) people will just use them to avoid taxes. Won't have to pay any tax on investment growth if you wrap all your investments in a corporation. Hiring me? No you're hiring my corporation, which pays me a meager salary. Company car? Check. Company apartment? Check. There is another consideration, you want to motivate people with lots of money to invest it somewhere. Money sitting…

Company car? Check. Company apartment? Check. All that can be taxed as well.

Which of course will be ripe with caveats and loopholes for accountants to take advantage of.

Combined with the fact that they won't be taxed when they earn wealth but only when they use it, a significant advantage allowing one to let wealth compound tax free until the last second when it is used and taxed.

When you come up with these things it's not a simple equation, it's a game of chess or an evolutionary arms race. This doesn't obviously cause that. You're playing on people's motivations and loopholes which can be found and exploited. Just like a computer program doesn't always (never) does exactly what the programmer intended on the first version. There are always bugs and exploits and weird behavior nobody thought of.

Re: Taxation of Carried Interest

#117

Post by stealthmodeclan »

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 that money, I don't see anything wrong in James ending up with unfairly large returns (along with low taxes) since that's what's best for the economy.

Bob might be working somewhere, buying stuff for his family, indirectly creating jobs but if James money creates more jobs and value, he will likely a better bet.

Re: Taxation of Carried Interest

#118

Post by xapata »

valuearb wrote: post #71
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…

Problem is that capital gains aren’t all gains, they include inflation. I’m all for a transition to ordinary income if you index the basis of investments to the inflation rate.

Or we could simply allow shareholders to pressure companies into giving dividends, as was the original intent for the value of a share. The bizarre focus on capital gains at the expense of dividends was created by the tax code. Switching it back would eliminate the perverse incentive for corporations to merge and acquire for no other reason than to avoid disbursing capital as dividends.

Re: Taxation of Carried Interest

#119

Post by stealthmodeclan »

icebraining wrote: post #115
colechristensen wrote: post #111

Earlier quoted context omitted.

If you abolish corporate taxation, (rich) people will just use them to avoid taxes. Won't have to pay any tax on investment growth if you wrap all your investments in a corporation. Hiring me? No you're hiring my corporation, which pays me a meager salary. Company car? Check. Company apartment? Check. There is another consideration, you want to motivate people with lots of money to invest it somewhere. Money sitting…

Company car? Check. Company apartment? Check. All that can be taxed as well.

All that can be taxed as well.

At the risk of increased compliance cost?

Re: Taxation of Carried Interest

#120

Post by WalterBright »

Declanomous wrote: post #91
WalterBright wrote: post #79

Earlier quoted context omitted.

Capital gains taxes resulting in less efficient resource allocation does not imply that it is instead allocated in an ethical way, nor distributed more equitably, or any of the other notions mentioned. Having a more efficient economy means there's a surplus that enables resources to be expended on environmental and social concerns. Hungry people don't care about those things. There's a reason poor countries tend to b…

I never said that less efficient resource allocation would result in more utility. That's a straw man. My claim is the argument that more efficient resource allocation would result in greater utility is almost certainly false in a hypothetical situation where capital gains tax is eliminated. What evidence have we ever seen that allowing wealthy individuals to make more money results in increased utility? There is lit…

> What evidence have we ever seen that allowing wealthy individuals to make more money results in increased utility?

SpaceX is a modern example.

Historically, people of great wealth have been able to invest in great projects. Scientists historically have been wealthy people. The guy who won WW2 was a wealthy man who invested his fortune into developing radar. Many historians believe that radar shortened the war considerably and saved an awful lot of lives. Wealthy people donate a ton of money to universities to fund research. (UW has a Gates building and an Allen building.)

> on environmental and social concerns

The Gates Foundation, for a modern example. For a historical one, see the Carnegie libraries.

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