The real problem is that finance has got itself included inside the production barrier when really, a lot of what it does is charge outsize fees (e.g. vc and pe) and should really be considered rent-seeking.
Taxation of Carried Interest
141–150 of 306 posts
Re: Taxation of Carried Interest
#142Earlier quoted context omitted.
Simply taxing gains as ordinary income is often unfair because it taxes stuff going up in nominal terms without actually being worth more in real terms. You can get around this by indexing for inflation, which gets complicated, or taxing it at a lower rate. Carried interest isn't really capital gains - it's income and should be taxed as that. The deeper problem is if there is some way to reform the political system t…
Isn't that how income tax works too? Why should cap gains be different?
Income tax is based on income earned, capital gains is based on a sale of a asset. There is definitely a difference.
Re: Taxation of Carried Interest
#143Earlier quoted context omitted.
I can't think of worse examples of industries supposed to benefit from reducing funds available for government investment to ensure more funds are available for private investment than space and defence, which have depended almost entirely on government investment. Similarly, charitable donations are generally tax deductible so again, if anything, capital gains taxes serve to encourage people to allocate more of thei…
SpaceX shows that people with great wealth can embark on successful space programs. > charitable donations are generally tax deductible I find it ironic the complaint that wealthy don't use their money to help social causes and yet complain that such help is tax deductible.
SpaceX took enormous amounts of funding from the government, which also happens to be its only customer for most of its services. Virtually all the technological advances which made it feasible for Elon Musk to found a rocket company were based on enormously expensive state funded programmes which private companies would neither have had the fundraising ability nor the realistic expectation of returns to embark upon.
Arguing that the space industry would be better off with less government funding and more private wealth is akin to arguing the earth is flat.
And I'm not "complaining" that private charitable donations are tax deductible, I'm observing that because they are tax deductible they're not particularly likely to be reduced by the existence of taxes.
Re: Taxation of Carried Interest
#144Earlier quoted context omitted.
Simply taxing gains as ordinary income is often unfair because it taxes stuff going up in nominal terms without actually being worth more in real terms. You can get around this by indexing for inflation, which gets complicated, or taxing it at a lower rate. Carried interest isn't really capital gains - it's income and should be taxed as that. The deeper problem is if there is some way to reform the political system t…
Isn't that how income tax works too? Why should cap gains be different?
Inflation. Inflation is one of the two reasons capital gains should be different. You can make a large profit in nominal terms while making a real loss if inflation is high enough. This is not a risk with non-capital gains income.
The real reason capital gains taxes are a bad idea is that they discourage investment and we want more of that because it’s how we increase our productive capacity and get more of what we really want, consumption.
We should abolish income and capital gains taxes altogether and tax consumption. Encouraging investment by ceasing to tax it will lead to higher production and consumption in the long run.
Re: Taxation of Carried Interest
#145Earlier 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…
> If you abolish corporate taxation, (rich) people will just use them to avoid taxes. That's already a loophole, or it would be, except the tax code has already closed it. You're about 40 years too late. > Company car? Check. Already taxed, heavily. The whole "just hide your income in a company" gambit doesn't work. Corporations are already taxed much lower than the top marginal rate of income, so people already want…
it now have to be overseas company in Panama... because the upper middle class was getting in on the corporate tax thing so they had to raise the bar just a little to keep the status quo.
Re: Taxation of Carried Interest
#146Earlier quoted context omitted.
Simply taxing gains as ordinary income is often unfair because it taxes stuff going up in nominal terms without actually being worth more in real terms. You can get around this by indexing for inflation, which gets complicated, or taxing it at a lower rate. Carried interest isn't really capital gains - it's income and should be taxed as that. The deeper problem is if there is some way to reform the political system t…
Isn't that how income tax works too? Why should cap gains be different?
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. I'm reminded of the quote from the 1600s "The art of taxation consists in so plucking the goose as to procure the largest quantity of feathers with the least possible amount of hissing." The above problem causes hissing.
Re: Taxation of Carried Interest
#147The 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…
Abolishing corporation tax has always seemed to me like something that makes sense only in a quite naive view of the world.
The idea is always just to tax methods of getting income out of a corporation instead, (income, dividends) but there's a problem with this idea.
There are infinite ways to get your money out of a corporation.
If you start off with: power is power all forms of power can be transferred into money somehow
Then you realize that allowing someone to put their income into a company and only pay tax on DIRECTLY taking it out, there's hundreds of ways to get around that.
My company employs your son, then you give me a kickback in whatever form My company buys from your company, you give me a kickback somehow My company invests in something related to another investment that I hold and pushes the value of it up. My company employs me on minimum wage for 80 years instead of employing me on a high wage for 40 years, halving the tax that I pay through income My company employs my own son, girlfriend, relative
If I have access to and control over an entity that can swing a million pounds around you can guarantee I can find an indirect way to get paid from that which you can't prevent/tax/foresee. The only reasonable way to mitigate that is to slap some level of tax on me putting money into my proxy.
Re: Taxation of Carried Interest
#148The 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'd rather go in the opposite direction. Tax all ordinary income as corporations get taxed. Corporation only pay taxes on their profits, not on the expenses necessary to keep them alive, so why not give the same deal for people?
Yes, it would make people's taxes more complicated, but also much lower. Software like Mint and Personal Capital already make it easy to track expenses. Although they might not be accessible to everyone, such as people who are unbanked, but in that case they're probably not making enough to be taxed in the first place.
Re: Taxation of Carried Interest
#149Earlier quoted context omitted.
I think this conveniently ignores the risk factor your risk of not getting payed your wage is a tiny fraction of the risk of someone loosing the invested money. You want to participate on the win side of that risk without sharing the losses.
You raise a good point about risk profiles. Let's consider other asymmetric risks? An employee is hired at will and largely vulnerable to employment risk. The employee has no legal claim to income earned by an employer beyond general compensation provided in the duration of employment. On the other hand, an investor, without major financial restructuring, can through equity or debt secure a claim with various degrees…
> An employee is hired at will and largely vulnerable to employment risk.
The employee is almost always paid for work they have already done, except in extreme circumstances. There are substantial legal protections in place to assure this. There are entire divisions of Federal and State governments in place to ensure that employees get their wages for work they have already done.
The risk you're talking about is that they may not continue getting paid the future. They haven't done that work yet, that work may not even exist and need to be done yet, so of course there's no guarantee that they'll get paid for it.
In order to make it analogous to the risk an investor takes, the employee's deal would have to be something like "come in and work for 40 hours a week, if it turns out your work created a profit, you'll get a cut of that profit in a few months or years"
Re: Taxation of Carried Interest
#150The 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'd rather go in the opposite direction. Tax all ordinary income as corporations get taxed. Corporation only pay taxes on their profits, not on the expenses necessary to keep them alive, so why not give the same deal for people? Yes, it would make people's taxes more complicated, but also much lower. Software like Mint and Personal Capital already make it easy to track expenses. Although they might not be accessible…
Usually you want to use income taxes to discourage particularly high wages, if you take away expenses then this effect becomes less strong, which could lead to more inequality.
Taxing money at the point where it leaves the 'corporate' sphere and enters the 'private' sphere is also a fairly simple way of ensuring there are no loopholes. This is also why tax on capital gains is necessary.