Taxation of Carried Interest • Hacker News Board

Re: Taxation of Carried Interest

#161

Post by madeofpalk » Sun, Jun 10, 2018, 1:18 PM UTC

imgabe wrote: post #148

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'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…

Isn't this what we already do? For individuals, our income is more or less profits, which is what we're taxed on. You can claim deductions against your income for the expenses your occurred while getting that income.

Re: Taxation of Carried Interest

#162

Post by autokad » Sun, Jun 10, 2018, 1:25 PM UTC

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…

Mitt Romney had such a low income tax because the majority of his earnings was through municipal bonds. (which are not taxed)

I rolled my eyes when the media said he was 'taking advantage of a loophole' and some people floated removing that 'loophole'. That would have been a blunder of blunders.

Re: Taxation of Carried Interest

#163

Post by amluto » Sun, Jun 10, 2018, 1:27 PM UTC

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 mostly agree, but not quite.

> abolish the corporate income tax that justifies the "double taxation" argument that justifies the capital gains rate.

I would rather see a low but nonzero corporate tax rate with very strong enforcement. Otherwise it would be too easy to create a corporation to defer taxes indefinitely.

Re: Taxation of Carried Interest

#164

Post by dangjc » Sun, Jun 10, 2018, 1:34 PM UTC

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…

Capital gains are only taxed for American investors. Foreign investors get away scott free. Their proceeds are highly unpredictable and even more cyclical compared to corporate income tax. There are too many ways to defer or never pay them. It's more reliable as a tax base to take a little of profits every year than take a bunch all at one uncertain time in the future.

Re: Taxation of Carried Interest

#165

Post by chii » Sun, Jun 10, 2018, 1:35 PM UTC

autokad wrote: post #162

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…

Mitt Romney had such a low income tax because the majority of his earnings was through municipal bonds. (which are not taxed) I rolled my eyes when the media said he was 'taking advantage of a loophole' and some people floated removing that 'loophole'. That would have been a blunder of blunders.

so the the question becomes 'why municiple bonds are not taxed?'

Re: Taxation of Carried Interest

#166

Post by crdoconnor » Sun, Jun 10, 2018, 1:35 PM UTC

harryh wrote: post #33

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…

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…

That argument would work in an economic environment with high inflation, high interest rates, low overall rates of investment and a high capital gains tax.

The fact that we are currently operating under an environment with low inflation, low interest rates, too much capital floating around and a low capital gains tax rather suggests that it should actually be raised, and quite a lot at that.

If raising capital gain actually did bring forward consumption then that would actually act as a form of economic stimulus (on top of filling up depleted state/city coffers), none of which would be unwelcome. Unless you're extremely wealthy.

Re: Taxation of Carried Interest

#167

Post by chii » Sun, Jun 10, 2018, 1:38 PM UTC

madeofpalk wrote: post #161

imgabe wrote: post #148

Earlier quoted context omitted.

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…

Isn't this what we already do? For individuals, our income is more or less profits, which is what we're taxed on. You can claim deductions against your income for the expenses your occurred while getting that income.

But for a company, they can claim taxes on expenses such as rent, but for an individual, they couldn't.

Re: Taxation of Carried Interest

#168

Post by chii » Sun, Jun 10, 2018, 1:41 PM UTC

bawse1 wrote: post #142

lotsofpulp wrote: post #140

Earlier quoted context omitted.

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.

> Income tax is based on income earned, capital gains is based on a sale of a asset.

but couldn't you claim that income is sale of personal time (an infinitely valuable, and non-renewable asset)?

Re: Taxation of Carried Interest

#169

Post by merinowool » Sun, Jun 10, 2018, 1:43 PM UTC

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 would argue that income tax is immoral - the more you care and provide for the society - the more you are punished for it. Only fair tax I can think of is a poll tax, where everyone pays the same amount regardless of their income. With this model you could think of giving 100% discount to those who can't afford it.

Re: Taxation of Carried Interest

#170

Post by chii » Sun, Jun 10, 2018, 1:44 PM UTC

imgabe wrote: post #149

Dowwie wrote: post #130

Earlier quoted context omitted.

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…

> governments in place to ensure employees get their wages for work they have already done.

does payment to employees override payment to creditors/investors when a company goes belly up? I get the feeling that employees are secondary compared to the primary creditors.