Taxation of Carried Interest • Hacker News Board

Re: Taxation of Carried Interest

#171

Post by chii » Sun, Jun 10, 2018, 1:45 PM UTC

phkahler wrote: post #158

xapata wrote: post #118

Earlier quoted context omitted.

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.

A hundred times this. If your plan is make money by selling at a higher price, you're playing the greater-fool game. If you make your return via dividends, it is a direct reflection of the value of the company.

but how does that system allow for a company that re-invest all profits into growing, if doing so is a tax disadvantage?

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.

Re: Taxation of Carried Interest

#172

Post by crdoconnor » Sun, Jun 10, 2018, 1:46 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…

>corporate income tax that justifies the "double taxation" argument

Why should any credence be given at all to "the double taxation argument"? Everybody gets taxed more than once.

If you're going to make a taxation argument based on fairness it would make more sense to consider whether the wealth flowing to you was earned by you (income, capital gains/dividends in a company you built) or whether it is an entitlement (e.g. rental, dividend & capital gains income fro the stock market that would accrue just as easily if you were in a coma for a decade).

Re: Taxation of Carried Interest

#173

Post by madeofpalk » Sun, Jun 10, 2018, 1:48 PM UTC

chii wrote: post #167

madeofpalk wrote: post #161

Earlier quoted context omitted.

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.

Well rent isn't an expense directly occurred while earning income. It isn't a cost of doing business.

Re: Taxation of Carried Interest

#174

Post by stealthmodeclan » Sun, Jun 10, 2018, 1:50 PM UTC

kisstheblade wrote: post #131

stealthmodeclan wrote: post #117

Earlier quoted context omitted.

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 th…

By all means he deserves more money, no problem. But why with a lower tax rate?

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.

Re: Taxation of Carried Interest

#175

Post by blackguardx » Sun, Jun 10, 2018, 1:51 PM UTC

merinowool wrote: post #169

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.

People at the top are usually getting more benefits from society, so they should pay more. Jeff Bezos's riches from Amazon couldn't exist without a vast highway network, regulated airspace, stable government, etc. A person digging ditches or picking strawberries in the central valley can do that without many of the previous benefits.

Re: Taxation of Carried Interest

#176

Post by Pywarrior » Sun, Jun 10, 2018, 1:54 PM UTC

It sounds like the author does not want to pay taxes. How much tax does he want to pay?

Re: Taxation of Carried Interest

#177

Post by qaq » Sun, Jun 10, 2018, 1:59 PM UTC

chii wrote: post #170

imgabe wrote: post #149

Earlier quoted context omitted.

> 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.

the coupon on bonds is not capital gains so as far as this discussion goes taxes and wages are first. Also generally you have the whole investment at risk vs a few weeks of wages.

Re: Taxation of Carried Interest

#178

Post by yk » Sun, Jun 10, 2018, 2:02 PM UTC

merinowool wrote: post #169

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.

> the more you care and provide for the society - the more you are punished for it.

Could you expand on your argument? It appears that you are arguing that income directly correlates with social benefit, which I would argue is at the very least not obvious. What is the precise benefit of say a Ferrari dealer compared to a typically lower income trade like a teacher?

Re: Taxation of Carried Interest

#179

Post by jdhn » Sun, Jun 10, 2018, 2:06 PM UTC

chii wrote: post #165

autokad wrote: post #162

Earlier quoted context omitted.

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?'

Because if they were taxed, municipalities would see their interest rates skyrocket. Having municipal bonds be free of taxation benefits the investor (they don't pay income tax), the municipality (more people will be interested in the bonds, hence lower interest rates), and the citizens of the municipality (their tax rates won't go up as quickly).

Re: Taxation of Carried Interest

#180

Post by yk » Sun, Jun 10, 2018, 2:13 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…

Two problems, first the tax system needs to raise a certain amount, just to cover government expenses. So putting forward a proposal of lowering taxes should always be accompanied by a proposal of how to cover the shortfall.

Second, I would actually argue that everybody being unhappy with the tax system is an expression of the too complicated tax system. The problem is, that everybody has the feeling that their neighbor is paying less than their fair share, because the neighbor has found the one weird trick to avoid taxes. So I would actually argue that the opposite is the way forward, radically simplify the tax system, say you get some tax free minimal income and everything above is taxed with 50%. Then people would at least have the assurance that they understand how taxation works, and I would assume are quite a bit happier paying taxes. (Well, nobody likes to pay taxes, but at least compared to now.)