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Taxation of Carried Interest

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Re: Taxation of Carried Interest

#221

Post by colanderman »

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

If marginal tax rates exceeded 100% you might have a point. Not to mention the implicit bizarre self-righteous assertion that income correlates directly with "caring for society". Tell that to fire fighters, EMTs, teachers, and disaster aid workers.

But I guess "marginally, the more you convince others to part from their money, the less you directly benefit from it" doesn't quite get the objectivists as agitated.

Re: Taxation of Carried Interest

#222

Post by forapurpose »

MR4D wrote: post #195
forapurpose wrote: post #69

Earlier quoted context omitted.

I don't think three examples are representative of the wealthy overall. I didn't say 'no rich get richer'; beyond a doubt, some do - and that's fine and fully compatible with meritocracy. The question is, what is the overall trend? Is there social mobility, opportunity and meritocracy, or aristocratic power and inheritence?

Ok. Interesting point you have. But let’s dive into something that shows how statstics can get really skewed: Take money 100 years ago. The richest guy on the planet (ignoring royalty, as those figures aren’t reliable) was John D Rockefeller. He was worth a ton of money, possibly even a billion dollars. Today’s richest man in Jeff Bezos, worth about 100 times that (depending on the stock price, somewhere roughly betw…

Economists aren't stupid, and they've thought of these things like zero lower bound. This is a well-studied issue. When people say the concentration of wealth is increasing, they aren't saying it's increasing relative to Rockefeller's time (how far back should we go? 1492? The start of the neolithic?), but it's increasing now, such as over the last few decades.

Re: Taxation of Carried Interest

#223

Post by thinkcontext »

harryh wrote: post #23
hn_throwaway_99 wrote: post #19

Earlier quoted context omitted.

Yes, but as the parent article states, and even what is pointed out in your own link, while dividends are taxed at a lower rate, the manager is paid the lower rate on capital that is not his to begin with . That's the part that makes no sense to me. It is quite simply an incentive payment for his labor: it's income that investors pay him for his expertise, and as such should be taxed at income rates.

You & I start a company. I provide $100,000 in seed money but little actual work/time. You provide no seed money but a lot of work & time. We agree to split ownership of the company 50/50. 5 years go by. We sell the company for $1,000,000. You get $500,000, I get $500,000. Should I get to pay a lower tax rate than you?

No, you have risked nothing but your time. Since you have no investment at risk you should not get preferential tax treatment meant to encourage you to do so.

Re: Taxation of Carried Interest

#224

Post by evanpw »

harryh wrote: post #23
hn_throwaway_99 wrote: post #19

Earlier quoted context omitted.

Yes, but as the parent article states, and even what is pointed out in your own link, while dividends are taxed at a lower rate, the manager is paid the lower rate on capital that is not his to begin with . That's the part that makes no sense to me. It is quite simply an incentive payment for his labor: it's income that investors pay him for his expertise, and as such should be taxed at income rates.

You & I start a company. I provide $100,000 in seed money but little actual work/time. You provide no seed money but a lot of work & time. We agree to split ownership of the company 50/50. 5 years go by. We sell the company for $1,000,000. You get $500,000, I get $500,000. Should I get to pay a lower tax rate than you?

FWIW, the common rebuttal scenario goes like this:

You and I earn $200k in wages, and each pay $100k in taxes. You spend your remaining $100k on a boat. I invest my $100k, and 5 years later it's worth $200k. Suppose that $100k gain is taxed like ordinary income at 50%. After taxes I have $150k, which I also spend on a boat.

Without taxes, you would have had $200k to consume in year 0, but you actually got $100k; your effective tax rate is 50%. Without taxes, I would have had $400k to consume in year 5, but I actually got $150k; my effective tax rate is 62.5%.

Who should pay the higher tax rate? The person who consumes their wage income immediately, or the one who defers consumption? For them to be equal, the capital gains tax rate has to be 0%.

Re: Taxation of Carried Interest

#225

Post by bluecalm »

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…

You wouldn't be ahead because there is risk in investing. The biggest capital gain tax the less sense it makes to invest. That's why the capital gain tax rate is different than income tax. Making capital gain tax progressive is a recipe for not getting any more investment from private citizens.

Re: Taxation of Carried Interest

#226

Post by colanderman »

bluecalm wrote: post #225
colanderman wrote: post #219

Earlier quoted context omitted.

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…

You wouldn't be ahead because there is risk in investing. The biggest capital gain tax the less sense it makes to invest. That's why the capital gain tax rate is different than income tax. Making capital gain tax progressive is a recipe for not getting any more investment from private citizens.

Since when do you pay taxes on capital losses?

Re: Taxation of Carried Interest

#227

Post by [deleted] »

thinkcontext wrote: post #223
harryh wrote: post #23

Earlier quoted context omitted.

You & I start a company. I provide $100,000 in seed money but little actual work/time. You provide no seed money but a lot of work & time. We agree to split ownership of the company 50/50. 5 years go by. We sell the company for $1,000,000. You get $500,000, I get $500,000. Should I get to pay a lower tax rate than you?

No, you have risked nothing but your time. Since you have no investment at risk you should not get preferential tax treatment meant to encourage you to do so.

[deleted]

Re: Taxation of Carried Interest

#228

Post by bluecalm »

rpedela wrote: post #199
bingoboingo33 wrote: post #197

Earlier quoted context omitted.

The correct solution is to eliminate income-based taxes altogether, be they corporate, individual, derived from regular wages or derived from capital gains, etc ... and stick to a flat consumption based tax. But we're so deep down the rabbit-hole of our current system, we can't even imagine doing that. Without going to that level of simplicity, it's worth noting that some countries have done away with capital gains a…

If we are going to massively simplify taxes, then it needs to be done on the richest rather than the poor like a consumption tax does. By rich, I don't necessarily mean rich individuals. The richest entities in society are businesses and they benefit the most when you or I have money in our pockets. If you think about it, the most common federal tax on individuals or families, income wage taxes, is in fact a revenue…

Tax consumption, land, pollution and using natural resources. Allow people to get some amount of consumption tax back every month to make the system progressive. Get rid of all income taxes. Make sure there is inflantion as a form of tax on stashed cash as well.

Consumption tax is much harder to gain than income taxes. Corporations pay in the country they sell to so that closed all tax heaven loopholes instantly. Making the system progressive is easy as well, just allow every citizen to bring receipts up to X$ per month to the taxman and get the money back. If you really want you can tax luxury items at higher rate as well.

Re: Taxation of Carried Interest

#229

Post by harryh »

evanpw wrote: post #224
harryh wrote: post #23

Earlier quoted context omitted.

You & I start a company. I provide $100,000 in seed money but little actual work/time. You provide no seed money but a lot of work & time. We agree to split ownership of the company 50/50. 5 years go by. We sell the company for $1,000,000. You get $500,000, I get $500,000. Should I get to pay a lower tax rate than you?

FWIW, the common rebuttal scenario goes like this: You and I earn $200k in wages, and each pay $100k in taxes. You spend your remaining $100k on a boat. I invest my $100k, and 5 years later it's worth $200k. Suppose that $100k gain is taxed like ordinary income at 50%. After taxes I have $150k, which I also spend on a boat. Without taxes, you would have had $200k to consume in year 0, but you actually got $100k; your…

My comment was providing a defense of preferential tax treatment for carried interest.

You provided an argument for a 0% tax rate on capital gains.

I'm not sure how your comment is a rebuttal to mine? Perhaps you responded to the wrong comment by accident?

Re: Taxation of Carried Interest

#230

Post by harryh »

thinkcontext wrote: post #223
harryh wrote: post #23

Earlier quoted context omitted.

You & I start a company. I provide $100,000 in seed money but little actual work/time. You provide no seed money but a lot of work & time. We agree to split ownership of the company 50/50. 5 years go by. We sell the company for $1,000,000. You get $500,000, I get $500,000. Should I get to pay a lower tax rate than you?

No, you have risked nothing but your time. Since you have no investment at risk you should not get preferential tax treatment meant to encourage you to do so.

(I think you might have inverted the "I" and "you" in my scenario making your comment a bit confusing. But I think I understand the point you were intending to make.)

Why is the risking of money deserving of special tax treatment but not the risking of time?

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