Taxation of Carried Interest • Hacker News Board

Re: Taxation of Carried Interest

#301

Post by conanbatt » Tue, Jun 12, 2018, 1:35 PM UTC

sjwright wrote: post #300

conanbatt wrote: post #284

Earlier quoted context omitted.

God no. The broken window fallacy comes back from 1830, before Bastiat. If you pay someone to do nothing you waste both the money you used that could have gone to something useful and the time of the person that would have done something else, hopefully productive, instead.

That assumes that a maximally efficient economy is also the maximally desirable. I strongly disagree. (Though if a generous UBI was already in place, I could change my mind...)

No, it just debunks that the idea of burning peoples time is a benefit for society.

Re: Taxation of Carried Interest

#302

Post by nybble41 » Tue, Jun 12, 2018, 7:22 PM UTC

Retric wrote: post #218

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…

Alternatively, investments should have much higher tax rates. If someone invested money then they clearly did not need it, thus they need returns even less. Really, you can try to justify any tax policy by reframing the question, but the root argument breaks down to having other people pay more so I pay less which is never really justified.

> Really, you can try to justify any tax policy by reframing the question, but the root argument breaks down to having other people pay more so I pay less which is never really justified.

Indeed, the "root argument" in favor of taxation is fundamentally all about "having other people pay more so that I pay less". That being the case, why did you start out by saying that "investments should have much higher tax rates", only to contradict yourself later?

Re: Taxation of Carried Interest

#303

Post by nybble41 » Tue, Jun 12, 2018, 8:21 PM UTC

yk wrote: post #178

merinowool wrote: post #169

Earlier quoted context omitted.

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?

> What is the precise benefit of say a Ferrari dealer compared to a typically lower income trade like a teacher?

The Ferrari dealer's value to society lies in connecting prospective producers and consumers of Ferraris. It is popular to undervalue middlemen, but without the dealers producers' skills would be underutilized while buyers' wants would go unfulfilled. Presumably the job itself is not something just anyone could do, either, or everyone would be dealing Ferraris (and the pay would be much lower); one needs a relatively rare combination of personality, skills, and connections to succeed.

The marginal benefit to society of yet another new teacher, on the other hand, is not very high. Education is not something society particularly values; primary school these days is basically a glorified day-care. Nonetheless, the role of teacher still carries a certain glamour which ensures a steady supply of idealistic applicants, despite the low wages. Whatever issues the educational system may have, throwing more warm bodies at the problem is not likely to prove any more effective than the past and ongoing attempts to resolve the issues with piles of money.

If you're approaching this from the position that a teacher "objectively" provides more benefit to society than a Ferrari dealer, despite the fact that the dealer's services are clearly valued more highly, then I'm afraid I can't help you. The marginal value, and consequently "social benefit", associated with performing a task is subjective, not objective. The closest you will ever get to an objective measure of value is the price the good or service has historically commanded in a free market, and even then all you really know that that at the point the trade took place the buyer valued the good more highly than the payment, while the reverse was true for the seller. If the seller makes a profit it means that they took materials valued at one price and turned them into something valued more highly by the buyer. In the absence of external costs, what benefits the buyer also benefits society as a whole, if only in the aggregate.

Re: Taxation of Carried Interest

#304

Post by Retric » Wed, Jun 13, 2018, 2:04 PM UTC

nybble41 wrote: post #302

Retric wrote: post #218

Earlier quoted context omitted.

Alternatively, investments should have much higher tax rates. If someone invested money then they clearly did not need it, thus they need returns even less. Really, you can try to justify any tax policy by reframing the question, but the root argument breaks down to having other people pay more so I pay less which is never really justified.

> Really, you can try to justify any tax policy by reframing the question, but the root argument breaks down to having other people pay more so I pay less which is never really justified. Indeed, the "root argument" in favor of taxation is fundamentally all about "having other people pay more so that I pay less". That being the case, why did you start out by saying that "investments should have much higher tax rates"…

Because I was simply coming up with a counter argument not advocating for a position.

I could support the fist line by saying investments are taxed at below average rates including loans (bonds) which are not double taxed. And a flat tax without any form of tax breaks is the only fair solution.

But, again not trying to support a position just disappointed with the way taxes are discussed. Arguably all people deserve a tax break, but the only way to do that is reduce spending.

Re: Taxation of Carried Interest

#305

Post by fleetingmoments » Wed, Jun 13, 2018, 2:36 PM UTC

chii wrote: post #168

bawse1 wrote: post #142

Earlier quoted context omitted.

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)?

If your personal time is infinitely valuable to yourself, why do you sell for way below that?

Re: Taxation of Carried Interest

#306

Post by bluecalm » Thu, Jun 14, 2018, 1:37 PM UTC

sjwright wrote: post #264

bluecalm wrote: post #225

Earlier quoted context omitted.

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.

Who says we need more investment from private citizens? Perhaps we need less.

If you care about people benefiting from economy growth you want them to own part of it. This is accomplished by them investing instead of consuming.

If something really crazy like progressive capital gain tax is introduced then a lot of people will rather consume instead of taking bets with a lot of risk attached to it and very little upside. This goes for every high tax: if the upside becomes not very tempting you may just as well settle on what you have and stop trying to improve your situation/produce more as huge part of that surplus will be taken away from you anyway.