What the majority of the electorate wants is something that will be fair, bring jobs back to this country, and stimulate the economy enough so that revenues for the government don't decrease.
Of course, everyone has a different definition of what's fair. Poor people want rich people taxed more, since they can afford it, and the rich feel that they already pay enough, with the top 1% paying 45.7% of all taxes and the bottom 60% of the country paying only 2%.
Both House and Senate plans lower taxes on all the existing income brackets. But as long as we have a graduated income tax, it seems unfair that a married couple making half a million a year pay the same rate as a hedge fund manager making 20 million a year. We should have new brackets, with higher rates, kicking in at 1, 2, 5, and 10 million a year.
People who make half a million a year are paupers compared to those who make ten.
Almost everyone -- except Tim Cook and his tax lawyers -- can agree that allowing Apple to run its profits through Ireland so it can be taxed at 2% is not an ideal state of affairs.
While we're at it, we also need a tariff for products from American corporations which manufacture them abroad. We also need to respond in kind to countries which either put tariffs on our goods or dump goods here (think China).
The Right tends to look at inheritance taxes from the viewpoint of the parents, who worked hard and paid taxes on their income and want to leave something for their loved ones. The Left looks at them from the children's viewpoint: it's unfair that some children get more unearned bounty than others. Both sides have merit.
So, the inheritance tax should probably be kept as is, with roughly five million passed along tax free and the rest taxed. If we abolish the inheritance tax -- as Trump wants -- we'll move toward feudalism. America's strength has always been its social mobility.
The House wants to cap the home mortgage deduction at $500,000, the Senate wants to keep it at a million. The House version is better: why should someone get a tax deduction for living in a mansion?
Eliminating the state and local tax deduction seems politically-motivated: the highest state tax rates are in blue states. But putting pressure on these states to get their budgets in order isn't a bad idea. (It's not entirely coincidence that these are also the states with the highest deficits, and the highest unfunded pension liabilities.)
Taxing colleges is a great idea. Harvard has roughly 37 billion: why should it be allowed to operate tax free? College tuition has way outstripped inflation over the past 30 years, as student loans have proliferated and colleges themselves have gotten bloated and fat. At the same time, a typical college education now consists largely of pc propaganda, the opposite of teaching students to think for themselves. Tax the rich propagandists.
If you ever doubt how loudly money talks, consider this: the carried interest deduction for hedge fund managers isn't even up for discussion. This provision basically means that hedge fund managers get taxed for their work at the same rate as their investors, the long term capital gains rate. There is no one who understands this who approves -- beside hedge fund managers and the politicians they contribute to.
That deduction should be done away with, immediately.
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i would suggest removing all deductions ( medical bills, state income tax etc) and lower overall tax rate. additionally serves to make the tax stuff simpler.
Dave --
Simplicity is always better.
Simplicity, why a flat tax is always brought up. I admit to not being educated in the field of taxation and why some are for a flat tax and others are against it.
Not Dave --
I'm for simplicity, as a general rule, but also for a graduated income tax, just because it strikes me as fairer. some of that may just be an instinctive feeling based on having known a lot of middle class people and a few extremely rich people in my life. On average, the middle class people had more of a sense of responsibility than the super wealthy. That's my experience, anyway.
people want to tax rich people because they're rich, not because they really care about carried interest.
carried interest is not just a hedge fund thing. it is also a positive thing for people to use to help themselves move up the social ladder. It helps them raise money to start businesses and limits the liability of the investors. keeping investment costs low is important to keep the supply of investable money higher. If you remove carried interest, you'll end up taxing investors money at ordinary rates, too. They'll simply look elsewhere to invest their money.
If politicians try to design a system where they're just targeting hedge fund managers and private equity partners, then they're just going after rich people and using carried interest as an excuse. people are jealous because carried interest allows people to leverage a small amount of money into a large amount of money. well, that happens in tech, too. no one is talking about how to tax zuckerberg's facebook shares as ordinary income. and if they changed that rule, you'd have larger negative consequences on society, too.
In fact, carried interest was first used in italy in the middle ages to help lower class merchants break free from their lower class. I believe people still use it that way today, too.
i dont think the threat of feudalism comes from capital markets or tax rates, i think it comes from the growing political class and judiciary. i'm much more scared of our judicial system than our economic system. i'd say that judges and district attorneys are the new lords and vassals, each getting a fiefdom to rule with little oversight. the problem intensifies in areas where politics trumps rule of law, and a region is politically aligned all the way up the appellate court structure.
it seems patently unfair that the state, employed by professionals and who have large budgets, gets to compete against citizens who are amateurs with respect to the legal system, and almost no budget. I think that every dollar spent by the state for a case should be supplied by the state for the defendant, as well. None of this pathetic public defender nonsense. equal budgets for both sides. people shouldn't have to choose between financial destruction and defending their legal rights, especially when they are state charges.
B
B --
I think we're talking about different things. Here's the definition of the carried interest loophole for hedge fund managers, from Google:
"Carried interest, income flowing to the general partner of a private investment fund, is generally treated as capital gains for the purposes of taxation. This tax preference is viewed as an unfair, market-distorting loophole by some but consistent with the tax treatment of other entrepreneurial income by others."
Hedge fund managers claim they should be taxed at the same rate as their clients, who have either long term or short term capital gain rates, as appropriate. But the hedge fund managers don't necessarily) invest their own money in their funds, they're essentially bbeingpaid a management fee. In other words, it's pay for their work, not for an investment. So why should they pay only the long term capital gains rate for their fees? (To the extent that they DO invest their own money in their funds, of course, that money should be taxed at the appropriate capital gains rate.)
I agree that Zuckerberg should have his ale of his shares in Facebook taxed at the capital gains rate, but that's because he essentially had his own money in Facebook. As far as businesses deducting the cost of interest, I agree, that should be treated as an expense, since that's exactly what it is.
I don't like the increasing size of government either, but the feudalism I was talking about was inherited property. If Bill Gates had, say, one kid, and there was no inheritance tax, that kid would end up just as rich as Gates himself, which strikes me as not quite right.
the first point I'd like to address is that carried interest probably applies more directly to private equity than hedge funds. if a hedge fund doesn't have long term investments, or a series of funds, they can't use the carried interest strategy. i think they get lumped in with private equity because to most people they all seem the same. hedge funds probably use other strategies to defer or avoid income tax, ways that wont be affected by a change to the carried interest rules.
the important bit in your quote is "but consistent with the tax treatment of other entrepreneurial income." that is true, and i think is a "fact" and not a "view". those who see it as unfair only do so because the people who use it tend to be rich. that's not a very convincing argument.
the amount of money zuckerberg had in facebook was small relative to that of outside investors, but his ownership share was outsized compared to his invested capital.
that's what happens with carried interest. the managing partners in an investment partnership will have less money in the partnership than the limited partners, but a larger share of ownership of the biz relative to the percent of capital they contributed. so while they don't put up 20% of the capital to invest, they get 20% of the ownership. Its what they negotiate in the partnership contract.
Carried interest is derived from the sale of assets. if they don't sell the assets for more money, they don't get paid. where is the ordinary income? It's not a bonus, its not a tip, not a wage based on piecework activity, not a commission, and it's not a fee for service. they have partners in a business where they negotiated a favorable ownership split because of their perceived talent/added value.
zuckerberg leveraged his computer science skills, investors leverage their investing skills.
If i didn't have much money, but knew a thing or two about real estate, i could raise money in a limited partnership, take 20% ownership, build a small residential rental business and sell it ten years later. i'd be doing the same thing as a private equity company.
i know we'll both "go our separate ways" on this issue. I just wanted to contribute a couple of points that i thought were salient.
B
B --
You make some good points, but for a hedge fund manager to be taxed for what is essentially an advisory role is the equivalent of a mutual fund manager -- or any mutual fund employee -- only paying the capital gains rate on his income for his work. A private equity guy has an ownership stake, Zuckerberg had an ownership stake, as did the Google twins and Bezos et al, but neither a hedge fund manager nor a mutual fund manager has an ownership stake in the stocks that are owned by the mutual fund. They both have a vested interest in how those stocks do, but neither owns those stocks.
I used to be a municipal bond trader. The interest on municipal bonds is exempt from taxes; did that mean my income should have been exempt from taxes? After all, I was trading *tax exempt* bonds. To be honest, that line of reasoning would never have occurred to me, and if someone had suggested that, while I would have been delighted, I couldn't have justified it.
And as far as leveraging skills, I don't quite see the relevance of that argument. LeBron leverages his basketball skills to make a lot of money, but that has nothing to do with how he should be taxed.
I think we're talking past each other, a bit.
hedge fund owners own the hedge fund. it's 'a limited partnership. if profits are generated via long term investments, thats what they pay. if it's short term, they pay ordinary income tax. If hedge funds invested in baseball cards, they'd pay 28% on the profit, which is what the tax rate on collectibles held for more than one year get.
the profits from the business are distributed between the general partners(hedge fund managers), and the limited partners/investors according to the percent split that each side agreed to in the contract.
hedge funds and private equity funds are not advisory roles. they don't get paid no matter what, and aren't an employee or have customers. they have investors and their own capital at risk. they buy and sell assets. Also, if the fund takes on debt, they're liable for that, too. These aren't things that employees do for their emlpoyer or what businesses do for their customers.
zuckerberg leveraged his skills to get an -ownership stake- that was outsized relative to his invested capital, just like hedge funds and private equity owners. LeBron used his skills to negotiate a high salary on his employment contract. You were an employee for a company investing in tax advantaged bonds. if you did well, you go a bonus, if you did poorly, you didn't lose money or have to pay off debts.
if you owned the business, then yes, your income would be tax advantaged too. a partnership is not taxed separately, the income is passed to the individual. if the partnership had long term capital gains, so does the individual.
B
B --
I don't mean to take on an antagonistic tone here, you've always been a good commenter, but here goes. Yes, hedge fund partners own the hedge fund, but that's not the same as owning the stocks they put their investors into. I'd say hedge fund managers are a lot closer in their business model to mutual fund managers than they are to the private equity guys. And in fact, traditionally hedge fund managers do get paid no matter how the hedge fund does, under the standard "2 and 20" rule: a 2% management fee plus 20% of the profits. I know that as things have gotten more competitive that a lot of hedge funds have cut their fees and their percentage of the take, but that was standard for a long time. So even if they lost money for their clients, they got 2% of whatever their clients invested.
Anyway, you're right about us going our separate ways on this issue. May I ask if you work for a hedge fund?
No antagonism felt here. I know that we're looking at each other on opposite sides of the street. I hope what i write seems fair and genial, too.
The 2% management fee represents the salary managers draw from the company based on their active participation. It's the same as a salary a ceo would draw from a company he owned. Hedge fund managers will pay ordinary rates on that income.
the stocks are co-owned by both partners in the business.
mutual funds and hedge funds are different enough, though, to be treated differently. Someone can make a bonus and profit seem very similar to each other if they simplify the picture enough, too.
I don't work for a hedge fund. i am worried about the downstream affect on smaller partnerships, though; it is why i think people should be honest about their motives with regard to this topic. if they want to tax rich people, then promote the idea of taxing them directly based on their wealth. don't try to do it in a roundabout way that could damage business and investing.
Cheers, B
B --
Ah, good. Combative congeniality is the tone I strive for here. And yes, you've been a complete gentleman.
As far as hedge funds, we'll just have to agree to differ. I agree about honesty. Although I was part of that world once, I don't look back on my time there with kindness; but at the same time, I bear it no ill will (as much of a learning experience about sociopathy as it was). You're right, however, that some are motivated by jealousy.
Coincidentally, someone just suggested a wealth tax to me yesterday, and I found that I really couldn't come up with any good arguments against it. (That doesn't mean I'm FOR it, probably just shows I can't think fast on my feet.) The way he phrased it was, "Does anyone NEED more than a billion dollars?" Of course, the answer to that is no. But if you take that incentive away, it would screw with the system in all sorts of insidious ways. And, of course, cheating would become rampant in such a system. If people can't work in their own self-interest, they simply won't work. So the system that works best is capitalism, i.e., controlled selfishness. (I'm not arguing with you in this paragraph, merely saying what I should have said to that guy yesterday, though he's not see to listen now.)
Anyway, thank you for your comments. BTW, I probably feel the same way you do about most smaller partnerships, like law firms. And I actually agree about private equity entities. It's just hedge funds....
You’re spot on about higher education. Colleges are incented to raise prices because student loans have proliferated. It’s amazing but not surprising that Elizabeth Warren has a blind eye to the consumer financial harm done by heavy debt loads from student lending. Every college campus has huge construction projects underway and the campus dining and recreation facilities put the private sector equivalents to shame Start taxing the colleges.
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