Taxes

[scottw]

some continue to blur the simple distiction between earned income and capital gains income....


The tax on capital gains directly affects investment decisions, the mobility and flow of risk capital... the ease or difficulty experienced by new ventures in obtaining capital, and thereby the strength and potential for growth in the economy.
John F. Kennedy


this is the beauty and evil of a "progressive" tax code..politicians and citizens can arbitrarily target individuals and their wealth regardless of source based on arbitrary needs and political expedience while at the same time excluding large portions of the population who can be then be mobilized against those not paying their fair share...it's all very childish and shameful....tax policy is little more than a political club used to rile up portions of the population in order to grant politicians the ability to "institute fairness" which, as Jimmy has found, tends to envelop and adversely affect many more than was originally claimed intended like every other liberal "great idea".....

this argument over tax rates completely ignores the real problem that we have...

this is like an employee going to their boss demanding a larger paycheck.....and the boss telling the employee that they're already the highest paid at what they do they just have too many maxed out credit cards and children out of wedlock, equity loans and personal loans and they keep taking those 4 million dollar vacations when their salary is only a fraction of that(which sets a really bad example for others)...

and then the employee, deaf to all that was said, in response, starts bitching about how much the boss makes
as though that will somehow improve his situation....

[scottw]

"Focusing attention and attacks on people who have greater wealth-generating capacity — whether races, classes, or whatever — has had counterproductive consequences, including tragedies written in the blood of millions. Whole totalitarian governments have risen to dictatorial power on the wings of envy and resentment ideologies.

Intellectuals have all too often promoted these envy and resentment ideologies. There are both psychic and material rewards for the intelligentsia in doing so, even when the supposed beneficiaries of these ideologies end up worse off. When you want to help people, you tell them the truth. When you want to help yourself, you tell them what they want to hear.

Both politicians and intellectuals have made their choice."

Thomas Sowell

[JohnnyD]

Originally Posted by scottw

some continue to blur the simple distiction between earned income and capital gains income....

It's not that people are blurring the distinction between "earned income" and "capital gains income", it's that people are commenting about paying a sub-15% tax rate on their income, regardless of how it is categorized.

Taxes are taxes, whether I write a check to the state of MA or to the IRS, just like income is income whether it was earned through dividends or a paycheck.

[scottw]

Originally Posted by JohnnyD

It's not that people are blurring the distinction between "earned income" and "capital gains income", it's that people are commenting about paying a sub-15% tax rate on their income, regardless of how it is categorized.

Taxes are taxes, whether I write a check to the state of MA or to the IRS, just like income is income whether it was earned through dividends or a paycheck.

no difference, regardless of how it is categorized....interesting...


this should be fascinating, I'll let the numbers guys weigh in before I take a crack at that logic

[scottw]

crickets...OK

first, while I would absolutely agree with you that there ought to be a simplification of the code and may even agree that all of the various forms of income ought be "treated the same" when a tax rate is applied....there are simply no facts to back up your statement that "income is income" because the various incomes are derived very differently and as such have been treated historically very differently with regard to taxation....it may just be a wishful "vote them all out" of type generality but we both know that neither are very likely to occur any time soon....

so if we are talking about the reality today...the two are very different, both in how they are derived, categorized.. as well as how they are taxed...

Romney is subject to various tax rates on various forms of income and expenditures just as you are subject to various tax rates on the same...you have differing rates on income, savings and investments depending on your income and investments and can take advantage of certain investments to avoid or defer taxes....seems that many jump on the "tax everyone the same bandwagon" up until they examine their own situation closely and consider what their liability might be now and in the future if they were to pay a flat rate with no deductions, tax shelters or incentives to invest

it is absolutely "blurring the line" to complain that Romney is paying a lower rate on income which is defined by the IRS as something entirely different than your own earned income(salary), which is exactly what has been said...noone has complained that Romney pays a lower rate on his investment income than they do because they pay the same and probably less...it is just disingenuous...apples and oranges...as is often said here

someome mentioned carried interest...which is 30% of Romney's income in the two years taxes that he released and derived from his time at Bain Capital, the rest is from other investments....you can certainly argue that carried interest ought to be taxed like earned income(but show me and example where earned income can be construed as a long term investment and an earner is willing to wait 1-5 years to receive the benefits of the income)

On a typical fund, it takes at least five years before the managers begin to collect carried interest, says Emily Mendell, a spokeswoman for the National Venture Capital Association.

.... there are stipulations that come with the derivation of carried interest that differ from traditional earned income that make them very different and more to the point, changing the way that carried interest is taxed would do precious little to improve the country's economic situation but I guess it might make a few people feel better and would still leave the Romney types paying 15 or so % on the other 70% of his income

if you want to argue for a 15% flat tax for all Americans on all income...I'm sure that Romney would be quite happy to support that


read this...she gets into the nuts and bolts of the topic pretty well...she is an advocate of taxing all income equally and is pretty thorough in her assesment of the whole situation

Raising carried interest tax won't solve problem

[scottw]

a little more on the subject...



Understanding Carried Interest

Is there a tax loophole that benefits fund managers?
By Alan D. Viard

Mitt Romney’s release of his tax returns has pushed the arcane issue of “carried interest” — the share of an investment fund’s profits given to its managers as payment for their services – back into the headlines. Critics have renewed their calls to tax the carried interest as ordinary income. Unfortunately, the populist rhetoric used by some critics can obscure the facts about how carried interest is actually taxed.

Some critics assert that all carried interest is taxed at the lower 15 percent that applies to capital gains and dividends. They complain that these funds are able to “turn” ordinary income into capital gains and dividends by paying managers in carried interest rather than salary, and that the funds are exploiting a special loophole not available to other firms. Looking at how carried interest works reveals that none of these things are true.


A private-equity, venture-capital, or hedge fund may earn various types of income — interest, short-term and long-term capital gains, dividends, and profits from non-corporate business holdings. These funds are organized as partnerships, with both the managers and the investors as partners. As a partnership, the fund is not directly taxed on its income. Instead, each partner is taxed on his share of the fund’s income — whether or not he removes it from the firm.

The managers pay the same tax rate on income from the fund as they would pay if they had earned the same income on their own — channeling the income through the partnership doesn’t change the tax rate. Managers pay 15 percent tax on any carried interest that reflects long-term capital gains or dividends earned by the fund, as they would on any long-term gains or dividends they might earn on their own. But managers pay ordinary income-tax rates on any carried interest that reflects short-term gains, interest, or non-corporate profits earned by the fund. The tax rate depends on the kind of income the fund earns — not all carried interest gets the 15 percent rate.

But, should any of it get that rate? Critics point out that, if the fund had paid its managers a straight salary, the salary would have been taxed as ordinary income. They argue that the fund should not be allowed to “turn” ordinary income into capital gains or dividends simply by paying the managers carried interest rather than salary.

But that’s not what’s going on. The way the fund pays its managers can’t change the total amount of capital gains and dividends or the total amount of ordinary income the fund has earned. Paying carried interest rather than salary simply reallocates the two types of income among the two types of partners — it gives managers more of the gains and dividends and less of the ordinary income while giving the investors less of the gains and dividends and more of the ordinary income. Nothing gets turned into anything else.

To be sure, this reshuffling of income usually produces net tax savings. The managers pay less tax because they get more of the lightly taxed gains and dividends. And the investors are often pension funds that don’t have to pay tax no matter how much ordinary income they’re given.

Critics don’t explain, though, why these tax savings are improper. The funds and managers aren’t exploiting a special loophole — they’re following the same tax rules that apply to everyone else. Because all partnerships may choose how to allocate their income among their partners, any partnership is free to allocate gains and dividends to partners who work rather than those who invest. The funds certainly have good business reasons to pay carried interest rather than salary — that arrangement gives managers the most powerful incentives to maximize performance. And managers who receive carried interest face the same risks as the investors.

These complicated issues could be avoided under a consumption tax or a better-designed income tax. Starting from today’s system, it’s hard to identify a single “right” rule for how partnerships should be allowed to allocate income. But critics have failed to make a good case for imposing special restrictions that would prevent private-equity, venture-capital, and hedge funds from using the tax rules that apply to other industries. Any tax changes that are adopted should apply throughout the economy and should be based on facts rather than populist rhetoric.

[spence]

Originally Posted by scottw

And the investors are often pension funds that don’t have to pay tax no matter how much ordinary income they’re given.

You should have put this line in bold as it's the most important one in the entire piece.

So Justplgit's pension gives me 100 dollars to invest, I turn it into 120 dollars through my market savvy, give him his 100 dollars back + some interest we already agreed to. I keep the rest, but since it's all profit it's treated as capital gains...Justplugit's pension pays nothing as pension funds are exempt from taxes.

Now I would think you could argue that the beneficiaries of the pension funds are also getting a tax break...and they are.

I also understand that when you add it all up it doesn't fix the tax revenue problem, and that to change the tax code just a narrow part of the population doesn't make a lot of sense.

But if not technically a loophole it sure does sound like some hedge fund and private equity managers are able to get out of paying A LOT of taxes on what is really income when they whip out the cash for that new Porsche...all for taking risks with other people's money.

-spence

[scottw]

Originally Posted by spence

You should have put this line in bold as it's the most important one in the entire piece.

But if not technically a loophole it sure does sound like some hedge fund and private equity managers are able to get out of paying A LOT of taxes on what is really income when they whip out the cash for that new Porsche...all for taking risks with other people's money.

-spence

it's really income Spence....
these were the important points...do you have to wait typically 5 years for your efforts at work to pay out and hopefully pan out before you can whip out cash for your Porsche...or anything else?

The managers pay the same tax rate on income from the fund as they would pay if they had earned the same income on their own — channeling the income through the partnership doesn’t change the tax rate. Managers pay 15 percent tax on any carried interest that reflects long-term capital gains or dividends earned by the fund, as they would on any long-term gains or dividends they might earn on their own.

But managers pay ordinary income-tax rates on any carried interest that reflects short-term gains, interest, or non-corporate profits earned by the fund.

..............
Suppose a venture capital firm raises a $100 million fund from outside investors. The fund's manager charges an annual fee - typically 2 percent of the fund's assets - to find and monitor investments and cover its overhead. The manager pays ordinary income tax on this fee.

Once the fund has made enough money to repay investors $100 million plus the annual fees, the manager keeps 20 percent of additional profits and the outside investors get 80 percent.

This 20 percent is the carried interest. It is considered a long-term capital gain and taxed at 15 percent as long as the fund's investments are held more than a year.

On a typical fund, it takes at least five years before the managers begin to collect carried interest, says Emily Mendell, a spokeswoman for the National Venture Capital Association


The tax rate depends on the kind of income the fund earns — not all carried interest gets the 15 percent rate.

[justplugit]

Originally Posted by spence

...Justplugit's pension pays nothing as pension funds are exempt from taxes.



-spence

That's because it's an incentive for companies to provide for their retired
employees. They also need to file an annual report to the Labor
Dept as to insure having enough funding for everyone in the plan.
Don't know for sure but there must be penalties if they fall below a
certain level. There is risk.
The Govt still does well as the employee pays taxes on the pension $
as regular income.

Spence, can you give me the name of this savy market guy you speak of
who can turn my$100 into $120???? With these market conditions I'd be happy
to take $5 of his $20. I thought Madoff was in jail. LOL

[Jim in CT]

Originally Posted by JohnnyD

just like income is income whether it was earned through dividends or a paycheck.

Wrong.

Investing in a company (whether you are hoping for dividends or capital gains) involves RISK, LOTS OF RISK. We need to encourage investors to take on that risk, and the way you do that is to make the "reward" comparable to the risk.

Capital gains are the "cost" of making money by investing. Chapter 1 of any economics text will clearly state that when you increase the cost of something, the demand for that something (no matter what it is), goes down. You don't want to stifle the demand for investment returns, particularly in a recession.

Money earned through investing is very, very different than what you earn in a bi-weekly paycheck. I don't need to risk any of my personal assets in order to earn a paycheck. There are, in my opinion, valid reasons why capital gains are taxed at a rate lower than income.

Here's what gets me about all this...John Kerry is worth 10 times what Mitt Romney is worth, and Kerry's effective tax rate is a little lower than Romney's. Where was all this outrage when Kerry ran for President? Menaing, it's OK when rich liberals do this, but when conservatives do it, they are out to screw the middle class. It's bullsh*t.

[RIJIMMY]

Originally Posted by Jim in CT

Wrong.

Investing in a company (whether you are hoping for dividends or capital gains) involves RISK, LOTS OF RISK. We need to encourage investors to take on that risk, and the way you do that is to make the "reward" comparable to the risk.

Capital gains are the "cost" of making money by investing. Chapter 1 of any economics text will clearly state that when you increase the cost of something, the demand for that something (no matter what it is), goes down. You don't want to stifle the demand for investment returns, particularly in a recession.

Money earned through investing is very, very different than what you earn in a bi-weekly paycheck. I don't need to risk any of my personal assets in order to earn a paycheck. There are, in my opinion, valid reasons why capital gains are taxed at a rate lower than income.

Here's what gets me about all this...John Kerry is worth 10 times what Mitt Romney is worth, and Kerry's effective tax rate is a little lower than Romney's. Where was all this outrage when Kerry ran for President? Menaing, it's OK when rich liberals do this, but when conservatives do it, they are out to screw the middle class. It's bullsh*t.

God help me, Im on the side of the libs with this one!
Why this wasnt an issue with Kerry is because the republicans were not making the deficit a major battle cry when Kerry ran. They couldnt because Bush was key culprit in raising it
To be straight - I am for significantly lowering government spending and for lowering taxes. But we have significant loopholes that WAY overbenefit the wealthy and honestly are not fair. I've spent my career in investments, i know cap gains inside and out. I get this stuff.
But its crap that I pay $30 a day to commute to my job, make good money, take the "risk" every day of major decisions, sacrifice a shat load but due to AMT, I can barely take any deductions and NO TAX code benefits me. Yet multi millionaires can take all kinds of deductions and pay a less effective rate. The tax code needs to be changed. Loopholes need to be closed

[detbuch]

Originally Posted by RIJIMMY

God help me, Im on the side of the libs with this one!
Why this wasnt an issue with Kerry is because the republicans were not making the deficit a major battle cry when Kerry ran. They couldnt because Bush was key culprit in raising it

Jim in CT was not talking about making the deficit a major battle cry, but about not making Kerry's tax rate an issue.

To be straight - I am for significantly lowering government spending and for lowering taxes.

And how is this on the liberal side?

But we have significant loopholes that WAY overbenefit the wealthy and honestly are not fair.

"Conservatives" are not against closing loopholes, and they are in favor of various "fair" forms of taxation, including everybody paying the same rate, and even excluding the poorest from that rate. But, then, "fair" is in the eyes of the beholder.

I've spent my career in investments, i know cap gains inside and out. I get this stuff.
But its crap that I pay $30 a day to commute to my job, make good money, take the "risk" every day of major decisions, sacrifice a shat load but due to AMT, I can barely take any deductions and NO TAX code benefits me. Yet multi millionaires can take all kinds of deductions and pay a less effective rate. The tax code needs to be changed. Loopholes need to be closed

Fine, eliminate loopholes, get rid of the AMT, give RIJimmy a tax code that benefits him, etc. I don't think Jim in CT was talking about that. I think he was clearly explaining the rationale behind using the tax code to encourage investment.

[scottw]

Originally Posted by RIJIMMY

But its crap that I pay $30 a day to commute to my job, make good money, take the "risk" every day of major decisions, sacrifice a shat load but due to AMT, I can barely take any deductions and NO TAX code benefits me. Yet multi millionaires can take all kinds of deductions and pay a less effective rate. The tax code needs to be changed. Loopholes need to be closed

Jim, you know that I love you and harkening back to the Sowell quote I posted earlier, "if you care about people you tell them the truth"...I was reading the CBO projections going foward the other day and the two scenarios mentioned were the "rosy" scenario and the one where we were screwed....the "rosy" scenario is counting on the Bush tax cuts sunsetting and an expansion of the AMT to adversely affect many, many more Americans, so I'm telling you the truth...you will continue to get screwed and it is very likely to get worse for those in your earning range because you represent the largest portion of the population both actually paying taxes and sitting on significant savings and investments...and you have stuff like trucks and boats(I think Spence referred to these as luxuries when you mentioned them previously) so noone is going to feel sorry for you...if you have money they have a bullseye on you...that's just how it is

and they never, ever stop...

The UN also has a habit of using money designated for relief projects to enrich its own coffers, including the $732.4 million budget for earthquake-shattered Haiti, two thirds of which was spent on “the salary, perks and upkeep of its own personnel, not residents of the devastated island.”

UN Wants World Tax To ‘Help The Poor’

Global levy needed to aid “needy people” get free housing, education and healthcare

Friday, February 3, 2012

The United Nations wants a world tax imposed on all financial transactions to fund a global model of social services that will provide “needy people” with a basic income, free healthcare, education and housing.

The drive is part of the UN’s mission to create a “social protection floor” under the auspices of the Commission on Social Development, which began this week in New York. The SPF will become the UN’s primary focus from 2015 onwards when the Millennium Development Goals project concludes.

“The money to fund these services may come from a new world tax,” reports the Deseret News, quoting Jens Wandel, Deputy Director of the United Nations Development Program, who said that a long term funding plan for the project would center around “a minimal financial transaction tax (of .005 percent). This will create $40 billion in revenue.”

“No one should live below a certain income level,” stated Milos Koterec, President of the Economic and Social Council of the United Nations. “Everyone should be able to access at least basic health services, primary education, housing, water, sanitation and other essential services.”

According to the report, the new global tax is designed to be a progressive scale, with higher earners paying more to help provide “all needy people with a basic income, healthcare, education and housing.”

[scottw]

Originally Posted by RIJIMMY

. Loopholes need to be closed

Loopholes...this is one of those words that gets thrown around a lot..probably thoroughly focus group tested to illicit anger particularly with regard to corporations(except the liberal ones) and millionaires and billionaires(except the liberal ones) and which carries credability for some reason while never referring to anything specific...intentionally....

can you name a few?

oh, Jimmy, I forgot to mention, you can also expect to be means tested out of both Social Securtiy and Medicare..it's the only way....

loopholes should be called leghold traps....

politicians create exemptions and incentives to get corporations and businesses, individuals to behave in a way that politicians would like them to behave......

corporations and businesses or individuals take advantage or these ...

time goes by...

the same politicians publically assault corporations, businesses and individuals for unfairly exploiting "loopholes" all the while acting as though they had absolutely nothing to do with it and usually having exploited many of these or gained some benefit themselves...

[zimmy]

Originally Posted by Jim in CT

Money earned through investing is very, very different than what you earn in a bi-weekly paycheck. I don't need to risk any of my personal assets in order to earn a paycheck.

Do you own a business? A person who opens a business takes a huge risk. A person who fishes for a living takes a huge risk. A barber takes a risk. A contractor, plug builder, etc etc. In fact, the risk to them might be infinitely higher than for a person who has 100,000,000 net worth and invest 50 million. They can afford that risk. The argument that investment through the market warrants different rates than earned income is arguable.

[Jim in CT]

Originally Posted by zimmy

Do you own a business? A person who opens a business takes a huge risk. A person who fishes for a living takes a huge risk. A barber takes a risk. A contractor, plug builder, etc etc. In fact, the risk to them might be infinitely higher than for a person who has 100,000,000 net worth and invest 50 million. They can afford that risk. The argument that investment through the market warrants different rates than earned income is arguable.

"Do you own a business?"

Yes, i am part owner of a gold refinery. I don't see the point of that. If i lose the miney I put up, I get to deduct it from my taxable income. That's tax policy that encourages entrepeneurs, and it's smart policy.

"They can afford that risk."

Society cannot afford to make investing not seem like a good gamble. We need ro encourage investors, because businesses need capital to function.

Every decision as to whether or not to invest in a company depends upon a cost benefit analysis, or a comparison of risk versus reward. If you hike the capital gains tax rate, every single investment makes less mathematical sense to take a chance on.

[scottw]

Originally Posted by zimmy

The argument that investment through the market warrants different rates than earned income is arguable.

yup, but it's an argument based on emotion rather than common sense..as you have just demonstrated...I've been self-employed for my entire adult life, I've never considered it to be a risk, let alone a HUGE RISK...just a choice...some good aspects and some not so good...you learn to survive when you are self-employed, I know a lot of self-employed people who are "surviving" right now, they're not collecting unemployment(and don't show up in the phony numbers) ....you continue to argue that what we need to do is take more from some as though that is the solution to our problem, we have never had a revenue problem, what we have is an expansion of the size and expense of government at all levels problem and overpromising that is unsustainable. You didn't answer my question in the other thread re. the spending under the various administrations....if you look more specifically at the the spending you will see that we are going broke funding things that were never mandated as a function of government by the Constitution...you ignored the role of Congress in the spending equation and the effect....you reflect the argument that we see from Democrats every day, which is to continue to rail against anyone that you can pick as a target as someone who should pay more with emotional rhetoric and lots of zeros...completely ignoring the unsustainable spending track that we are on as a nation....

[justplugit]

Originally Posted by scottw

The tax on capital gains directly affects investment decisions, the mobility and flow of risk capital... the ease or difficulty experienced by new ventures in obtaining capital, and thereby the strength and potential for growth in the economy.
John F. Kennedy


....

He had it right there for sure.
He understood Risk and made the right call on standing up to the
Russians in the Cuban Missel Crisis too, as scary as it was at the time.