Taxes Are for the Little People

(And yes, monied interests have Many Dems in their back pockets as well.)

They are effectively making a salary for labor but only paying 0-20% on 25k/year from our business depending on how many other clients they have. This is much lower than the 10-37% most workers pay on their labor.

I'd argue that the business sale is capital gains. I never said it wasn't in my original post.

Carried interest and a fixed flat fee to manage an investment (which most people call a salary) should not be taxed as if they are capital gains.

There are many sub-cultures within the anglo-saxon-sphere, some of them cooperative, egalitarian, pluralistic, strongly democratic.

Call it for what it is, using whatever terminology you want ... capitalist, neo-liberal, oligarchic ... just use something more specific and more accurate than "anglo-saxon" if you want terms to actually have some meaning.

Claiming "whatever tax credit" is not a "loophole" but merely claiming what the law allows you to claim.

Note - it’s still legal.

So your idea is to punish people for doing legal things?

This is part of the reason the best tax system is one that is super simple. Once you add in exceptions and complexity, you necessarily create loopholes. Government needs to be humble about the reality that the adversary will always be smarter and willing to work harder.

Ah, so no growth, no taxes. I see what your did there.

Then everyone would be able to own 25,000,000 worth of stuff free and clear.

Putting aside the issue of the current trajectory of increasing inequality and its destabilizing effects on national security, the obsession Americans have with owning things "free and clear" is a reflection of a kind of privilege. The US is blessed with an expansionary economy, stable financial system, strong rule of law, military power, and respect for individual rights. These all form the basis of this belief that private property rights are absolute. They are never absolute, always subject to the goodwill of the social contract and the laws of physics. What good is owning things free and clear when there is a marauding militia outside your Capitol, or your land lost all value because of the environmental damage externalities of the economy?

Can you justify that at all?

Then the "rich" will no longer own anything, officially, their company will. There is no difference between having $1 billion in cash and being the director and fully controlling a $1 billion "company".

The latest data I saw from the IRS showed a consistent progressive tax rate right up to the top 0.1% (who pay the highest effective tax rate).

Even the Propublica article showed that Elon paid $500M in taxes when he sold $1.5B in shares.

The idea behind this: even the super rich consume. One might have a big yacht which costed a few hundred million dollars. If the state can enforce taxation of expenses of natural persons, the man with the yacht would have to pay a percentage of his expenses with the yacht.

I know there are many loopholes, but let's think about them and try to close them. One of them is pushing expenses abroad. To close the loophole declare that moving money abroad to a country which doesn't do expense taxation counts as expense. And let's try to this in many countries of the world.

I also know that super rich tend to consume less as a percentage to their wealth. But surely they consume a lot more and more expensive things than the general populace.

After all, people are people and it doesn't really matter what complicated structure of incorporations they have created to evade taxes. It doesn't matter, too, whether something is a salary or capital gain. Finally they will use part of the money to consume. Then strike hard and extract a percentage as tax.

I know there's value-added tax, this is similar, but the target is different. And I know this idea is somewhat vague. I just wanted to outline the principle here: expense taxation.

A huge win in terms of generational wealth under current law is if you keep the loan until you die, the loan still needs to be paid off but your heirs inherit the assets with a step up in basis to the new value, so capital gains are never paid. For this strategy you can search for "buy, borrow, die." Addressing this was in Biden's proposed budget but we'll see if it actually passes... there's likely to be a ton of pushback even though there are some carve-outs for family farms, family businesses, primary residences, etc.

Consider a landlord who takes an interest-only business mortgage to purchase a buy-to-let property.

In good times for landlords, the rent pays the mortgage interest and some more which is profit for the landlord.

Even if there is a slight loss, when property prices are rising the landlord does ok because they can refinance against the higher valuation.

This loan never needs to be paid off, as long as there's enough rent and/or refinancing to keep paying the interest. Both the bank and the landlord profit from keeping this arrangement as long as they want it, it can even be passed down generations or sold to someone else, as an ongoing business.

Edit to add color:

If you hold 6 months, the hurdle rate would be ~5%. If you hold 18 months, it's ~15%. You can't avoid the tax by churning, unless you're phenomenally lucky at market timing. The hurdle rate isn't 10%. It's 10% per year. That makes a huge difference. There is no incentive to churn your holdings. Quite the contrary, as the percentage taxed at a lower rate goes up each year.

Even so, they do pay less. Bezos claimed a tax credit for his children, FFS. Why are Amazon workers subsidizing their boss, they are the the ones that should be receiving the money.