The carried interest loophole survives again | Hacker News Reader

The carried interest loophole survives again

news.bloombergtax.com

26 pointstldrthelaw78 comments

When lobbyists push to reduce the tax burdens of equity firms it is implicitly putting a larger tax burden on the rest of us. I suppose someone that thinks equity firms are overburdened with taxes are probably okay with that.

Government spending is neither fixed nor wholly paid for via taxes (a lot of it is deficit spending). So while it's a stupid group to give a tax break to it's not necessarily a tax burden increase on the rest of us.

Heck, if we stopped being world police or fixed our healthcare we'd have a bunch of slush money on the table for whatever boondoggle tickles your fancy.

are there no people who, even today, advocate for reducing spending to be closer to revenues?

if so, forgoing revenues in such a scenario would consequently lead to such people advocating for even less spending, and/or higher taxes on the rest of us, even if we'd rather have the spending and also higher taxes on the parties in question

tl;dr: Your comment is based on the fallacy that a) government spending can't be maintained at current levels while simultaneously removing this loophole and taxing the parties in question

There are people that advocate that.

I wish there were some good write ups on money printing after the 2008 crash. Theoretically that should lead to higher inflation, which it didn't until now (and for different reasons).

So yes established theory used to be that spending should match revenues, with the difference being made up by inflation essentially. What the latest thinking is, and the implications of that I don't know.

Well technically speaking it did lead to higher inflation, it's just that the things that got inflated(assets, especially financial ones) are not part of what people look at when they look at inflation.

Are they more inflated than prior to 2008?

By and large you need a relatively small amount of money to inflate an asset. The difference between all bitcoins being worth $10k each or being worthless is potentially just one person willing to pay that $10k for only one.

Congress sells out to corporations / wealthy / lobbyists. Congress represents them instead of US citizens, anytime they can rig the economy.

86% of all federal taxes are paid by workers. 12% of all federal taxes = business taxes + capital gains. It used to be 50% by workers in 70 years ago. Congress sells out to redirect wealth to who they represent: wealthy / big corporations / lobbyists. Above numbers comes from US gov (congressional budget office) on breakdown of tax revenues.

Kyrsten Sinema was bought and paid for by private equity special interests to prevent the Dems from raising taxes on their management fees… and they got exactly what they wanted.

The other 50 or 51 senators were not?

From what I understand, the bill was ready to go. Everyone had gotten their pork… especially Manchin. And it was Sinema who was the last hold out, and the biggest concession she wanted was this.

I do not find it useful to describe a single voter as being THE vote that causes something to pass or fail. Presumably, the other 50 or so senators that voted against had similar motivations as Sinema, so why would I assume she was “bought and paid for” any more than the others were?

Because the issue at hand is the carried interest loophole, and she is the person responsible for that surviving in this bill. The other 49 Senators and the Vice President were all on board with removing the loophole, and Sinema said she would vote against the bill unless the loophole was preserved.

So in this case, in this timeline, with the information we have, Senator Sinema is in fact the reason this bill passed--since she was the last to come on board--and her motivation was clear.

That is the art of politics. She said it, so the others do not have to, and in exchange she will be owed something else from the others.

I bet if the vote was singularly for legislation about carried interest taxation, the votes would have been the same way (given their historical voting patterns).

I would be more persuaded if carried interest was not already a contentious issue that Repubs have had plenty of opportunity to change themselves. The fact that they did not indicated it is not just Sinema who is against removing the carried interest loophole.

>She said it, so the others do not have to, and in exchange she will be owed something else from the others.

That's possible. But it's also possible that she was the only one paid well enough to die on that hill and the rest of them would have passed the bill without it just so they have something to campaign on for the midterms.

Yes, that is also a possibility.

It's a shame we live in a world where loyalty to the party is more important than loyalty to the public.

You would've hoped that a single republican would step in and agree to vote yes instead of Kyrsten Sinema in order to eliminate the loophole, but that just seems like an unimaginable scenario in today's politics.

There are several lessons to draw from this:

1. Yes, Kyrsten Sinema is the current villain but in truth, she was probably doing it as a favor to Chuck Schumer. Schumer is the Senator from Wall Street. Money coming from Wall Street is why he is majority leader;

2. It's surprising how cheaply politicians can be bought;

3. While Sinema is the villain here, you should know there is always a rotating villain in the Democratic Party. Today it's Sinema. A month ago it was Manchin. In Obama's first term it was Joe Lieberman. This isn't an individual problem. It's a systemic problem. That's because the Demoratic Party operates as a controlled opposition party, not a governing party. The job of the Democratic Party is simply to fundraise off of how awful the Republicans are without actually having to do anything. I mean how many fundraising texts and emails were sent when the Dobbs decision was handed down?

4. Legislative bodies have a position called the whip. The job of the whip is to whip votes, meaning getting votes and getting an accurate count of votes. The Republican Party is very good at whipping votes. You see this with those who voted to impeach Trump getting primaried. A great example was Madison Cawthorn. This is a long and fascinating story but he came out of Kevin McCarthy's office looking like he'd been physically beaten. The Democrats need to emulate this particular aspect of the Republican Party but, as stated above, the reason they don't is the Democratic Party is happy being the controlled opposition party.

In the same situation, the GOP would absolutely primary both Manchin and Sinema when they were up for reelection.

Will the U.S. ever seriously consider a VAT? It has always struck me as asinine to tax income, rather than consumption.

Consumption is a regressive tax - like a flat (dollar-amount-per-person) tax.

We need to track all purchases and implement marginal sales taxes.

Given the reduced frequency of cash transactions, it might be feasible.

A regressive tax like that would raise taxes on the working class, lower it for the wealthy.

How are marginal sales taxes regressive? Only the wealthy can spend more, so only the wealthy would get taxed more.

Because poor people need to spend a larger portion of their money just to live.

See https://news.ycombinator.com/item?id=32563944

The poorer you are the higher a percentage of your money you typically spend.

The margin is not based on the percentage of your income/wealth that you spend, it is based on the amount you spend. Like income.

For example, $0 to $50k per year spend is taxed at 0%, then $50k to $100k is 10%, etc.

Although a continuous exponential function is preferable than discrete cliffs.

Are you saying that is how VAT works? Because I have no idea how any could keep track of all that.

No, marginal sales tax is not in effect anywhere. Assuming electronic payments, I could see it being relatively easy to track everyone’s spending since bank accounts/credit cards/etc would be tied to tax ID #s. Of course, there are all sorts of issues with possible downsides and jurisdictional issues.

Suppose a poor person makes $20k a year, all of this immediately spent on necessities and taxed, say at 5%. So their net tax rate is 5%.

Now imagine a rich person making $200k, spending $100k taxed at 10% because of marginal increases, and saving the rest. The rich person also pays a net tax rate of 5%.

So you increase the tax rate for higher spending amounts, and/or lower the tax rate for lower spending amounts.

That's neolib hoo-ha. Most of society is pay gated, where increasing costs are required in order to maintain your current standard of living or day to day operations.

We're living that right now with inflation and supply chain scarcity. The wealthy have what they need and can afford to wait or shop around. The immediacy of need for a one car household to replace their only vehicle puts them at the whims of a highly fluctuating car market. A wealthy household can afford regular maintenance, more reliable cars, or just to Uber around every day.

At scale, we can't buy the computer components we need at a price that isn't a huge markup of what we paid three years ago, which either gets passed on to customers or means we have to limit our service offerings. Instead, we're suspending some operations and waiting it out while we rework some designs. We're about as big and wealthy as orgs get and can survive it.

> Most of society is pay gated, where increasing costs are required in order to maintain your current standard of living or day to day operations.

The cash benefits tax rates can also be increased.

As a rough outline:

UBI to ensure minimum quality of life

Marginal sales tax to tax luxury purchases more than necessity purchases

Estate tax to prevent too wide of wealth gap.

The goal would be to incentivize income and disincentivize profligate spending. If one does not want to be at the whims of a highly fluctuating car market, then they have to plan accordingly. But in the worst case, the UBI will be the safety net, and whether or not that means they can afford a car is up to society.

> At scale, we can't buy the computer components we need at a price that isn't a huge markup of what we paid three years ago, which either gets passed on to customers or means we have to limit our service offerings. Instead, we're suspending some operations and waiting it out while we rework some designs. We're about as big and wealthy as orgs get and can survive it.

I am not sure how this relates, but I think this is getting more into anti trust rather than personal taxes. Either way, I think society should reward businesses (or individuals) that invest in robustness/redundancies/resiliencies.

A marginal sales tax would not necessarily do so. Pick a consumption dollar amount below which one is not wealthy and above which one is wealthy, according to you. Say, spending $1,000,000 per year.

Consumption up to that amount is taxed at 0%. Marginal consumption above that amount is taxed at 20%.

Yes, but a marginal sales tax is impossible to enforce. Countries that do have sales taxes usually have a "normal" rate and several tiers of reduced rates for food and essential goods. E.g. in Italy the VAT rate is 22%, but some listed goods and services are instead taxed 10%, 4% or 0%.

I think I don't like this idea for the wrong reason.

Making sales tax less regressive would be a good thing.

The implementation difficulties don't bother me per se; I think what's making me not like this idea is that it wouldn't do much for wealth disparity. If you're Wealthy with a capital W, you don't really spend that much, compared to your income.

But even if I'm also interested in tax policies to decrease the accumulation of massive amounts of wealth and the accompanying power in the hands of a single individual, I shouldn't dislike a tax policy that would do a different good thing -- if it could be implemented -- just because it doesn't do the other thing I want.

> I think what's making me not like this idea is that it wouldn't do much for wealth disparity. If you're Wealthy with a capital W, you don't really spend that much, compared to your income.

These problems can be solved via extremely high estate taxes or property taxes.

The EU taxes both.

And the US does add some local and regional tax to sales, no? I remember the prices were always "without tax", so as a consumer you don't know how much you actually have to pay.

Some U.S. states have a sales tax. Some also have an annual tax on the current assessed value of personal property, like real estate, cars, boats, etc.

There are no federal (nationwide) versions of those, though.

VAT rate isn't the same in the EU either, but each member country has to have at least 20% VAT.

Except on certain items. Gas and electricity are 5% I believe.

Would federal excise taxes count as close enough to a sales tax? And for the purposes of comparing to VAT, is VAT considered an excise tax too?

https://en.wikipedia.org/wiki/Excise_tax_in_the_United_State...

“Some”, as in 45 out 50[1]?

1 - https://taxfoundation.org/2021-sales-taxes/

> Some U.S. states have a sales tax. Some also have an annual tax on the current assessed value of personal property, like real estate, cars, boats, etc.

My current state has sales taxes (on non-essentials), property taxes that go to the state and the local school district (separate assessments), and an income tax to the state and my local district. The state counts income as earned income and passive income. Federal deductions reduce my tax burden there, but no such deductions obtain at the state or local level.

While it's popular to talk about the tax differential between the EU and US—and there is one—it's probably not quite as big as advertised (at least not in all states).

I don't think a regressive tax would do anything to reverse the growing wealth gap in the U.S.

Regressive taxes are fine if they are offset by a universal cash benefit. The purpose of a tax can be to curb some type of behavior, such as carbon emissions or water usage or road usage.

If it happens to be regressive, then that can be solved by giving everyone $x. And then you recoup via marginal income/marginal sales taxes.

Aren't "handouts" a hard sell in the US?

Yes, I do not expect any substantial movement for wealth redistribution on the federal (nationwide) level.

Even if you ignore the resistance to handouts the idea that the federal government in its current state or any reasonably probable future state could pull off administrating said handouts without it devolving into a bunch of special interest BS and partisan bickering and actually accomplish the goal of making a VAT a regressive pain in everyone's butt is just laughable.

Look at healthcare spending. Look at social safety nets. Look at defense. Odds are that any spending in an attempt to make VAT less regressive would wind up looking a lot like those and having most of the same problems because it would be subject to the same sets of perverse incentives from top to bottom.

Not really.

Every time a new handout gets created, there is a predictable round of complaining from the fiscal conservatives, but fiscal conservatives make up only about 10-15% of Republicans and 3-5% of Democrats so inevitably the handout eventually gets passed, perhaps with a name-change or some token constraint, but then once established becomes normalized and permanent.

You’re still disproportionately burdening the middle class versus wealthy, causing a bi-modal distribution.

A lot of these schemes to “help the poor” in fact “cement feudalism” by destroying the middle class to the benefit of elites.

Why do the marginal rates have to be set to disproportionately burden the middle class versus the wealthy?

I would think an exponential function would easily prevent this.

In the context of sales tax, any politically possible tax is going to burden the middle class more as they spend more as a fraction of their income.

Income taxes don’t have that, as they’re a progressive tax.

The idea you’ll have an “exponential function” in the tax policy is pure lunacy that’s not politically tractable, though.

A marginal sales tax is not a tax based on the fraction of your income/wealth that you spend, it is simply based on the nominal amount of spend.

Obviously this whole idea is politically impossible as it would result in huge wealth redistribution, but it is funny that with all the technological innovations, a simple exponential function for determining taxes is considered to not be feasible.

Yes — the nominal amount spent is a different fraction of their income for different income brackets, leading to a regressive tax.

Your final point is a non-sequitur:

The objection to an exponential function isn’t the technical complexity, but the behavior of exponential functions. You’re just dressing up “seize the wealthy’s money” in fancy math.

Though, you’re also understating the complexity of having such a variable tax and the second order impacts you’re likely to cause.

Edit — replying here as I hit my posting cap:

We care because our goal is a prosperous society for our citizens, for which we need a robust and active middle class.

We don’t exempt those goods from taxes (as we do with the essentials). My point has been that your vision for taxes creates a bi-modal distribution between rich and poor by laying a heavy tax burden on the middle class, until they wither — essentially creating feudalism.

A healthy society (with progressive taxes) creates opportunities for the poor to advance their well-being out of poverty by not over-encumbering the path to a middle class life. Regressive taxes are antithetical to that.

> Yes — the nominal amount spent is a different fraction of their income for different income brackets, leading to a regressive tax.

I am not understanding this. Why would we care what the percentage of tax paid is as a proportion of income? Poorer people have already been helped by reducing sales tax rates for the amount of spend needed to ascertain a certain quality of life. If they choose to spend more, and a higher income person chooses to spend less, why would society care that the lower income person pays more as a percentage of their income?

You're still taking significantly less from the wealthy. Where then is money for the universal cash benefit coming from?

Why would significantly less money be taken from the wealthy?

You set the marginal rates, or the parameters of the function for determining the marginal taxes equal to however much is needed to cover the costs.

I think the idea is, say the average person uses 100 gallons of petrol a year. You add a $1 tax to each gallon, thereby costing the average person $100 per year, but you give them $100 back. The average person is no better or worse off, but it's an incentive to use less fuel.

You could make the argument either way that this fall's more on the rich. They tand to have more bigger cars, bit then you could argue that the poor have older less efficient cars, but it isn't really aimed at wealth. I suppose the key is that any party can arrange their lifestyle to avoid being worse off.

> The purpose of a tax can be to curb some type of behavior, such as carbon emissions or water usage or road usage.

They're to collect money for the government so that it can do things (or just sit on the money if you're a king). King George didn't tax the colonies because he wanted them to stop doing things; he did it because he wanted the money. In more modern times, a government raises taxes to pay for new roads or whatnot.

Using taxes as punishment is just a nice benefit that the government can wield.

That is why I wrote “can be”. For example, variable rate tolling. Free to drive on an empty road in the middle of the night, but very expensive during peak traffic times to reduce chances of gridlock and incentivize spreading out demand to non peak times, or disincentive using the road period.

that would make the refund, and thus the system as a whole, regressive

to avoid this, the refund would itself need to be progressive, giving back to some more than others, which sounds like a worse version of just progressively taxing in the first place

Neither will a progressive tax. The core wealth gap problem is we systematically steal from the poor

I would say it’s because we burden the middle class — causing a bimodal distribution (wealthy and poor) without any means of upwards mobility because small businesses are regulated and taxed beyond what they can sustain.

No, we steal from the poor via stuff like an onerous legal system, fines, fees, and most importantly, inflation.

The ever shrinking middle class pays for everything. The poor are too poor and the rich have the resources to figure out how to avoid paying.

This is a misconception. Everything is paid for by inflation. This hits the poorest the hardest.

This common sentiment isn't really true in general, but led to a great deal of amusement for me in a previous life in wealth management.

We constantly got clients who were newly rich and believed there were all sorts of tricks and loopholes that would allow them to avoid paying taxes. They'd come to us with ideas about trusts, shell companies, charitable organizations, loans, whatever, and inevitably leave frustrated and disappointed when they learned the really was no way to use their new wealth without the government first taking half.

(Admittedly without putting any real thought into this,) it seems like it could be made less regressive by excluding necessities that make up the vast majority of a low income family’s budget, having a “medium” rate on some other categories like consumer electronics, and a “high” rate on luxury goods. Quotes because I have no idea what “medium” and “high” would need to look like for the numbers to work.

Some states with sales tax (Texas and Florida come to mind) already do something like this by excluding groceries from their sales tax program.

These kinds of roundabout ways to help the poor always end up with complications that waste time and resources at best, and open up avenues for corruption at worst.

https://taxfoundation.org/sales-tax-grocery-tax-exemptions/

I always try to advocate for KISS, keep it simple, stupid. Want to help poor people? Give them cash. Want to prevent political fighting about who constitutes poor people? Give everyone cash. And then take back based on marginal income/property/sales taxes.

Is vat actually regressive at all? The more you spend, the more you pay.

I see the wisdom of removing tax on necessities. But after that it's essentially everyone's choice what they buy.

The issue seems to be that things that only the wealthy can take advantage of are under taxed.

There is a reason the 16th ammendment was passed in 1913 (along with questions about if it was even properly ratified!) which cancelled the previous apportionment requirement for income taxes in America.

The Federal Reserve Act was a key turning point in the entire US approach to monetary policy, and was also passed in 1913 under Woodrow Wilson, who later said "I am a most unhappy man. I have unwittingly ruined my country."

Down this path lies a rabbit-hole of epic proportions. I'll say this, the crash of 1907, spurring the commission sent to wine and dine and learn how to do things the European central banker way, was engineered, and the surface version taught is false.

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