How much Tax is too much?

[joeypots]

In the US, deleting the carried interest tax strategy would alleviate much animosity.  

[BrightonCorgi]

There are several on here that would like the government to take all of one's income and then the government can decide how much of that you should be afforded to have back.

[PuroDiario]

11 hours ago, joeypots said:

In the US, deleting the carried interest tax strategy would alleviate much animosity.  

We can open this melon too…it would alleviate animosity precisely because it will be disguised as “tax the rich and give it to the people” with full disregard on its impacts and why it exists from a first principles basis. 

[joeypots]

7 hours ago, PuroDiario said:

We can open this melon too…it would alleviate animosity precisely because it will be disguised as “tax the rich and give it to the people” with full disregard on its impacts and why it exists from a first principles basis. 

Carried interest exists so people can keep more of the money they earn. Most people in the USA don’t know the difference between income and capital gains tax.  

I suspect that any tax reform will be analyzed and new strategies will be developed to pay as little tax as possible. The wealthy pay the lion's share of tax, by a lot, and that’s because they create the wealth, by a lot. The average financially comfortable person wonders what their share should be (the question at the top of this thread).

I’d take a comment more seriously if "tax the rich and give it to the people" was more sensibly stated as "tax people to provide for the general welfare".

 

 

[Namisgr11]

11 hours ago, BrightonCorgi said:

There are several on here that would like the government to take all of one's income and then the government can decide how much of that you should be afforded to have back.

Your hyperbolic exaggeration does nothing to advance the discussion, and is disrespectful.

Fact is, for much of the second half of the 20th century the top tax bracket had a far higher rate than it does now.

And fact is, an estimated $400 billion in legally owed taxes goes uncollected by the IRS, which has never received sufficient funding to become modernized and to conduct compliance.

And fact is, if the lowering of the top tax bracket enacted in 2017 isn't allowed to expire, as it is set to do in 2025, the government will add another $5 trillion to its debt over the ensuing decade.

And, finally, fact is that wealth disparity between the top 1% and the rest of us has grown, and not just linearly but exponentially, over the past three decades. Executive compensation driven by Boards of Directors that are groups of friends best at scratching each others' backs, that consider each and every senior executive as deserving of being paid better than their peer group average, and insane stock awards and options packages handed out like candy to executives who already own such large chunks they're already fully incentivized to help their company perform in the best interests of all shareholders are not examples of capitalism at work.

[Fireball]

4 hours ago, Namisgr11 said:

And, finally, fact is that wealth disparity between the top 1% and the rest of us has grown, and not just linearly but exponentially, over the past three decades. 

This is the real problem. Historically, this disparity left unchecked is the cause of very large socialist programs and revolutions. But that’s the question- how much tax is enough? Not sure, but I pay an effective tax rate than Elon Musk. 

[chasy]

Did I read correctly that France is thinking about taxing all income above $400k at 90%? Woof!

Also, the rich CEO / BOD dynamic described above isn’t totally relevant. There are a few thousand public companies in the US, most of which don’t have rich CEOs, so it isn’t public co executives who are causing this. It’s investors who are winning the most.

I think there are two ways this is typically approached. 1/ the govt spends too much and can’t tax its way to a balanced budget and 2/ the rich don’t pay enough to support govt programs. Truth is probably in the middle somewhere.

[Li Bai]

On 7/16/2024 at 11:59 AM, chasy said:

Did I read correctly that France is thinking about taxing all income above $400k at 90%? Woof!

We've had elections here recently and the far left won, kinda. This 90% comes from Jean-Luc Mélenchon's tax program from the last presidential campaign and had already been put on the table by his congressmen in late 21. Now they're talking about changing the tax scale but even if they managed to pull it out (they probably won't) it would be 70% for the highest incomes, not 90%. 

But it is only electoral demagogy, Mélenchon is the wealthiest of all French politicians and it blows my mind how popular he can be here. What he says, what he wants to do and how well-off he is, none of it seem to mesh together.

[BrightonCorgi]

14 hours ago, Namisgr11 said:

Your hyperbolic exaggeration does nothing to advance the discussion, and is disrespectful.

Disrespectful to whom?

[Arabian]

6 hours ago, Li Bai said:

We've had elections here recently and the far left won, kinda... This 90% comes from Jean-Luc Mélenchon's tax program from the last presidential campaign and had already been put on the table by his congressmen in late 21....

Now they're talking about changing the tax scale but even if they managed to pull it out (they probably won't) it would be 70% for the highest incomes, not 90%. 

But it is only electoral demagogy, Mélenchon is the wealthiest of all French politicians and it blows my mind how popular he can be here. What he says, what he wants to do and how well-off he is, none of it seem to mesh together...

The Gov better belly dance for me every night if they are going to tax me this much. F#%* off. 

[NSXCIGAR]

On 7/15/2024 at 1:57 PM, Namisgr11 said:

Fact is, for much of the second half of the 20th century the top tax bracket had a far higher rate than it does now.

And fact is, an estimated $400 billion in legally owed taxes goes uncollected by the IRS, which has never received sufficient funding to become modernized and to conduct compliance.

That's true, as well as the top tax rate from 1944-1963 was over 90%. But that was not the effective rate. Nobody actually paid that. I've seen that misinterpreted to conclude that high tax rates correspond to growth which is preposterous. Those rates were nothing more than nominal. 

And as far as the IRS estimating $400B goes uncollected I call BS on that. Ask anyone that's ever owed the IRS if the money goes uncollected. Or if anyone's debt to the IRS "falls through the cracks". That number sounds to me like bureaucratic propaganda to try and secure more funding for their agency. 

[El Presidente]

17 hours ago, NSXCIGAR said:

That's true, as well as the top tax rate from 1944-1963 was over 90%. But that was not the effective rate. Nobody actually paid that. I've seen that misinterpreted to conclude that high tax rates correspond to growth which is preposterous. Those rates were nothing more than nominal. 

And as far as the IRS estimating $400B goes uncollected I call BS on that. Ask anyone that's ever owed the IRS if the money goes uncollected. Or if anyone's debt to the IRS "falls through the cracks". That number sounds to me like bureaucratic propaganda to try and secure more funding for their agency. 

It is about fairness, balance, enforcement. You want to supercharge entrepreneurialism while instilling/encouraging a culture of social responsibility /philanthropy,  I don't believe they are mutually exclusive. What you do need is a global minimum tax rate in order that nations can tax harvest their fair share of home grown enterprise founded on home grown civil infrastructure (universities etal). 

Go too hard however and .........

Remember when 

France forced to drop 75% supertax after meagre returns

https://www.theguardian.com/world/2014/dec/31/france-drops-75percent-supertax

Hollande’s measure was meant to force wealthiest to help dig country out of economic crisis, but was accused of being anti-business

 

Anne Penketh in Paris

Wed 31 Dec 2014 14.06 EST

Share

 

 

François Hollande’s unpopular tax changes that imposed a 75% rate on earnings above €1m (£780,000) will quietly disappear into the history books from Thursday.

The French socialist president announced plans for the controversial measure during his 2012 election campaign as a means of forcing the wealthiest to help dig the country out of economic crisis.

 

Although supported by the left, the reform sparked accusations of an anti-business agenda. After the “supertax” was announced in September 2012 the government was accused of shooting itself in the foot by risking an exodus of high-profile personalities. Business leaders expressed fears that investors would pull out of France.

France’s richest man, Bernard Arnault, the chief executive of luxury group LVMH, took out Belgian nationality, and the actor Gérard Depardieu also moved across the border to Belgium before obtaining Russian citizenship.

 

High-earning French footballers threatened strike action, while league bosses warned they would no longer be able to attract world class players.

A majority of French taxpayers disapproved of the 75% rate, although polls showed that six out of 10 voters were in favour of raising income taxes on the wealthy.

Despite the backlash Hollande clung to the principle of the supertax even after it was dismissed by the country’s highest court, fearing a revolt by his leftwing allies. The tax was subsequently adjusted to a 50% rate payable by companies after the constitutional council ruling in December 2012.

The final nail in the coffin came from the former investment banker who is now France’s economy minister, Emmanuel Macron. A former economic adviser to Hollande, Macron described the supertax as “Cuba without the sun”.

With the party leftwingers having marched out of government in the days and months following the appointment of the openly pro-business Manuel Valls as prime minister last March, it was only a matter of time before the tax was dropped. The prime minister confirmed it would not be renewed in 2015 during a visit to London in October, where he addressed business leaders.

“The reform clearly damaged France’s reputation and competitiveness,” said Jorg Stegemann, the head of the executive search firm Kennedy Executive. “It clearly has become harder to attract international senior managers to come to France than it was.”

Tax lawyer Jean-Philippe Delsol, author on a book on tax exiles called Why I Am Going To Leave France, said last month many high earners had agreed with their companies that salaries would be limited during the two years the tax rate applied, and they would “come to an arrangement afterwards”.

Finance ministry studies showed that despite all the publicity, the sums obtained from the supertax were meagre, standing at €260m in 2013 and €160m in 2014, and affecting 1,000 staff in 470 companies. Over the same period, the budget deficit soared to €84.7bn.

The decision to drop the tax is a personal blow for Hollande and only one of a number of government U-turns since he was elected, fueling criticism that he is indecisive and lacking presidential authority.

[Li Bai]

16 hours ago, El Presidente said:

It is about fairness, balance, enforcement. You want to supercharge entrepreneurialism while instilling/encouraging a culture of social responsibility /philanthropy,  I don't believe they are mutually exclusive. What you do need is a global minimum tax rate in order that nations can tax harvest their fair share of home grown enterprise founded on home grown civil infratructure (universities etal). 

Go too hard however and .........

Remember when 

France forced to drop 75% supertax after meagre returns

https://www.theguardian.com/world/2014/dec/31/france-drops-75percent-supertax

Hollande’s measure was meant to force wealthiest to help dig country out of economic crisis, but was accused of being anti-business

 

 

Anne Penketh in Paris

Wed 31 Dec 2014 14.06 EST

Share

 

 

François Hollande’s unpopular tax changes that imposed a 75% rate on earnings above €1m (£780,000) will quietly disappear into the history books from Thursday.

The French socialist president announced plans for the controversial measure during his 2012 election campaign as a means of forcing the wealthiest to help dig the country out of economic crisis.

 

Although supported by the left, the reform sparked accusations of an anti-business agenda. After the “supertax” was announced in September 2012 the government was accused of shooting itself in the foot by risking an exodus of high-profile personalities. Business leaders expressed fears that investors would pull out of France.

France’s richest man, Bernard Arnault, the chief executive of luxury group LVMH, took out Belgian nationality, and the actor Gérard Depardieu also moved across the border to Belgium before obtaining Russian citizenship.

 

High-earning French footballers threatened strike action, while league bosses warned they would no longer be able to attract world class players.

A majority of French taxpayers disapproved of the 75% rate, although polls showed that six out of 10 voters were in favour of raising income taxes on the wealthy.

Despite the backlash Hollande clung to the principle of the supertax even after it was dismissed by the country’s highest court, fearing a revolt by his leftwing allies. The tax was subsequently adjusted to a 50% rate payable by companies after the constitutional council ruling in December 2012.

The final nail in the coffin came from the former investment banker who is now France’s economy minister, Emmanuel Macron. A former economic adviser to Hollande, Macron described the supertax as “Cuba without the sun”.

With the party leftwingers having marched out of government in the days and months following the appointment of the openly pro-business Manuel Valls as prime minister last March, it was only a matter of time before the tax was dropped. The prime minister confirmed it would not be renewed in 2015 during a visit to London in October, where he addressed business leaders.

“The reform clearly damaged France’s reputation and competitiveness,” said Jorg Stegemann, the head of the executive search firm Kennedy Executive. “It clearly has become harder to attract international senior managers to come to France than it was.”

Tax lawyer Jean-Philippe Delsol, author on a book on tax exiles called Why I Am Going To Leave France, said last month many high earners had agreed with their companies that salaries would be limited during the two years the tax rate applied, and they would “come to an arrangement afterwards”.

Finance ministry studies showed that despite all the publicity, the sums obtained from the supertax were meagre, standing at €260m in 2013 and €160m in 2014, and affecting 1,000 staff in 470 companies. Over the same period, the budget deficit soared to €84.7bn.

The decision to drop the tax is a personal blow for Hollande and only one of a number of government U-turns since he was elected, fuelling criticism that he is indecisive and lacking presidential authority.

Fwiw, my personal take on this is Hollande never really wanted that supertax, it was only demagogy at its finest.

France is in bad shape in terms of entrepreneurialism, not to mention the rest. It's really sad and I don't see reasons to hope much in the near future.

I hope I'm wrong though 🤞

[99call]

16 hours ago, El Presidente said:

You want to supercharge entrepreneurialism while instilling/encouraging a culture of social responsibility /philanthropy,  I don't believe they are mutually exclusive

With the 'good chaps principle' in the mud, I think society needs to refresh itself as to what is good entrepreneurialism and what is grim opportunism/vulture capitalism, or exploitative.

As mentioned previously I am massively pro, what I would call 'genuine entrepreneurialism', but there are open goals in money making that people should have the self-respect, morals and dignity to walk past. 

For example, whilst I don't like gambling, I am pro it's existence, It can be fun every once in a while, and people should have the freedom to place a bet. There should not however be gambling shops on every street corner in deprived communities, endless adverts during sports commercials. It's become so deranged that betting companies are saying, "it's ok if you want to take a break". Like they are allowing those who are hopelessly addicted to have a breather. It's out of control. 

We should celebrate those who bring incredible inventions to the market. Vape pens can be hugely beneficial to those giving up smoking and those who have created well made products with regulated ingredients serving a specific market audience deserve our praise, but on the flip side, we should be disgusted by those selling cheap Chinese vapes full of unregulated chemicals to kids.      

The reality all to often these days, is people idolise people for making money, and have no interest if they gained there wealth by trafficking teenage girls for the sex industry. We need as a society to move away with that. Just as the decent entrepreneurs deserve our respect, the disgusting ones deserve our derision. 

I agree with you Rob, that I think we can supercharge entrepreneurialism whilst maintaining social responsibility. One of the ways of doing that is to ensure money making is not a doom loop. I.e. some peoples industry in making money out of the poor, then society has to puts its hand in it's pocket to support them afterwards. We need to ensure all social mobility is pointing upwards, not just some peoples situation benefiting from worsening someone else's.

[Namisgr11]

18 hours ago, NSXCIGAR said:

And as far as the IRS estimating $400B goes uncollected I call BS on that. Ask anyone that's ever owed the IRS if the money goes uncollected. Or if anyone's debt to the IRS "falls through the cracks". That number sounds to me like bureaucratic propaganda to try and secure more funding for their agency. 

Modernization and resource staffing are way behind where they're needed and limiting collection compliance. I suspect many don't realize how much the IRS has been hampered by a shoestring budget, penny-wise but pound foolish for the lost revenues. The shortfall especially affects collection from the top 1%.  

The IRS office in Austin, TX. This is the cafeteria:

There are many sources supporting that the annual IRS shortfall in compliance is in the neighborhood of $400 billion. Here's just one: https://www.cbpp.org/depletion-of-irs-enforcement-is-undermining-the-tax-code#:~:text=Each year an estimated %24441,on time and in full.

[El Presidente]

12 hours ago, Namisgr11 said:

Modernization and resource staffing are way behind where they're needed and limiting collection compliance. I suspect many don't realize how much the IRS has been hampered by a shoestring budget, penny-wise but pound foolish for the lost revenues. The shortfall especially affects collection from the top 1%.  

The IRS office in Austin, TX. This is the cafeteria:

There are many sources supporting that the annual IRS shortfall in compliance is in the neighborhood of $400 billion. Here's just one: https://www.cbpp.org/depletion-of-irs-enforcement-is-undermining-the-tax-code#:~:text=Each year an estimated %24441,on time and in full.

 

That is appalling 

......so many honest people waiting on refunds.

[MrBirdman]

On 7/15/2024 at 1:14 PM, PuroDiario said:

We can open this melon too…it would alleviate animosity precisely because it will be disguised as “tax the rich and give it to the people” with full disregard on its impacts and why it exists from a first principles basis. 

The carried interest loophole is just that - a loophole bought and paid for by the people it benefits. There really isn’t any more principle behind it than that. 

For a country founded on egalitarian principles, the idea that bankers should pay a lower effective tax rate than than blue collar workers is perhaps the least American value embodied in our tax code. I say perhaps because the damn thing is so long I’m sure there’s plenty of other outrages. 

[Namisgr11]

4 hours ago, El Presidente said:

That is appalling 

......so many honest people waiting on refunds

The IRS is pretty good with those. I filed in mid February this year and received my refund in March.

[PuroDiario]

4 hours ago, MrBirdman said:

The carried interest loophole is just that - a loophole bought and paid for by the people it benefits. There really isn’t any more principle behind it than that. 

For a country founded on egalitarian principles, the idea that bankers should pay a lower effective tax rate than than blue collar workers is perhaps the least American value embodied in our tax code. I say perhaps because the damn thing is so long I’m sure there’s plenty of other outrages. 

Well, that could be a view. Let me attempt to inform it further:

1. Carried interest taxation essentially means that on a risk capital project, you get tax on a capital gains basis. 

2. Loophole or not, the important piece is the rationale behind it. Say you are investing $10 into a business, and you make some money down the line. You want to get taxed at capital gains right? Ok, now let’s assume those $10 are not 100% yours, but rather you committed $2 and friends contributed the other $8 to you because you understand the industry and can effect positive change in the company’s business and people trust you and your reputation as a good steward of their capital and of businesses.  For that, you are going to tell your friends, I will get a piece of the value appreciation, usually 20% above 1.5x your money (many flavors to this, but let’s take the base example). So if the company grows and your management is positive and you found the deal, structured it, helped management grow the co and eventually you sold or whatever, and the $10 turned into $20 off which $8 were your friends’, there is $8 of value increase off which you are going to take $1.6 as compensation. The rationale for this $1.6 being taxed at 20% is that for that value increase there was likely over a year of developing the opportunity and funding that development out of pocket, you incurred costs in making it happen once developed and you waited 3-5-10 years or as needed for the outcome. Also, for you to take that money your friend investors will have a minimum return hurdle which is both a total return but also an annual minimum compounded rate of return. So the rationale for it in my view is that you are assuming and undertaking a risk capital long term and liquid project and hence capital gains taxation is the most sensible to incentivize you to pursue it and take the long view as well as for you to be incentivized to grow the capital base you are the steward of and which overtime should mean you are contributing to create wealth directly and indirectly for investors but also for employees, new business formation and all the myriad of services about your business and the businesses you invest In. 

3. For the avoidance of doubt, carried interest concept does not apply to bankers, consultants or the like. These professions get paid salary and bonus, bonus in general except for the top management are fully discretionary and performance linked (meaning your bonus ideally ends up fully linked to the $ you generate in your role). Bonuses are taxed at income rates in NY specifically circa 50% for example. 
 

If we were to question this, why don’t we also question why different states have different taxation there are city taxes in some cities that subsidize services for non city residents, etc?

All of these do not say that there aren’t bad actors in any industry including money management and we can always strive for improvement and more equitable access to opportunities. 

[MrBirdman]

3 hours ago, PuroDiario said:

Well, that could be a view. Let me attempt to inform it further:

1. Carried interest taxation essentially means that on a risk capital project, you get tax on a capital gains basis.

2. Loophole or not, the important piece is the rationale behind it. Say you are investing $10 into a business, and you make some money down the line. You want to get taxed at capital gains right? Ok, now let’s assume those $10 are not 100% yours, but rather you committed $2 and friends contributed the other $8 to you because you understand the industry and can effect positive change in the company’s business and people trust you and your reputation as a good steward of their capital and of businesses.  For that, you are going to tell your friends, I will get a piece of the value appreciation, usually 20% above 1.5x your money (many flavors to this, but let’s take the base example). So if the company grows and your management is positive and you found the deal, structured it, helped management grow the co and eventually you sold or whatever, and the $10 turned into $20 off which $8 were your friends’, there is $8 of value increase off which you are going to take $1.6 as compensation. The rationale for this $1.6 being taxed at 20% is that for that value increase there was likely over a year of developing the opportunity and funding that development out of pocket, you incurred costs in making it happen once developed and you waited 3-5-10 years or as needed for the outcome. Also, for you to take that money your friend investors will have a minimum return hurdle which is both a total return but also an annual minimum compounded rate of return. So the rationale for it in my view is that you are assuming and undertaking a risk capital long term and liquid project and hence capital gains taxation is the most sensible to incentivize you to pursue it and take the long view as well as for you to be incentivized to grow the capital base you are the steward of and which overtime should mean you are contributing to create wealth directly and indirectly for investors but also for employees, new business formation and all the myriad of services about your business and the businesses you invest In.

3. For the avoidance of doubt, carried interest concept does not apply to bankers, consultants or the like. These professions get paid salary and bonus, bonus in general except for the top management are fully discretionary and performance linked (meaning your bonus ideally ends up fully linked to the $ you generate in your role). Bonuses are taxed at income rates in NY specifically circa 50% for example.
 

If we were to question this, why don’t we also question why different states have different taxation there are city taxes in some cities that subsidize services for non city residents, etc?

All of these do not say that there aren’t bad actors in any industry including money management and we can always strive for improvement and more equitable access to opportunities. 

Thank you for that detailed description of the carried interest tax. It’s still bullshit. Hedge fund managers pay themselves bonuses at rates totally unrelated to money they have invested. That’s called wages. Lots of jobs have performance related bonuses, and I see no reason for people in finance to get special treatment. There’s no reason they should get a tax break others don’t. 

[El Presidente]

3 hours ago, PuroDiario said:

Well, that could be a view. Let me attempt to inform it further:

1. Carried interest taxation essentially means that on a risk capital project, you get tax on a capital gains basis.

2. Loophole or not, the important piece is the rationale behind it. Say you are investing $10 into a business, and you make some money down the line. You want to get taxed at capital gains right? Ok, now let’s assume those $10 are not 100% yours, but rather you committed $2 and friends contributed the other $8 to you because you understand the industry and can effect positive change in the company’s business and people trust you and your reputation as a good steward of their capital and of businesses.  For that, you are going to tell your friends, I will get a piece of the value appreciation, usually 20% above 1.5x your money (many flavors to this, but let’s take the base example). So if the company grows and your management is positive and you found the deal, structured it, helped management grow the co and eventually you sold or whatever, and the $10 turned into $20 off which $8 were your friends’, there is $8 of value increase off which you are going to take $1.6 as compensation. The rationale for this $1.6 being taxed at 20% is that for that value increase there was likely over a year of developing the opportunity and funding that development out of pocket, you incurred costs in making it happen once developed and you waited 3-5-10 years or as needed for the outcome. Also, for you to take that money your friend investors will have a minimum return hurdle which is both a total return but also an annual minimum compounded rate of return. So the rationale for it in my view is that you are assuming and undertaking a risk capital long term and liquid project and hence capital gains taxation is the most sensible to incentivize you to pursue it and take the long view as well as for you to be incentivized to grow the capital base you are the steward of and which overtime should mean you are contributing to create wealth directly and indirectly for investors but also for employees, new business formation and all the myriad of services about your business and the businesses you invest In.

3. For the avoidance of doubt, carried interest concept does not apply to bankers, consultants or the like. These professions get paid salary and bonus, bonus in general except for the top management are fully discretionary and performance linked (meaning your bonus ideally ends up fully linked to the $ you generate in your role). Bonuses are taxed at income rates in NY specifically circa 50% for example.
 

If we were to question this, why don’t we also question why different states have different taxation there are city taxes in some cities that subsidize services for non city residents, etc?

All of these do not say that there aren’t bad actors in any industry including money management and we can always strive for improvement and more equitable access to opportunities. 

Great explanation. Thank you 

[PuroDiario]

32 minutes ago, MrBirdman said:

Thank you for that detailed description of the carried interest tax. It’s still bullshit. Hedge fund managers pay themselves bonuses at rates totally unrelated to money they have invested. That’s called wages. Lots of jobs have performance related bonuses, and I see no reason for people in finance to get special treatment. There’s no reason they should get a tax break others don’t. 

Ok. 👍

[chasy]

Agree w @PuroDiario’s explanation (hence my comment about investors benefitting most).

Agreed that hedge funders can make stupid money, but again, that is pre negotiated with their investors. You give me $5b to invest, I get 2% management fee and 20% of gains over a certain preferred return. So if they return 50% in a given year, that’s $2.5b, of which they get 20% ($500m pre tax). It’s not doubt a stupid amount of money, but your issue isn’t with the govt on them making so much, it’s with their investors who give them the money and agree to the terms. Also, many hedge funds don’t get carried interest because they don’t hold an investment long enough to qualify, so it’s just a huge bonus which is taxed at the top level. Private Equity would be a better culprit for exploiting carried interest. (Also if you want to see the king of tax minimization, look up Jeff Yass from Susquehanna).

Banker executives pay taxes on salary + cash bonus. But they get large equity incentive packages that, if vested and exercised can qualify for cap gains if they hold it long enough, so yes some banker get big cap gains taxed bonuses (assuming they perform).

It seems that we’re conflating huge compensation packages with tax rates on this thread…

[chasy]

And since we’re on the topic, the current idea of taxing unrealized gains is 100% preposterous and anyone who is pushing for it either is truly idiotic or it’s just a talking point / rallying cry.

[PuroDiario]

On 7/18/2024 at 9:34 AM, chasy said:

Agree w @PuroDiario’s explanation (hence my comment about investors benefitting most).

Agreed that hedge funders can make stupid money, but again, that is pre negotiated with their investors. You give me $5b to invest, I get 2% management fee and 20% of gains over a certain preferred return. So if they return 50% in a given year, that’s $2.5b, of which they get 20% ($500m pre tax). It’s not doubt a stupid amount of money, but your issue isn’t with the govt on them making so much, it’s with their investors who give them the money and agree to the terms. Also, many hedge funds don’t get carried interest because they don’t hold an investment long enough to qualify, so it’s just a huge bonus which is taxed at the top level. Private Equity would be a better culprit for exploiting carried interest. (Also if you want to see the king of tax minimization, look up Jeff Yass from Susquehanna).

Banker executives pay taxes on salary + cash bonus. But they get large equity incentive packages that, if vested and exercised can qualify for cap gains if they hold it long enough, so yes some banker get big cap gains taxed bonuses (assuming they perform).

It seems that we’re conflating huge compensation packages with tax rates on this thread

Thank you @chasy - the tax cuts act increased the holding period to over 3 years…vast majority of HFs don’t qualify. The potential way to access lower taxation is by creating reinsurance business off shore that write insurance for tail risk/excess risk your go to insurer can’t/won’t hold in BS in full. So another risk capital undertaking!

On the banker thing, depending on your seniority the % of cash vs equity varies. Also depends on the organization you are at. But these equity awards are subject to continued employment, etc as you mention, and…the firm needs to perform for it to appreciate hence…another risk capital project!!! 😅