How much Tax is too much?

[joeypots]

16 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. 

Carried interest is a share of profit taxed as capital gains rather than income after a required delay. Payment for sweat equity should not be postponed until the effective tax rate for that effort is lowered. I have no issue with anyone using carried interest, it’s legal. It is one of the wonders of the USA tax code that no matter the legislation people will figure out how to by pass tax legally.

[PuroDiario]

On 7/17/2024 at 5:43 AM, Li Bai said:

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 🤞

State owned accounts  for >50% of the private sector and is one of the most rigid employment markets in the world. Still taxes need to be 70%, tax the rich!

[PuroDiario]

[Fireball]

I would be interested in that graph going back 100 years.

[BrightonCorgi]

The 550 US billionaires together are worth $2.5 trillion.  

If we confiscated 100% of their wealth, we would raise enough to run the federal government for less than 8 months.