8 ms·

I wrote a bit about this in an earlier comment as to how hedge fund employee's shelter their taxable income here: https://news.ycombinator.com/item?id=10457725

I wrote a bit about this in an earlier comment as to how hedge fund employee's shelter their taxable income here: https://news.ycombinator.com/item?id=10457725 https://news.ycombinator.com/item?id=10457725 The fact is that this is going to happen because there just isn't a "one size fits all" tax code that would work. If you tax income, then people will take their compensation in a corporation. You tax corporations, then people will take their compensation in a deferred format, like options. YOu tax that and people will just move their money making operations off shore. You tax that and people will start to use charities, ala the famous Walton family charity tax shelter... http://www.bloomberg.com/news/articles/2013-09-12/how-wal-mart-s-waltons-maintain-their-billionaire-fortune-taxes http://www.bloomberg.com/news/articles/2013-09-12/how-wal-ma... And now it becomes very obvious why the tax code is so convoluted. If you make 8 figures year then it's worth your while to spend alot of money to structure your finances so you pay as little tax as legally required. Someone like Mark Zuckerberg never needs to earn another dollar or get another option grant again. He can just let his capital gains appreciate and loan against it such that he doesn't have to ever pay income tax again. As an accountant once told me unless you tax wealth then you can't fight this... and good luck getting an annual tax against wealth passed into law.

bradleyjg 11y ago
As an accountant once told me unless you tax wealth then you can't fight this... and good luck getting an annual tax against wealth passed into law. The direct tax clause of the original constitution, even as modified by the sixteenth amendment, probably forbids such a thing at the federal level. So it'd likely take a constitutional amendment. That said, I'm not quite as pessimistic as you. Between consumption taxes and estate taxes (which are about the only wealth tax we have) we could get at most money if we had the will to do so. The estate tax is filled with holes because Congress wants it to be, not because of any inherent complexity or definitional difficulties. There is an ultimate tax avoidance strategy of renouncing citizenship and living and consuming abroad. I would impose a lifetime ban on entry on renouncers, but beyond that I think it is fair game. If you aren't an American we shouldn't be taxing you.
- vezzy-fnord 11y ago
  Scott Sumner (commenting on John Cochrane) hinted at something similar recently: http://econlog.econlib.org/archives/2015/12/heres_john_coch.html http://econlog.econlib.org/archives/2015/12/heres_john_coch....
- hackbinary 11y ago
  People may, and often do, renounce citizenship for other reasons than tax.
  - omonra 11y ago
    Like what?
    - hackbinary 11y ago
      I would say politics. Also it is my understanding that if an American would like to move to another country, and become a citizen of that country (for any number of reasons), they have to renounce their American citizenship. People moving to the United States, on the otherhand, may retain their citizenship of certain countries, such as Canada.
      - omonra 11y ago
        These are both untrue. I'm not aware of a single American individual who gave up their citizenship for politics (and I work in this field). Secondly, nobody has to give it up if they obtain another citizenship. US government actually makes it hard and expensive to go through this process.
        hackbinary 11y ago
        >> These are both untrue. >> I'm not aware of a single American individual who gave up their citizenship for politics (and I work in this field). Firstly I'm not sure which 'both' are untrue, as I had 3 points, so your response is a little confusing. Politics: There where some number of American men who where wanting dodge the American draft before it was abolished in 1973, particular in the 60 and 70s. I suspect some number of draft-dodgers renounced their American citizenship. Similarly, some number of American women did not want their children to be subject to the draft, and didn't agree with American wars, so they too moved away, and renounced their American Citizenship--I know some women for who this is absolutely the case. I also know some people who currently reside outside of the US who would renounce their American citizenship were Trump to be elected president. I would say all of these example falls under the board heading of "politics". I would agree that it is currently the policy of the US Government not to make individuals renounce their citizenship where they to become a citizen of another country, but I do not know the history. It is that other countries do make new citizen renounce their other citizenship(s); Singapore, for example. https://en.wikipedia.org/wiki/Renunciation_of_citizenship https://en.wikipedia.org/wiki/Renunciation_of_citizenship Similarly, if Singapore citizen was to obtain American Citizenship, s/he would have to renounce their Singaporean Citizenship.
taylorwc 11y ago
I completely agree with this. Short of taxing wealth or taxing consumption, like the FairTax proposal[0], there's no way around shelters and avoidance. I find it hard to hold a grudge against wealthy individuals who minimize tax liability. It's perfectly legal and it's in their best interest. [0] https://en.wikipedia.org/wiki/FairTax https://en.wikipedia.org/wiki/FairTax
- gburt 11y ago
  Taxing consumption doesn't work unless it is somehow international.
  - taylorwc 11y ago
    Agreed. There are lots of other sticky issues related to the idea of switching to a consumption-based tax. Not arguing that it should be adopted; every system will have pitfalls.
- hackuser 11y ago
  > I find it hard to hold a grudge against wealthy individuals who minimize tax liability. It's perfectly legal ... What if it was made legal because they bought politicians who made the laws in their favor? Also, the law isn't moral. Lots of things are legal but completely immoral. Slavery comes to mind as an historical example.
  - taylorwc 11y ago
    I agree that the law isn't moral, and I don't think that 'buying politicians' is acceptable or moral. I'm not asserting that wealthy people have no moral obligations--they do--but how much tax they should pay as a percentage of wealth and how that number was derived isn't one of them.
    - hackuser 11y ago
      Hmmm ... I think everyone has a obligation to pull their weight. If you don't pay your fair share of taxes, other people have to cover it for you.
twoodfin 11y ago
As an accountant once told me unless you tax wealth then you can't fight this... and good luck getting an annual tax against wealth passed into law. Wealth has many of the same problems. Unless you're going to try to tax someone's global holdings (how?), it's much easier for a hedge fund billionaire to park (and enjoy) his money in Chilean wineries and Dubai-registered jets than it is for a mere millionaire. Sure, you can buy a little plot in the south of France or a condo in the Caribbean, but it will cost you a much larger fraction of your income to keep it up and travel to enjoy it. And trusts can shield wealth just as well as they can shield income. It's effectively impossible to make the top few hundred taxpayers pay an effective rate much higher than 15%. But other than some appeal to fairness, who cares? They're already paying thousands of times over what the median taxpayer is.
- lifeisstillgood 11y ago
  It always is the appeal to fairness - if the folks at the top get away with it, it's like Soviet Dachas, Popes with mistresses etc. The top must be made to be equal if society is to be equal. The how - is what is in the wind - international cooperation.
  - rosser 11y ago
    ...if society is to be equal. What you're missing is that people who are in favor of these kinds of shenanigans tend also to be emphatically against this "equality" rubbish.
  - twoodfin 11y ago
    "Get away with" paying $56M in taxes annually? That was the average "top 400" taxpayer bill in 2012. https://www.irs.gov/pub/irs-soi/12intop400.pdf https://www.irs.gov/pub/irs-soi/12intop400.pdf Life in the U.S. is good, but nobody is getting an "unfair" allocation of all the great benefits and opportunities the federal government provides if they're paying $56M for it.
    - rayiner 11y ago
      The average income of the top 400 taxpayers is $335 million/year. Had those people been born and grown up in Bangladesh, instead of the U.S., I doubt it would be 1/10th as much, if that. So $56 million a year doesn't sound so bad for the privilege of living in a society that enables wealth creation like few others.
cperciva 11y ago
If you tax income, then people will take their compensation in a corporation. Canada addresses the personal/corporate problem with an integrated tax system: To a first approximation, individuals who receive corporate dividends get a refund of the taxes which the dividend-paying corporations paid on that income. It never works out exactly equal, but as long as I've been running Tarsnap the difference between "pay a bonus" (employment income for me, deductible for the corporation) and "pay a dividend" (dividend income for me, paid by the corporation with after-tax dollars) has been less than 1%. I really don't understand why other countries don't use the same system.
- gavinballard 11y ago
  Australia does this through the use of "franking credits" attached to dividends.
coldpie 11y ago
> If you make 8 figures year then it's worth your while to spend alot of money to structure your finances so you pay as little tax as legally required. I understand what you're saying. If you make $50,000,000 per year, then at some point it's worth spending $500,000 on an accountant who will manage to avoid you paying $10,000,000 in taxes. The math clearly works out, and that's why people do it. I get it. But man, does it really need to be that way? Is it really so bad to "only" gain $40,000,000 per year instead of $49,500,000? Can you really not get by without that $9.5MM? We've got crumbling infrastructure, cash-strapped schools, students loaded with debt, and the fallout from a housing bubble, but Mark Zuckerberg really needs that new yacht. Anyway, I can't say I wouldn't do the same in his situation. I understand the motivations. I'm just griping. * Numbers all fabricated to illustrate my point.
- deleted 11y ago
  [deleted]
- twoodfin 11y ago
  We've got crumbling infrastructure, cash-strapped schools, students loaded with debt, and the fallout from a housing bubble, but Mark Zuckerberg really needs that new yacht. Doubling or tripling tax revenue from the super wealthy would not provide the funds to solve any of these problems, if indeed they would be solvable with "more money". There just aren't that many super wealthy people.
  - ryandrake 11y ago
    Is this true, though? I agree there are not that many super wealthy people. But my guess is that these people are so mind-bindingly, astoundingly wealthy, that you could adequately fund most of the government simply by focusing on the top-N (for some value N).
    - twoodfin 11y ago
      According to Forbes, there are ~500 billionaires in the U.S., with an average wealth of ~$4B. Let's say $2T total. If you assume they can make 10% annually on that wealth (probably optimistic), that's $200B/year. It is totally implausible given the history of U.S. tax policy and compliance, but let's say you could capture a 50% effective rate of that. That's $100B/year: Not even half the increase in U.S. tax revenue between 2013 and 2014 due to economic growth[1]. Did that extra $200B enable Congress and the President to solve significant problems last year? [1] And whether you believe in the Laffer curve or not, it's hard to imagine that levying a massive tax on billionaires' investment income would have a positive effect on economic growth & thus tax revenue from the non-super-rich.
forrestthewoods 11y ago
Tax consumption. #ProblemSolved
hackuser 11y ago
Some tax systems, including some income tax systems, are more effective than others. It's true none will ever be perfect, but we'll never eliminate murder and other crimes either. However, we can do a better job.
JDiculous 11y ago
This is why we need a land value tax. It's the only form of tax that can actually legitimately be enforced and doesn't lead to economic activity being moved offshore or under the table.
- vezzy-fnord 11y ago
  No, the land value tax is one of the most notoriously difficult taxes to properly implement, which is why it's so rare. (Also, having it in addition to others, instead of making it the traditional Single Tax ruins the whole point.)
  - JDiculous 11y ago
    No. Valuation might not be trivial, but LVT would definitely be the easiest tax to enforce. Don't pay the taxes on the land you own? You lose ownership. Ideally it'd be the single tax, but that doesn't preclude it from being useful in conjunction with other taxes. For example, we could start by simply replacing property taxes with LVT, and that alone would spur economic growth.
cmurf 11y ago
We do tax some wealth: property taxes. There are residential property taxes and business property taxes. And wealth managers often charge fees based on a percentage of assets (at least for $1/2+ million accounts). So there is precedent for such a system. The political reality of expanding on this is a different matter. Any change would have to be gradual, because taxation is a huge intervention in market forces. i.e. to just suddenly stop taxing income, and tax wealth or tax consumption would very abruptly change the dynamics of the economy. But we don't have a political system that incentives 10, 20, 50 years down the road sorts of end goals. We have a system that favors the catch phrase of the week.
themartorana 11y ago
This is my main reason for liking a national sales tax. I know there are issues with consumption taxes (as with all taxes) but it not only encourages savings at lower income levels, but means a ~32% tax gets levied on a pencil and a mega-yacht equally.

bradleyjg 11y ago

As an accountant once told me unless you tax wealth then you can't fight this... and good luck getting an annual tax against wealth passed into law. The direct tax clause of the original constitution, even as modified by the sixteenth amendment, probably forbids such a thing at the federal level. So it'd likely take a constitutional amendment. That said, I'm not quite as pessimistic as you. Between consumption taxes and estate taxes (which are about the only wealth tax we have) we could get at most money if we had the will to do so. The estate tax is filled with holes because Congress wants it to be, not because of any inherent complexity or definitional difficulties. There is an ultimate tax avoidance strategy of renouncing citizenship and living and consuming abroad. I would impose a lifetime ban on entry on renouncers, but beyond that I think it is fair game. If you aren't an American we shouldn't be taxing you.

vezzy-fnord 11y ago
Scott Sumner (commenting on John Cochrane) hinted at something similar recently: http://econlog.econlib.org/archives/2015/12/heres_john_coch.html http://econlog.econlib.org/archives/2015/12/heres_john_coch....
hackbinary 11y ago
People may, and often do, renounce citizenship for other reasons than tax.
- omonra 11y ago
  Like what?
  - hackbinary 11y ago
    I would say politics. Also it is my understanding that if an American would like to move to another country, and become a citizen of that country (for any number of reasons), they have to renounce their American citizenship. People moving to the United States, on the otherhand, may retain their citizenship of certain countries, such as Canada.
    - omonra 11y ago
      These are both untrue. I'm not aware of a single American individual who gave up their citizenship for politics (and I work in this field). Secondly, nobody has to give it up if they obtain another citizenship. US government actually makes it hard and expensive to go through this process.
      - hackbinary 11y ago
        >> These are both untrue. >> I'm not aware of a single American individual who gave up their citizenship for politics (and I work in this field). Firstly I'm not sure which 'both' are untrue, as I had 3 points, so your response is a little confusing. Politics: There where some number of American men who where wanting dodge the American draft before it was abolished in 1973, particular in the 60 and 70s. I suspect some number of draft-dodgers renounced their American citizenship. Similarly, some number of American women did not want their children to be subject to the draft, and didn't agree with American wars, so they too moved away, and renounced their American Citizenship--I know some women for who this is absolutely the case. I also know some people who currently reside outside of the US who would renounce their American citizenship were Trump to be elected president. I would say all of these example falls under the board heading of "politics". I would agree that it is currently the policy of the US Government not to make individuals renounce their citizenship where they to become a citizen of another country, but I do not know the history. It is that other countries do make new citizen renounce their other citizenship(s); Singapore, for example. https://en.wikipedia.org/wiki/Renunciation_of_citizenship https://en.wikipedia.org/wiki/Renunciation_of_citizenship Similarly, if Singapore citizen was to obtain American Citizenship, s/he would have to renounce their Singaporean Citizenship.

taylorwc 11y ago

I completely agree with this. Short of taxing wealth or taxing consumption, like the FairTax proposal[0], there's no way around shelters and avoidance. I find it hard to hold a grudge against wealthy individuals who minimize tax liability. It's perfectly legal and it's in their best interest. [0] https://en.wikipedia.org/wiki/FairTax https://en.wikipedia.org/wiki/FairTax

gburt 11y ago
Taxing consumption doesn't work unless it is somehow international.
- taylorwc 11y ago
  Agreed. There are lots of other sticky issues related to the idea of switching to a consumption-based tax. Not arguing that it should be adopted; every system will have pitfalls.
hackuser 11y ago
> I find it hard to hold a grudge against wealthy individuals who minimize tax liability. It's perfectly legal ... What if it was made legal because they bought politicians who made the laws in their favor? Also, the law isn't moral. Lots of things are legal but completely immoral. Slavery comes to mind as an historical example.
- taylorwc 11y ago
  I agree that the law isn't moral, and I don't think that 'buying politicians' is acceptable or moral. I'm not asserting that wealthy people have no moral obligations--they do--but how much tax they should pay as a percentage of wealth and how that number was derived isn't one of them.
  - hackuser 11y ago
    Hmmm ... I think everyone has a obligation to pull their weight. If you don't pay your fair share of taxes, other people have to cover it for you.

twoodfin 11y ago

As an accountant once told me unless you tax wealth then you can't fight this... and good luck getting an annual tax against wealth passed into law. Wealth has many of the same problems. Unless you're going to try to tax someone's global holdings (how?), it's much easier for a hedge fund billionaire to park (and enjoy) his money in Chilean wineries and Dubai-registered jets than it is for a mere millionaire. Sure, you can buy a little plot in the south of France or a condo in the Caribbean, but it will cost you a much larger fraction of your income to keep it up and travel to enjoy it. And trusts can shield wealth just as well as they can shield income. It's effectively impossible to make the top few hundred taxpayers pay an effective rate much higher than 15%. But other than some appeal to fairness, who cares? They're already paying thousands of times over what the median taxpayer is.

lifeisstillgood 11y ago
It always is the appeal to fairness - if the folks at the top get away with it, it's like Soviet Dachas, Popes with mistresses etc. The top must be made to be equal if society is to be equal. The how - is what is in the wind - international cooperation.
- rosser 11y ago
  ...if society is to be equal. What you're missing is that people who are in favor of these kinds of shenanigans tend also to be emphatically against this "equality" rubbish.
- twoodfin 11y ago
  "Get away with" paying $56M in taxes annually? That was the average "top 400" taxpayer bill in 2012. https://www.irs.gov/pub/irs-soi/12intop400.pdf https://www.irs.gov/pub/irs-soi/12intop400.pdf Life in the U.S. is good, but nobody is getting an "unfair" allocation of all the great benefits and opportunities the federal government provides if they're paying $56M for it.
  - rayiner 11y ago
    The average income of the top 400 taxpayers is $335 million/year. Had those people been born and grown up in Bangladesh, instead of the U.S., I doubt it would be 1/10th as much, if that. So $56 million a year doesn't sound so bad for the privilege of living in a society that enables wealth creation like few others.

cperciva 11y ago

If you tax income, then people will take their compensation in a corporation. Canada addresses the personal/corporate problem with an integrated tax system: To a first approximation, individuals who receive corporate dividends get a refund of the taxes which the dividend-paying corporations paid on that income. It never works out exactly equal, but as long as I've been running Tarsnap the difference between "pay a bonus" (employment income for me, deductible for the corporation) and "pay a dividend" (dividend income for me, paid by the corporation with after-tax dollars) has been less than 1%. I really don't understand why other countries don't use the same system.

gavinballard 11y ago
Australia does this through the use of "franking credits" attached to dividends.

coldpie 11y ago

> If you make 8 figures year then it's worth your while to spend alot of money to structure your finances so you pay as little tax as legally required. I understand what you're saying. If you make $50,000,000 per year, then at some point it's worth spending $500,000 on an accountant who will manage to avoid you paying $10,000,000 in taxes. The math clearly works out, and that's why people do it. I get it. But man, does it really need to be that way? Is it really so bad to "only" gain $40,000,000 per year instead of $49,500,000? Can you really not get by without that $9.5MM? We've got crumbling infrastructure, cash-strapped schools, students loaded with debt, and the fallout from a housing bubble, but Mark Zuckerberg really needs that new yacht. Anyway, I can't say I wouldn't do the same in his situation. I understand the motivations. I'm just griping. * Numbers all fabricated to illustrate my point.

deleted 11y ago
[deleted]
twoodfin 11y ago
We've got crumbling infrastructure, cash-strapped schools, students loaded with debt, and the fallout from a housing bubble, but Mark Zuckerberg really needs that new yacht. Doubling or tripling tax revenue from the super wealthy would not provide the funds to solve any of these problems, if indeed they would be solvable with "more money". There just aren't that many super wealthy people.
- ryandrake 11y ago
  Is this true, though? I agree there are not that many super wealthy people. But my guess is that these people are so mind-bindingly, astoundingly wealthy, that you could adequately fund most of the government simply by focusing on the top-N (for some value N).
  - twoodfin 11y ago
    According to Forbes, there are ~500 billionaires in the U.S., with an average wealth of ~$4B. Let's say $2T total. If you assume they can make 10% annually on that wealth (probably optimistic), that's $200B/year. It is totally implausible given the history of U.S. tax policy and compliance, but let's say you could capture a 50% effective rate of that. That's $100B/year: Not even half the increase in U.S. tax revenue between 2013 and 2014 due to economic growth[1]. Did that extra $200B enable Congress and the President to solve significant problems last year? [1] And whether you believe in the Laffer curve or not, it's hard to imagine that levying a massive tax on billionaires' investment income would have a positive effect on economic growth & thus tax revenue from the non-super-rich.

forrestthewoods 11y ago

Tax consumption. #ProblemSolved

hackuser 11y ago

Some tax systems, including some income tax systems, are more effective than others. It's true none will ever be perfect, but we'll never eliminate murder and other crimes either. However, we can do a better job.

JDiculous 11y ago

This is why we need a land value tax. It's the only form of tax that can actually legitimately be enforced and doesn't lead to economic activity being moved offshore or under the table.

vezzy-fnord 11y ago
No, the land value tax is one of the most notoriously difficult taxes to properly implement, which is why it's so rare. (Also, having it in addition to others, instead of making it the traditional Single Tax ruins the whole point.)
- JDiculous 11y ago
  No. Valuation might not be trivial, but LVT would definitely be the easiest tax to enforce. Don't pay the taxes on the land you own? You lose ownership. Ideally it'd be the single tax, but that doesn't preclude it from being useful in conjunction with other taxes. For example, we could start by simply replacing property taxes with LVT, and that alone would spur economic growth.

cmurf 11y ago

We do tax some wealth: property taxes. There are residential property taxes and business property taxes. And wealth managers often charge fees based on a percentage of assets (at least for $1/2+ million accounts). So there is precedent for such a system. The political reality of expanding on this is a different matter. Any change would have to be gradual, because taxation is a huge intervention in market forces. i.e. to just suddenly stop taxing income, and tax wealth or tax consumption would very abruptly change the dynamics of the economy. But we don't have a political system that incentives 10, 20, 50 years down the road sorts of end goals. We have a system that favors the catch phrase of the week.

themartorana 11y ago

This is my main reason for liking a national sales tax. I know there are issues with consumption taxes (as with all taxes) but it not only encourages savings at lower income levels, but means a ~32% tax gets levied on a pencil and a mega-yacht equally.