4 ms·

Some day, please let it be soon, corporations will all be treated as big LLCs, with profits/dividends passed through to shareholders proportionally to be taxed

Some day, please let it be soon, corporations will all be treated as big LLCs, with profits/dividends passed through to shareholders proportionally to be taxed at the individual income rates. Couple that with taxing cap-gains as income, since it is, and all this nonsense goes away. Owners (rather than todays "owners") get their share of profits, rich people pay their share in taxes, good triumphs over evil, and so on.

sabalaba 11y ago
Taxing capital gains at 39.6% (our current top income bracket as of 2016) would be bad for business, job creation, and growth in the US economy. California also taxes long term capital gains (LTCG) at a top rate of 13%. It would mean that an investor in California would experience a LTCG rate of 52.6%, the highest in the entire OECD. Capital has legs and having a non-competitive capital gains rate would incentivize investors to allocate their capital elsewhere. [1] http://taxfoundation.org/article/2016-tax-brackets http://taxfoundation.org/article/2016-tax-brackets [2] http://www.forbes.com/sites/robertwood/2015/03/25/u-s-capital-gain-rate-among-worlds-highest-but-president-obama-wants-more/#10f23b8f20ce http://www.forbes.com/sites/robertwood/2015/03/25/u-s-capita... [3] http://taxfoundation.org/blog/how-high-are-capital-gains-tax-rates-your-state http://taxfoundation.org/blog/how-high-are-capital-gains-tax...
- rtpg 11y ago
  This assumes that capital can get the same ROI anywhere in the world, which is not at all true. If the strongest businesses are based in the US, the US can force investors to play by the rules they want. It's just another part of the equation.
  - LoSboccacc 11y ago
    Shell companies all over the world disagree. You can have access to the US market and still dodge taxes.
  - deleted 11y ago
    [deleted]
- downandout 11y ago
  >California also taxes long term capital gains (LTCG) at a top rate of 13% I'm sure that Zuckerberg et al have brilliant tax accountants, but this is one thing that has never made sense to me. Volunteering to pay an extra 13% simply for the privilege of living in Northern California seems insane to me. Any of these guys could move a few hours down the road to Tahoe or Reno and save themselves billions of dollars in state taxes, even if they left the company headquarters in CA. I'd also like to see Pricenomics do a study measuring the market cap impact of California's high corporate income tax rates on major publicly traded Silicon Valley companies. I'm guessing investors would be sickened by the results.
  - adrianN 11y ago
    Maybe they're rich enough that it doesn't matter to them. Whether you make 10 Million a year or 15 maybe doesn't have an impact on your lifestyle at all.
    - downandout 11y ago
      Yes, but at $15M/yr, the 13% is only $1.95M. That's high, but not singlehandedly-supporting-the-government high. In 2013, Mark Zuckerberg paid an estimated $2.3 billion in total income tax [1]. About 40% - nearly $1 billion - likely went to California state taxes - for the mere privilege of living near the beach. If he wants to give $1 billion in cash away, there are alot better uses than to give it to state government bureaucrats. For example, he could have moved to Nevada, saved the $1 billion, and taken 50,000 homeless people off the streets for a year for that much money (which, by the way is ~10% of the entire homeless population in the United States - imagine the positive social impact of doing such a thing). The point is that federal taxes are inescapable, while state taxes are not. It makes no financial sense for someone with nine or ten figure tax liabilities to be living in high tax states. [1] http://www.forbes.com/sites/robertwood/2013/12/20/mark-zuckerbergs-2-billion-tax-bill/#6dd3ea5ff553 http://www.forbes.com/sites/robertwood/2013/12/20/mark-zucke...
  - freddie_mercury 11y ago
    You pay state taxes based on where the income is generated from (for most states but definitely for California), not where your house is. Putting their house in Tahoe/Reno but leaving the HQ in California wouldn't affect their income taxes. They'd have to move the company HQ to Reno/Tahoe to avoid the taxes.
- maxerickson 11y ago
  Exactly how bad it would be is a lot more interesting than that it would be bad. I mean, I accept that it will have a negative marginal effect, and I accept that people will shift their behavior to avoid the tax, but I don't accept that they will start stuffing their money in the mattress because they only get to keep some of the profits of their investments.
pat2man 11y ago
The problem with treating investment profits as regular income is that you can have negative investment profit but you can never have negative income. If I make 100k one year on my investments and loose 100k the next year I effectively paid taxes without making any money.
- lyncnshare 11y ago
  You can have net operating loss carry-forwards that offset profits for tax purposes in future years. You can have capital losses that can offset capital gains and some ordinary income at the investor level. So no, you didn't pay taxes on the losses.
- mattmanser 11y ago
  Yes you can. Do people not eat when they've not got a job? If you're unemployed you have a 'loss', because you have expenditures. Also, there's an additional hidden loss. I earn $30k last year, with a tax break of $3k, this year I earn nothing because I take the year off to have a baby, I lost $3k in tax break. When I work next year I don't get a $6k tax break. I can't ever make that back. Just because it's hidden, doesn't mean it's not there. And that's far more expensive than it is to someone taking extreme risks with capital that they can lose/earn $100k in a year. Also, you already tax your gamblers in the US...
  - tostitos1979 11y ago
    Aren't net winnings are taxed for gamblers? I'm usually calling out for a progressive tax system, however, the parent is right. Investment doesn't work the way you describe. You are asking people to risk capital in order to gain some reward. A particular investment may not pan out for years and then give a windfall. I'm going to go out on a limb and say this: typically, the longer term payoff kind of things benefit society more. As someone who has very little capital, I too get unhappy when I see regressive tax regimes. The increase in inequality is one of the great problems of our age. That said, we must take care not to throw out the baby with the bathwater. Our current standard of living would not be possible without investment. Your example about taking time off for the baby is an interesting one. Perhaps the tax system needs to take account of people taking sabbaticals and such.
tomp 11y ago
You're not paying tax on profit just for fun, you're paying it because you're receiving a service: limited liability. If you don't want to pay extra tax, simply accept unlimited liability and you're set!

sabalaba 11y ago

Taxing capital gains at 39.6% (our current top income bracket as of 2016) would be bad for business, job creation, and growth in the US economy. California also taxes long term capital gains (LTCG) at a top rate of 13%. It would mean that an investor in California would experience a LTCG rate of 52.6%, the highest in the entire OECD. Capital has legs and having a non-competitive capital gains rate would incentivize investors to allocate their capital elsewhere. [1] http://taxfoundation.org/article/2016-tax-brackets http://taxfoundation.org/article/2016-tax-brackets [2] http://www.forbes.com/sites/robertwood/2015/03/25/u-s-capital-gain-rate-among-worlds-highest-but-president-obama-wants-more/#10f23b8f20ce http://www.forbes.com/sites/robertwood/2015/03/25/u-s-capita... [3] http://taxfoundation.org/blog/how-high-are-capital-gains-tax-rates-your-state http://taxfoundation.org/blog/how-high-are-capital-gains-tax...

rtpg 11y ago
This assumes that capital can get the same ROI anywhere in the world, which is not at all true. If the strongest businesses are based in the US, the US can force investors to play by the rules they want. It's just another part of the equation.
- LoSboccacc 11y ago
  Shell companies all over the world disagree. You can have access to the US market and still dodge taxes.
- deleted 11y ago
  [deleted]
downandout 11y ago
>California also taxes long term capital gains (LTCG) at a top rate of 13% I'm sure that Zuckerberg et al have brilliant tax accountants, but this is one thing that has never made sense to me. Volunteering to pay an extra 13% simply for the privilege of living in Northern California seems insane to me. Any of these guys could move a few hours down the road to Tahoe or Reno and save themselves billions of dollars in state taxes, even if they left the company headquarters in CA. I'd also like to see Pricenomics do a study measuring the market cap impact of California's high corporate income tax rates on major publicly traded Silicon Valley companies. I'm guessing investors would be sickened by the results.
- adrianN 11y ago
  Maybe they're rich enough that it doesn't matter to them. Whether you make 10 Million a year or 15 maybe doesn't have an impact on your lifestyle at all.
  - downandout 11y ago
    Yes, but at $15M/yr, the 13% is only $1.95M. That's high, but not singlehandedly-supporting-the-government high. In 2013, Mark Zuckerberg paid an estimated $2.3 billion in total income tax [1]. About 40% - nearly $1 billion - likely went to California state taxes - for the mere privilege of living near the beach. If he wants to give $1 billion in cash away, there are alot better uses than to give it to state government bureaucrats. For example, he could have moved to Nevada, saved the $1 billion, and taken 50,000 homeless people off the streets for a year for that much money (which, by the way is ~10% of the entire homeless population in the United States - imagine the positive social impact of doing such a thing). The point is that federal taxes are inescapable, while state taxes are not. It makes no financial sense for someone with nine or ten figure tax liabilities to be living in high tax states. [1] http://www.forbes.com/sites/robertwood/2013/12/20/mark-zuckerbergs-2-billion-tax-bill/#6dd3ea5ff553 http://www.forbes.com/sites/robertwood/2013/12/20/mark-zucke...
- freddie_mercury 11y ago
  You pay state taxes based on where the income is generated from (for most states but definitely for California), not where your house is. Putting their house in Tahoe/Reno but leaving the HQ in California wouldn't affect their income taxes. They'd have to move the company HQ to Reno/Tahoe to avoid the taxes.
maxerickson 11y ago
Exactly how bad it would be is a lot more interesting than that it would be bad. I mean, I accept that it will have a negative marginal effect, and I accept that people will shift their behavior to avoid the tax, but I don't accept that they will start stuffing their money in the mattress because they only get to keep some of the profits of their investments.

pat2man 11y ago

The problem with treating investment profits as regular income is that you can have negative investment profit but you can never have negative income. If I make 100k one year on my investments and loose 100k the next year I effectively paid taxes without making any money.

lyncnshare 11y ago
You can have net operating loss carry-forwards that offset profits for tax purposes in future years. You can have capital losses that can offset capital gains and some ordinary income at the investor level. So no, you didn't pay taxes on the losses.
mattmanser 11y ago
Yes you can. Do people not eat when they've not got a job? If you're unemployed you have a 'loss', because you have expenditures. Also, there's an additional hidden loss. I earn $30k last year, with a tax break of $3k, this year I earn nothing because I take the year off to have a baby, I lost $3k in tax break. When I work next year I don't get a $6k tax break. I can't ever make that back. Just because it's hidden, doesn't mean it's not there. And that's far more expensive than it is to someone taking extreme risks with capital that they can lose/earn $100k in a year. Also, you already tax your gamblers in the US...
- tostitos1979 11y ago
  Aren't net winnings are taxed for gamblers? I'm usually calling out for a progressive tax system, however, the parent is right. Investment doesn't work the way you describe. You are asking people to risk capital in order to gain some reward. A particular investment may not pan out for years and then give a windfall. I'm going to go out on a limb and say this: typically, the longer term payoff kind of things benefit society more. As someone who has very little capital, I too get unhappy when I see regressive tax regimes. The increase in inequality is one of the great problems of our age. That said, we must take care not to throw out the baby with the bathwater. Our current standard of living would not be possible without investment. Your example about taking time off for the baby is an interesting one. Perhaps the tax system needs to take account of people taking sabbaticals and such.

tomp 11y ago

You're not paying tax on profit just for fun, you're paying it because you're receiving a service: limited liability. If you don't want to pay extra tax, simply accept unlimited liability and you're set!