4 ms·
FWIW, the common rebuttal scenario goes like this: You and I earn $200k in wages, and each pay $100k in taxes. You spend your remaining $100k on a boat. I inve
by evanpw 8y ago
FWIW, the common rebuttal scenario goes like this:
You and I earn $200k in wages, and each pay $100k in taxes. You spend your remaining $100k on a boat. I invest my $100k, and 5 years later it's worth $200k. Suppose that $100k gain is taxed like ordinary income at 50%. After taxes I have $150k, which I also spend on a boat.
Without taxes, you would have had $200k to consume in year 0, but you actually got $100k; your effective tax rate is 50%. Without taxes, I would have had $400k to consume in year 5, but I actually got $150k; my effective tax rate is 62.5%.
Who should pay the higher tax rate? The person who consumes their wage income immediately, or the one who defers consumption? For them to be equal, the capital gains tax rate has to be 0%.
- harryh 8y agoMy comment was providing a defense of preferential tax treatment for carried interest. You provided an argument for a 0% tax rate on capital gains. I'm not sure how your comment is a rebuttal to mine? Perhaps you responded to the wrong comment by accident?
- evanpw 8y agoYour example seems to have nothing to do with carried interest. There's a single investor; no investment manager. The question around carried interest is whether certain types of income earned by investment managers should be classified as labor or capital income, whereas you have one person with labor income and one person with capital income, and are asking who should be taxed more heavily.
- harryh 8y agoIn my comment "I" am the investor and "you" are the investment manager. I'm sorry if that was unclear.