5 ms·

No, because that's a loan rather than an R&D expenditure from income. I guess that probably sounds flippant, but the mechanics are different. If a business rece

No, because that's a loan rather than an R&D expenditure from income. I guess that probably sounds flippant, but the mechanics are different. If a business received a loan, the tax prospects wouldn't be as favorable as expenditure either.

deleted 6y ago
[deleted]
clairity 6y ago
loans are different for corporations due to the interest being deductible (colloquially called 'tax shields'). along with the carryforward provision, that can so valuable that it's the principal reason why a given company is bought. personal loans have no such leeway and value.
- gamblor956 6y ago
  The interest on personal loans is also deductible, if used for (a) education, (b) buying a residence, or (c) for business activities of the individual.
  - clairity 6y ago
    sure, there are a few exceptions, but carveouts result in distortions that lead to unintended consequences, as we see in all of those instances (e.g., higher economic rents). for greater fairness and more efficiency in markets, we should reduce carveouts for both corporations and individuals, not try to justify the ones we have.
  - bradleyjg 6y ago
    > (a) education, (b) buying a residence Only up to some low limit. Netflix can deduct unlimited interest.
    - gamblor956 6y ago
      No, it can't. Business interest deduction is limited to 30% of taxable income...
      - clairity 6y ago
        it's difficult to get to 30% of EBITDA (the actual yardstick) in interest payments, but if you do, the carryforward is unlimited, so it's effectively unlimited.
        gamblor956 6y ago
        The actual yard stick is only EBITDA through this year, and EBIT thereafter, and moreover, it's the tax versions of EBITDA and EBIT, not the accounting versions. For starters, the tax versions use taxable income as the base, not book income, and don't add back in most non-cash items, so the threshold is much lower. Many businesses were hit by this interest limitation in 2018 and 2019. There are dozens of articles from major tax firms about it. Yes, a business can carryforward their unused interest to a future year in which they have spare income to apply it. But that means they have to have sufficient profits and reduced loans in order to take advantage of their interest expenses. If a business is unprofitable, churn loans, or increases its debt load, the business effectively loses out on a lot of the benefit of most of its interest expense.
        clairity 6y ago
        ok, i'll take your word for it since it's not something i follow that closely. i'd just also reiterate that all this rigamarole is not worth it (for the generally claimed increase in productivity and investment), and we should just simplify and equalize individual and corporate tax law.
ysavir 6y ago
Different how? Different in practice or in tax law? The point of the thread is that the two are essentially the same in practice (investing current monetary influxes towards future revenues) but the tax law differences favor one over the other.
- castlecrasher2 6y ago
  I see your point, but who would benefit most from making loans function the way you're suggesting? It obviously would be businesses.
  - ysavir 6y ago
    True, but I think the sentiment isn't "make individual loans work like business investments" so much as it is "make business investments work like individual loans". In other words, if individuals are expected to pay taxes, businesses should be expected to pay taxes as well (rather than being allowed to minimize them due to earlier losses). It's not black and white, of course, and I'm not an accountant, so my knowledge is limited and most likely filled with holes and misunderstandings. But I imagine there's also a matter of scale that's at play here, with tax laws meant to make things easier on small, privately owned businesses in their early years, having unintended consequences to the benefit of companies already behemoth in size investing in getting even bigger. Bigger in ways only made possible in the new digital, globalized world.

deleted 6y ago

[deleted]

clairity 6y ago

loans are different for corporations due to the interest being deductible (colloquially called 'tax shields'). along with the carryforward provision, that can so valuable that it's the principal reason why a given company is bought. personal loans have no such leeway and value.

gamblor956 6y ago
The interest on personal loans is also deductible, if used for (a) education, (b) buying a residence, or (c) for business activities of the individual.
- clairity 6y ago
  sure, there are a few exceptions, but carveouts result in distortions that lead to unintended consequences, as we see in all of those instances (e.g., higher economic rents). for greater fairness and more efficiency in markets, we should reduce carveouts for both corporations and individuals, not try to justify the ones we have.
- bradleyjg 6y ago
  > (a) education, (b) buying a residence Only up to some low limit. Netflix can deduct unlimited interest.
  - gamblor956 6y ago
    No, it can't. Business interest deduction is limited to 30% of taxable income...
    - clairity 6y ago
      it's difficult to get to 30% of EBITDA (the actual yardstick) in interest payments, but if you do, the carryforward is unlimited, so it's effectively unlimited.
      - gamblor956 6y ago
        The actual yard stick is only EBITDA through this year, and EBIT thereafter, and moreover, it's the tax versions of EBITDA and EBIT, not the accounting versions. For starters, the tax versions use taxable income as the base, not book income, and don't add back in most non-cash items, so the threshold is much lower. Many businesses were hit by this interest limitation in 2018 and 2019. There are dozens of articles from major tax firms about it. Yes, a business can carryforward their unused interest to a future year in which they have spare income to apply it. But that means they have to have sufficient profits and reduced loans in order to take advantage of their interest expenses. If a business is unprofitable, churn loans, or increases its debt load, the business effectively loses out on a lot of the benefit of most of its interest expense.
        clairity 6y ago
        ok, i'll take your word for it since it's not something i follow that closely. i'd just also reiterate that all this rigamarole is not worth it (for the generally claimed increase in productivity and investment), and we should just simplify and equalize individual and corporate tax law.

ysavir 6y ago

Different how? Different in practice or in tax law? The point of the thread is that the two are essentially the same in practice (investing current monetary influxes towards future revenues) but the tax law differences favor one over the other.

castlecrasher2 6y ago
I see your point, but who would benefit most from making loans function the way you're suggesting? It obviously would be businesses.
- ysavir 6y ago
  True, but I think the sentiment isn't "make individual loans work like business investments" so much as it is "make business investments work like individual loans". In other words, if individuals are expected to pay taxes, businesses should be expected to pay taxes as well (rather than being allowed to minimize them due to earlier losses). It's not black and white, of course, and I'm not an accountant, so my knowledge is limited and most likely filled with holes and misunderstandings. But I imagine there's also a matter of scale that's at play here, with tax laws meant to make things easier on small, privately owned businesses in their early years, having unintended consequences to the benefit of companies already behemoth in size investing in getting even bigger. Bigger in ways only made possible in the new digital, globalized world.