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ProPublica is making a point about billionaire wealth generation being radically different than average person’s (and thus opening you to more money/influence/p

by partido3619463 5y ago

ProPublica is making a point about billionaire wealth generation being radically different than average person’s (and thus opening you to more money/influence/power even just by donating it all to charity). Substack author got stuck on “tax avoidance” and missed the broader point. Sure, perhaps taxes get paid at some point, but it’s radically different if you can build up a huge warchest and sock everything away behind future wealth transfer schemes. (And point that you get one-time 40% vs 20% cut then 40% cut is also valid). Beyond all that - when you can accumulate wealth without taxes like that - you get security and comfort. Certainly there are reasons to prioritize investment, but why should earning income via wages put you at such a HUGE disadvantage? Def doesn’t rise to the inflammatory title. ProPublica has a different attitude towards wealth and investment than you do - fine! Not sure there’s a truly “objective” way to look at this.

WalterBright 5y ago
> why should earning income via wages put you at such a HUGE disadvantage? Wages are paid out of pre-tax earnings. Capital gains correspond to after-tax earnings. This puts them at approximately the same level. (A lot of cap gains are also due to inflation, i.e. they're fake gains.)
- alex_young 5y ago
  What do you mean by after tax? Capital gains are literally that, value increase of assets. How is that after tax? Also, if you’re going to discount inflation, don’t you have to do the same for annual salaries which are very much worth less under any significant inflation?
  - nullc 5y ago
    Your income comes from a company which pays it with pretax money, you pay taxes on that money and then invest it in shares, companies earn money, pay taxes on the profits, and gain value (dividends/share buybacks/self-investment). The sum of corporate taxes and gains taxes are close in magnitude to income tax. So a dollar goes into a corp, it either: (1) gets paid to you, you pay your marginal income tax rate on it (say 28%), the corp doesn't pay a tax on it because you're an expense they deduct. or (2) they pay corporate tax on it (21%) and then it turns into gains for you and you pay LTCG on it (15%) = ~33%. (and no, it's still automatically lower than your marginal income tax rate when you're in a higher tax bracket: LTCG goes up to 23.8% when you have sufficiently high investment income) ... and if you don't qualify for LTCG on that cap gain, you get taxed at your income tax rates on it even though you, as a (tiny) owner of the company, already paid corp taxes on.
    - alex_young 5y ago
      Well, first it appears that you’re discussing the underlying asset, and not the gains. The asset is presumably still there at the end of any gains, right? Additionally you appear to be assuming that all capital investments ‘came from’ a paycheck and not some other source. Probably all of the underlying money in question in the original article was created through some kind of invention or productive work, not through Jeff Bezos investing his paycheck.
  - WalterBright 5y ago
    Capital gains correspond with the increase in value of a company which ultimately corresponds with the increase in value due to profits after taxes. Salaries tend to rise with inflation. The tax brackets are indexed to inflation, so there's no inflation tax on them.
    - alex_young 5y ago
      I’m not sure I follow. If capital gains are strongly correlated with profit after taxes, shouldn’t price to earnings ratios be somewhat similar? For instance, GM has a past year p/e of 13 and Tesla has a p/e of 943.
      - WalterBright 5y ago
        Higher p/e's are based on expected future earnings. The two converge sooner or later.
- nullc 5y ago
  I agree but: > (A lot of cap gains are also due to inflation, i.e. they're fake gains.) You are a poor investor (or at least a weird one!) if that much your gains are due to inflation -- even under the more aggressive or even kooky benchmarks of inflation they're still not that large compared to broad market returns. The fact that the fake gains from inflation are taxed is probably somewhat market distorting in that it discourages investment in low risk low return opportunities, but (perhaps due to that distortion) it ends up not being that big of a factor overall.
- qqqwerty 5y ago
  Capital gains are not "after-tax" earnings. That would be dividends which pretty much no one pays anymore (see stock buybacks). And corporate taxes are a joke, no one pays those either. As a startup employee, I understand and appreciate the mechanics of capital gains taxes. But I also realize that the ultra wealthy are using a number tax maneuvers unfairly. They use shell companies to avoid paying corporate taxes, they use stock buybacks to avoid paying taxes on dividends, and they use stock as collateral for personal loans to avoid liquidating stock and paying capital gains. My primary source of money/income are my wages. I have few if any options to defer or reduce my tax burden. Meanwhile folks much wealthier then I have figured out how to delay a large portion of their tax burden indefinitely. And in the meantime, roads need to be fixed, the military needs to be paid, etc... and many of these government expenditures disproportionately benefit the wealthy (roads subsidize cheap transportation of goods, military enforces US hegemony allowing for international trade (and stable allies in which one can locate their shell companies!)). I am not a huge fan of wealth taxes, but I struggle to see a better solution that won't eventually get loopholed to death. A 1% tax on holdings worth more than $10M or so seems like it could be the solution. An added benefit is that it would "encourage" wealthy individuals to earn some income, take dividends, or realize capital gains in order to pay the wealth tax, and each of those actions would generate a separate set of tax revenues.
DannyBee 5y ago
Actually, I think you missed the point of the article. The overall point Jeremy is making is that: Propublica claims to be independent and non-partisan trying to do investigative journalism to the highest standards. However, here they are really publishing a thinly veiled policy op-ed, and a pretty badly informed one at that. IE not investigative journalism. They are further morally justifying the privacy invasion on some really shaky grounds as well. Like, for example, even if one assumes that their story is somehow "investigative journalism" rather than "policy op ed", there is no obvious reason not to anonymize the data except to make it more salacious and get more clicks. They basically write that as their justification, along with some other "ends justify the means" crap, but try to make it sound better. That is not an ethical or moral reason to do something. You may agree or disagree, but this feels like a very valid set of points to raise, and doesn't "miss the point" at all. It is propublica that is claiming to hold themselves to a high standard and failing in a lot of ways. So this is overall a critique/commentary on the standards folks are holding themselves to much more than "are they right". The "are they right about tax" is almost secondary here, and that is what you (and lots of others) are focusing on. Which is ironic, because it basically proves
- partido3619463 5y ago
  Get where you’re coming from - I agree that it’s not necessarily the most objective investigative piece (do we expect investigative journalism to be objective?) That said - subhead from Substack is: > What happens when journalists don't have any friends in finance to challenge their thinking? Which to me firmly grounds their point in being about tax policy and not journalistic policy.

WalterBright 5y ago

> why should earning income via wages put you at such a HUGE disadvantage? Wages are paid out of pre-tax earnings. Capital gains correspond to after-tax earnings. This puts them at approximately the same level. (A lot of cap gains are also due to inflation, i.e. they're fake gains.)

alex_young 5y ago
What do you mean by after tax? Capital gains are literally that, value increase of assets. How is that after tax? Also, if you’re going to discount inflation, don’t you have to do the same for annual salaries which are very much worth less under any significant inflation?
- nullc 5y ago
  Your income comes from a company which pays it with pretax money, you pay taxes on that money and then invest it in shares, companies earn money, pay taxes on the profits, and gain value (dividends/share buybacks/self-investment). The sum of corporate taxes and gains taxes are close in magnitude to income tax. So a dollar goes into a corp, it either: (1) gets paid to you, you pay your marginal income tax rate on it (say 28%), the corp doesn't pay a tax on it because you're an expense they deduct. or (2) they pay corporate tax on it (21%) and then it turns into gains for you and you pay LTCG on it (15%) = ~33%. (and no, it's still automatically lower than your marginal income tax rate when you're in a higher tax bracket: LTCG goes up to 23.8% when you have sufficiently high investment income) ... and if you don't qualify for LTCG on that cap gain, you get taxed at your income tax rates on it even though you, as a (tiny) owner of the company, already paid corp taxes on.
  - alex_young 5y ago
    Well, first it appears that you’re discussing the underlying asset, and not the gains. The asset is presumably still there at the end of any gains, right? Additionally you appear to be assuming that all capital investments ‘came from’ a paycheck and not some other source. Probably all of the underlying money in question in the original article was created through some kind of invention or productive work, not through Jeff Bezos investing his paycheck.
- WalterBright 5y ago
  Capital gains correspond with the increase in value of a company which ultimately corresponds with the increase in value due to profits after taxes. Salaries tend to rise with inflation. The tax brackets are indexed to inflation, so there's no inflation tax on them.
  - alex_young 5y ago
    I’m not sure I follow. If capital gains are strongly correlated with profit after taxes, shouldn’t price to earnings ratios be somewhat similar? For instance, GM has a past year p/e of 13 and Tesla has a p/e of 943.
    - WalterBright 5y ago
      Higher p/e's are based on expected future earnings. The two converge sooner or later.
nullc 5y ago
I agree but: > (A lot of cap gains are also due to inflation, i.e. they're fake gains.) You are a poor investor (or at least a weird one!) if that much your gains are due to inflation -- even under the more aggressive or even kooky benchmarks of inflation they're still not that large compared to broad market returns. The fact that the fake gains from inflation are taxed is probably somewhat market distorting in that it discourages investment in low risk low return opportunities, but (perhaps due to that distortion) it ends up not being that big of a factor overall.
qqqwerty 5y ago
Capital gains are not "after-tax" earnings. That would be dividends which pretty much no one pays anymore (see stock buybacks). And corporate taxes are a joke, no one pays those either. As a startup employee, I understand and appreciate the mechanics of capital gains taxes. But I also realize that the ultra wealthy are using a number tax maneuvers unfairly. They use shell companies to avoid paying corporate taxes, they use stock buybacks to avoid paying taxes on dividends, and they use stock as collateral for personal loans to avoid liquidating stock and paying capital gains. My primary source of money/income are my wages. I have few if any options to defer or reduce my tax burden. Meanwhile folks much wealthier then I have figured out how to delay a large portion of their tax burden indefinitely. And in the meantime, roads need to be fixed, the military needs to be paid, etc... and many of these government expenditures disproportionately benefit the wealthy (roads subsidize cheap transportation of goods, military enforces US hegemony allowing for international trade (and stable allies in which one can locate their shell companies!)). I am not a huge fan of wealth taxes, but I struggle to see a better solution that won't eventually get loopholed to death. A 1% tax on holdings worth more than $10M or so seems like it could be the solution. An added benefit is that it would "encourage" wealthy individuals to earn some income, take dividends, or realize capital gains in order to pay the wealth tax, and each of those actions would generate a separate set of tax revenues.

DannyBee 5y ago

Actually, I think you missed the point of the article. The overall point Jeremy is making is that: Propublica claims to be independent and non-partisan trying to do investigative journalism to the highest standards. However, here they are really publishing a thinly veiled policy op-ed, and a pretty badly informed one at that. IE not investigative journalism. They are further morally justifying the privacy invasion on some really shaky grounds as well. Like, for example, even if one assumes that their story is somehow "investigative journalism" rather than "policy op ed", there is no obvious reason not to anonymize the data except to make it more salacious and get more clicks. They basically write that as their justification, along with some other "ends justify the means" crap, but try to make it sound better. That is not an ethical or moral reason to do something. You may agree or disagree, but this feels like a very valid set of points to raise, and doesn't "miss the point" at all. It is propublica that is claiming to hold themselves to a high standard and failing in a lot of ways. So this is overall a critique/commentary on the standards folks are holding themselves to much more than "are they right". The "are they right about tax" is almost secondary here, and that is what you (and lots of others) are focusing on. Which is ironic, because it basically proves

partido3619463 5y ago
Get where you’re coming from - I agree that it’s not necessarily the most objective investigative piece (do we expect investigative journalism to be objective?) That said - subhead from Substack is: > What happens when journalists don't have any friends in finance to challenge their thinking? Which to me firmly grounds their point in being about tax policy and not journalistic policy.