6 ms·

The problem is not Peter Thiel. it's not rich people. It's the fact that our elected legislature has created a nightmare boondoggle of a tax code. Rich peopl

by efitz 5y ago

The problem is not Peter Thiel. it's not rich people. It's the fact that our elected legislature has created a nightmare boondoggle of a tax code. Rich people have the resources to hire CPAs to dig through tens of thousands of pages of tax law and create strategies to use the law to their advantage. If the law were simple, there would be no way to do this kind of gamesmanship. Personally, I think that we should ditch the entire tax code, set a flat income tax rate - a single rate that applies to everyone and every kind of income - and a standard deduction of say, 1.5x - 2x of whatever "poverty level" income is. Such a system is triple-progressive: first, high income earners pay more because x% of a lot of income is a lot bigger than x% of a little income. It's progressive in that poor people pay nothing due to the standard deduction, and middle income earners pay a pittance for the same reason. And it's progressive in that it eliminates all loopholes so there's no way for high earners to game it. But it only works if you eliminate all deductions and special income treatments including the sacred cows (mortgage deduction and capital gains). Of course this is fantasy; lobbyists for CPAs and for attorneys would never support anyone who voted for this kind of simplification. And, Congress would f** it up immediately by restarting the "let's use the tax code to reward our donors and punish our enemies" process. Sigh.

bronzeage 5y ago
The billionaires don't get regular income, they get asset appreciation of the corporations they own. You need both higher capital income tax in a progressive way, and an incentive to sell. Borrowing against this assets for anything should be illegal until you have paid income taxes on them.
iammisc 5y ago
Yup. This is why I encourage everyone to do their own taxes. It would help people see how stupid it is. So complicated for no reason .
rtpg 5y ago
You think that the legislature exists in a vacuum? That it writes out all these loopholes for fun? That other nations are just broken with their simpler tax code? This is yet another "American exceptionalism" thing where _somehow_ America is the only developped nation in the world with this level of issue yet seems to think it's sort of... intrinsic to the world. The most prescient thing I saw about the Panama Papers leaks was that the biggest reason so few americans were present in those is that America is basically already a tax haven for rich people. A flat income tax rate is not progressive by the usual definition, even with a flat deduction (imagine trying to scale _that_ to inflation and the endless debates). And we already have a solution for what you propose: gradual increase in the tax rate based on income levels! It has the added advantage of actually handling inflation (since the dollar amounts will go up over time anyways), and don't require a single "big tax number". If you believe what you say, just argue to remove various deductions and exceptions. We already have percentage-based tax system, there's no need to be that much cleverer.
- anamexis 5y ago
  > You think that the legislature exists in a vacuum? That it writes out all these loopholes for fun? That other nations are just broken with their simpler tax code? This is yet another "American exceptionalism" thing where _somehow_ America is the only developped nation in the world with this level of issue yet seems to think it's sort of... intrinsic to the world. I missed the part where they are suggesting any of these things. > If you believe what you say, just argue to remove various deductions and exemptions. That's exactly what they are arguing?
  - rtpg 5y ago
    > where they are suggesting any of these things >> Of course this is fantasy; lobbyists for CPAs and for attorneys would never support anyone who voted for this kind of simplification. >> And, Congress would f* it up immediately by restarting the "let's use the tax code to reward our donors and punish our enemies" process. I think it's a bit defeatest to just say that it's just intrinsincly impossible for better things... but I'm maybe reading into those comments too harshly. They're arguing to rip out everything and replace it with a flat tax + a deduction. What I'm arguing instead is to do a line-by-line removal of exceptions and deductions, and don't try a "novel" flat tax (instead sticking to a tax with income brackets and different rates, that we _already have_), as it is a better system. And you get the advantage of the optics of "making the tax code simpler" rather than "replacing the tax code". A universe in which we just removed the number of IRS forms that exist is _roughly_ as good as the universe in which replaced all the forms with one form, except that removing the number of forms and still having a W2 would be much easier to migrate to, and doesn't involve nearly as much philosophical debate (even if the result is roughly equivalent). We don't need a novel solution here, we can just move more towards what other nations do (and where we are actually not that far from!)
    - anamexis 5y ago
      That's fine, there's plenty of reasonable debate to be had about specific policy reform, but OPs main point, to me, is how exactly do you intend to get Congress too enact it? Their campaigns are bankrolled by the people benefiting from the loopholes.
edgefield 5y ago
The tax code is structured this way by design, by rich people. If rich people wanted a simplified tax code without loopholes, then they would actively lobby for this, and I guarantee congress would act to simplify the tax code.
- zdragnar 5y ago
  Many politicians also feel that a flat tax rate isn't sufficiently progressive; that only by taxing higher incomes at higher percentages than lower incomes is it "truly" progressive. OTOH, many politicians do want to see the tax code vastly simplified- they want the sort of system where you could fill out your taxes on a form small enough to fit on the back of a post card. Everyone has their favorite thing that they want exempted (farms, capital investments, social security / welfare disbursements, medical expenses, school expenses, mortgage interest, rent, etc), and there are millions who would be put out of work by it- accountants, tax preparers, much of the IRS would be redundant, etc. All of these competing interests keep us where we are. Blaming it on the "rich people" is lacking in any sort of honest intellectual rigor.
- BobbyJo 5y ago
  The tax code is like everything else created by the US legislature: a product of many decades of compromise between competing ideas. I'm pretty sure none of it was designed.
  - ryder9 5y ago
    lol is this a joke? i can't believe people think there are any intelligent people on this forum
- fortran77 5y ago
  No. There aren't enough "rich people" to get a politician elected. Most of these things in the tax code are one small chip at a time to make some ordinary person favor a particular politician. Including things like "Roth IRAs" The fact that they have unintended consequences is another story. I don't think the fact that Peter Theil has a billion dollars hurts me in any way, and no I'm not some unrealistic person who thinks that I, too, can be a billionaire! Only a petty person would be disturbed that someone else has more money than him. It's not a zero-sum game. The fact that there are some outlier billionaires doesn't hurt the ordinary Joe.
bliteben 5y ago
How would you handle stocks not paying a dividend? It is a clear moral hazard and with a flat tax you could expect even more companies to adopt this practice of only doing stock buybacks.
- nickpp 5y ago
  A flat tax would presumably have the same rate for dividends and capital gains, so I guess it would be pretty much the same for companies?
  - et2o 5y ago
    Stock buybacks aren’t capital gains, until the stock is eventually sold to trigger the capital gains event. More recently, we have seen that wealthy people just never sell the stock and take out low interest loans against it, effectively paying a tax ratr of just a few %.
    - nickpp 5y ago
      Nothing wrong with that, it’s like a mortgage. The loan must be repaid at some point and so will the tax on capital gains.
burlesona 5y ago
I came here to write basically this same comment. Big fan of the negative income tax as a better (IMO) version of UBI as well. But as you say, it’s probably never going to happen.
deleted 5y ago
[deleted]
sethammons 5y ago
> because x% of a lot of income is a lot bigger than x% of a little income. If you make $10k a year, vs someone who makes $10M a year, and both are taxed the same, the lower income person loses more purchasing power. At 15%, The hit of $1.5k is a harder loss than than the $1.5M.
- boring_twenties 5y ago
  $10k is definitely under the 1.5-2x poverty threshold proposed by the comment you're replying to. Under their proposal, the $10k earner would pay no income tax at all.
  - sethammons 5y ago
    Numbers for illustrative purposes. A graduated tax is more fair from a purchasing power perspective.
uoaei 5y ago
ProPublica ran a series a couple years back about Intuit (who owns TurboTax) doing all the lobbying and bribery to keep the tax code complicated: https://www.propublica.org/article/inside-turbotax-20-year-fight-to-stop-americans-from-filing-their-taxes-for-free https://www.propublica.org/article/inside-turbotax-20-year-f...
sam0x17 5y ago
> And, Congress would f* it up immediately by restarting the "let's use the tax code to reward our donors and punish our enemies" process. The only way to stop this process is a grassroots wave of politicians who refuse the support of corporate donors and have the political will to ban corporate political donations and put something like a $500 yearly cap on individual political donations. This would basically be the end of lobbying. I hope to see this happen in my lifetime. It seems like something zoomers might be willing to do in 20 years when they have more political relevance and the boomers are dying out.
baryphonic 5y ago
What specifically are you arguing against? Roth IRAs are not some bizarre tax loophole. They're an extremely common vehicle for people planning for retirement - unless their income is too high, that is. Many companies even offer Roth 401(k)s or other Roth vehicles for retirement as well. And taxes are indeed paid when the money is put in. If someone follows the rules and is extremely successful with their investment strategy with money in a Roth IRA, then what's the problem? Seems the law is working as intended.
- TheCoelacanth 5y ago
  You will never convince me in a million years that $2k was actually the fair market value of his investment that was later worth $5 billion. No one is lucky enough to pick an investment like that with the tiny amount of initial capital you can put into an IRA. There are clearly some kind of shenanigans going on to artificially lower the price he paid to smuggle it into the IRA. Those shenanigans may well be legal, but they shouldn't be.
  - baryphonic 5y ago
    Since you're beyond convincing, I won't try to. Maybe the article itself can? > In an interview with ProPublica, Pensco founder Tom Anderson recalled how Thiel and other PayPal executives had wanted to put startup shares of the company into traditional IRAs. > Anderson dangled something sweeter. > “I said, ‘If you really think this is going to be big, you know, you might want to consider this new Roth,’” recalled Anderson, who is now retired. If the investment ballooned, he remembered saying, “‘you’re not going to pay tax on it when you take it out.’ It’s a no-brainer." > The math was compelling. Thiel wouldn’t get a tax break up front, but he’d avoid an immense tax bill later on if the investment surged in value. For everyone else who is open minded: Thiel's IRA held Confinity shares. In 1999, Confinity wasn't worth much. In 2021 the company now known as PayPal is worth quite a bit. Confinity could have just as easily folded, been a victim of the dot com bubble, failed to make a deal with Elon Musk's x.com and lost to them, or had any number of disasters along the way that would have wiped out that portfolio. Even ProPublica's reporting admits this was a risk. The investment adviser's words are "If you really think this is going to be big, you know, you might want to consider this new Roth." Ironically, because startups fail so much more frequently than they succeed and because the federal government doesn't tax wealth but income, which can be artificially minimized in relatively simple ways, the government would probably be better off if all startup shares in all companies were held in Roth IRAs, since they'd be taking an up-front cut of a likely failed investment. Thiel's vast fortune held in a Roth IRA is a corner case, but any talk of it "depriving" the government of revenue when he pre-paid taxes in good faith according to the law and thereby took a fairly significant risk without the benefit of hindsight seems like pure envy.
me_me_me 5y ago
> It's the fact that our elected legislature has created a nightmare boondoggle of a tax code. I wonder who is financing campaigns of people who keep those loopholes open?? It must be illuminati. Its a open 'secret' that organised lobbing entities control legislature on a tight leash. Doesn't matter if you vote blue/red/purple the outcome will be the same, you just get different packaging.

by efitz 5y ago

bronzeage 5y ago

The billionaires don't get regular income, they get asset appreciation of the corporations they own. You need both higher capital income tax in a progressive way, and an incentive to sell. Borrowing against this assets for anything should be illegal until you have paid income taxes on them.

iammisc 5y ago

Yup. This is why I encourage everyone to do their own taxes. It would help people see how stupid it is. So complicated for no reason .

rtpg 5y ago

You think that the legislature exists in a vacuum? That it writes out all these loopholes for fun? That other nations are just broken with their simpler tax code? This is yet another "American exceptionalism" thing where _somehow_ America is the only developped nation in the world with this level of issue yet seems to think it's sort of... intrinsic to the world. The most prescient thing I saw about the Panama Papers leaks was that the biggest reason so few americans were present in those is that America is basically already a tax haven for rich people. A flat income tax rate is not progressive by the usual definition, even with a flat deduction (imagine trying to scale _that_ to inflation and the endless debates). And we already have a solution for what you propose: gradual increase in the tax rate based on income levels! It has the added advantage of actually handling inflation (since the dollar amounts will go up over time anyways), and don't require a single "big tax number". If you believe what you say, just argue to remove various deductions and exceptions. We already have percentage-based tax system, there's no need to be that much cleverer.

anamexis 5y ago
> You think that the legislature exists in a vacuum? That it writes out all these loopholes for fun? That other nations are just broken with their simpler tax code? This is yet another "American exceptionalism" thing where _somehow_ America is the only developped nation in the world with this level of issue yet seems to think it's sort of... intrinsic to the world. I missed the part where they are suggesting any of these things. > If you believe what you say, just argue to remove various deductions and exemptions. That's exactly what they are arguing?
- rtpg 5y ago
  > where they are suggesting any of these things >> Of course this is fantasy; lobbyists for CPAs and for attorneys would never support anyone who voted for this kind of simplification. >> And, Congress would f* it up immediately by restarting the "let's use the tax code to reward our donors and punish our enemies" process. I think it's a bit defeatest to just say that it's just intrinsincly impossible for better things... but I'm maybe reading into those comments too harshly. They're arguing to rip out everything and replace it with a flat tax + a deduction. What I'm arguing instead is to do a line-by-line removal of exceptions and deductions, and don't try a "novel" flat tax (instead sticking to a tax with income brackets and different rates, that we _already have_), as it is a better system. And you get the advantage of the optics of "making the tax code simpler" rather than "replacing the tax code". A universe in which we just removed the number of IRS forms that exist is _roughly_ as good as the universe in which replaced all the forms with one form, except that removing the number of forms and still having a W2 would be much easier to migrate to, and doesn't involve nearly as much philosophical debate (even if the result is roughly equivalent). We don't need a novel solution here, we can just move more towards what other nations do (and where we are actually not that far from!)
  - anamexis 5y ago
    That's fine, there's plenty of reasonable debate to be had about specific policy reform, but OPs main point, to me, is how exactly do you intend to get Congress too enact it? Their campaigns are bankrolled by the people benefiting from the loopholes.

edgefield 5y ago

The tax code is structured this way by design, by rich people. If rich people wanted a simplified tax code without loopholes, then they would actively lobby for this, and I guarantee congress would act to simplify the tax code.

zdragnar 5y ago
Many politicians also feel that a flat tax rate isn't sufficiently progressive; that only by taxing higher incomes at higher percentages than lower incomes is it "truly" progressive. OTOH, many politicians do want to see the tax code vastly simplified- they want the sort of system where you could fill out your taxes on a form small enough to fit on the back of a post card. Everyone has their favorite thing that they want exempted (farms, capital investments, social security / welfare disbursements, medical expenses, school expenses, mortgage interest, rent, etc), and there are millions who would be put out of work by it- accountants, tax preparers, much of the IRS would be redundant, etc. All of these competing interests keep us where we are. Blaming it on the "rich people" is lacking in any sort of honest intellectual rigor.
BobbyJo 5y ago
The tax code is like everything else created by the US legislature: a product of many decades of compromise between competing ideas. I'm pretty sure none of it was designed.
- ryder9 5y ago
  lol is this a joke? i can't believe people think there are any intelligent people on this forum
fortran77 5y ago
No. There aren't enough "rich people" to get a politician elected. Most of these things in the tax code are one small chip at a time to make some ordinary person favor a particular politician. Including things like "Roth IRAs" The fact that they have unintended consequences is another story. I don't think the fact that Peter Theil has a billion dollars hurts me in any way, and no I'm not some unrealistic person who thinks that I, too, can be a billionaire! Only a petty person would be disturbed that someone else has more money than him. It's not a zero-sum game. The fact that there are some outlier billionaires doesn't hurt the ordinary Joe.

bliteben 5y ago

How would you handle stocks not paying a dividend? It is a clear moral hazard and with a flat tax you could expect even more companies to adopt this practice of only doing stock buybacks.

nickpp 5y ago
A flat tax would presumably have the same rate for dividends and capital gains, so I guess it would be pretty much the same for companies?
- et2o 5y ago
  Stock buybacks aren’t capital gains, until the stock is eventually sold to trigger the capital gains event. More recently, we have seen that wealthy people just never sell the stock and take out low interest loans against it, effectively paying a tax ratr of just a few %.
  - nickpp 5y ago
    Nothing wrong with that, it’s like a mortgage. The loan must be repaid at some point and so will the tax on capital gains.

burlesona 5y ago

I came here to write basically this same comment. Big fan of the negative income tax as a better (IMO) version of UBI as well. But as you say, it’s probably never going to happen.

deleted 5y ago

[deleted]

sethammons 5y ago

> because x% of a lot of income is a lot bigger than x% of a little income. If you make $10k a year, vs someone who makes $10M a year, and both are taxed the same, the lower income person loses more purchasing power. At 15%, The hit of $1.5k is a harder loss than than the $1.5M.

boring_twenties 5y ago
$10k is definitely under the 1.5-2x poverty threshold proposed by the comment you're replying to. Under their proposal, the $10k earner would pay no income tax at all.
- sethammons 5y ago
  Numbers for illustrative purposes. A graduated tax is more fair from a purchasing power perspective.

uoaei 5y ago

ProPublica ran a series a couple years back about Intuit (who owns TurboTax) doing all the lobbying and bribery to keep the tax code complicated: https://www.propublica.org/article/inside-turbotax-20-year-fight-to-stop-americans-from-filing-their-taxes-for-free https://www.propublica.org/article/inside-turbotax-20-year-f...

sam0x17 5y ago

> And, Congress would f* it up immediately by restarting the "let's use the tax code to reward our donors and punish our enemies" process. The only way to stop this process is a grassroots wave of politicians who refuse the support of corporate donors and have the political will to ban corporate political donations and put something like a $500 yearly cap on individual political donations. This would basically be the end of lobbying. I hope to see this happen in my lifetime. It seems like something zoomers might be willing to do in 20 years when they have more political relevance and the boomers are dying out.

baryphonic 5y ago

What specifically are you arguing against? Roth IRAs are not some bizarre tax loophole. They're an extremely common vehicle for people planning for retirement - unless their income is too high, that is. Many companies even offer Roth 401(k)s or other Roth vehicles for retirement as well. And taxes are indeed paid when the money is put in. If someone follows the rules and is extremely successful with their investment strategy with money in a Roth IRA, then what's the problem? Seems the law is working as intended.

TheCoelacanth 5y ago
You will never convince me in a million years that $2k was actually the fair market value of his investment that was later worth $5 billion. No one is lucky enough to pick an investment like that with the tiny amount of initial capital you can put into an IRA. There are clearly some kind of shenanigans going on to artificially lower the price he paid to smuggle it into the IRA. Those shenanigans may well be legal, but they shouldn't be.
- baryphonic 5y ago
  Since you're beyond convincing, I won't try to. Maybe the article itself can? > In an interview with ProPublica, Pensco founder Tom Anderson recalled how Thiel and other PayPal executives had wanted to put startup shares of the company into traditional IRAs. > Anderson dangled something sweeter. > “I said, ‘If you really think this is going to be big, you know, you might want to consider this new Roth,’” recalled Anderson, who is now retired. If the investment ballooned, he remembered saying, “‘you’re not going to pay tax on it when you take it out.’ It’s a no-brainer." > The math was compelling. Thiel wouldn’t get a tax break up front, but he’d avoid an immense tax bill later on if the investment surged in value. For everyone else who is open minded: Thiel's IRA held Confinity shares. In 1999, Confinity wasn't worth much. In 2021 the company now known as PayPal is worth quite a bit. Confinity could have just as easily folded, been a victim of the dot com bubble, failed to make a deal with Elon Musk's x.com and lost to them, or had any number of disasters along the way that would have wiped out that portfolio. Even ProPublica's reporting admits this was a risk. The investment adviser's words are "If you really think this is going to be big, you know, you might want to consider this new Roth." Ironically, because startups fail so much more frequently than they succeed and because the federal government doesn't tax wealth but income, which can be artificially minimized in relatively simple ways, the government would probably be better off if all startup shares in all companies were held in Roth IRAs, since they'd be taking an up-front cut of a likely failed investment. Thiel's vast fortune held in a Roth IRA is a corner case, but any talk of it "depriving" the government of revenue when he pre-paid taxes in good faith according to the law and thereby took a fairly significant risk without the benefit of hindsight seems like pure envy.

me_me_me 5y ago

> It's the fact that our elected legislature has created a nightmare boondoggle of a tax code. I wonder who is financing campaigns of people who keep those loopholes open?? It must be illuminati. Its a open 'secret' that organised lobbing entities control legislature on a tight leash. Doesn't matter if you vote blue/red/purple the outcome will be the same, you just get different packaging.