5 ms·

The cruel part here is retroactiveness of the change. Pioneered by California's Proposition 30 in 2012 ([1]). Retroactive changes of the (tax) law reduce the p

by krasin 5y ago

The cruel part here is retroactiveness of the change. Pioneered by California's Proposition 30 in 2012 ([1]). Retroactive changes of the (tax) law reduce the planning horizon and ultimately the efficiency of the economy. 1. https://gscpa.com/prop-30-retroactive-tax-increases-approved-by-voters/ https://gscpa.com/prop-30-retroactive-tax-increases-approved...

avmich 5y ago
I would argue that laws are imprecise, and taking advantage of the law, as opposed to intent, is questionable. So they probably reduce planning horizon for some and expand that for others, so I'm not sure the efficiency ultimately suffers.
- vlovich123 5y ago
  How about as a matter of fairness? When I made my small angel investments, I thought the QSBS would apply to me. Revoking that for investments already made seems a bit unfair as the tax advantage was locked in by competitors who saw payoffs sooner.
  - avmich 5y ago
    Maybe you thought that QSBS would keep being the way it was set. But there was a chance people would find QSBS written bad enough to change; I don't think analysis of that would show that no, QSBS is pretty close to being ideal from a point of view which well reflects opinions of people. In a sense it's like an investment into an autocratic country - profits are high, but so also is uncertainty. In more developed countries uncertainty is lower - but it doesn't mean that laws are perfect.
    - vlovich123 5y ago
      From a general perspective, retroactive changes to the law aren’t a great idea. It’s one of many foundational philosophical realizations of the American criminal system that modernized it. So why do we accept it in the civil realm? There are variations here that are better. I would say this change is more likely to actually entrench existing wealth. It would be better if adjustments to it were made: * Disallow tax games with the QSBS. Currently if you carefully structure your allocation, you can get 30 mil or more tax free even though the limit is 10 (give shares to your spouse and a family trust - each gets an independent 10 mil). Tax games are an economic inefficiency that serve to entrench existing wealth holders and are parasitic on the overall economy (my tax attorney is not an important part of my investments or helping innovation in tech yet I have to pay him fees to figure out things that should be simple) * Make the tax progressive like with income tax. 100% up to 10 million in net worth or 500k in salary all the way down to 0 at 20 million net worth or 1 million in income. At some point the government helping you become an elite investor isn’t necessary. * Start the clock on when changes will be made impacting investments made today while changes are being debated. Then when/if it changes, make it retroactive. That way it’s done transparently with general knowledge in the market.
hn_throwaway_99 5y ago
I realize the US Constitution only means whatever the heck the Supreme Court says it means, but Article 1 is explicit in preventing both the federal govt and the states (which is relatively rare, most of the restrictions on states are a result of the "incorporation doctrine") from passing ex post facto laws. And I think this prohibition was made specifically for purposes like this, where you shouldn't be penalized if you plan things above board according to the law at the time your decisions were made.
- jefftk 5y ago
  I sign a contract to import widgets, but they have not been delivered yet. Congress imposes a new widget tariff. Should I be able to import my widgets without paying the tariff?
  - hn_throwaway_99 5y ago
    The linked article states the bill (which has not been passed yet) says this (emphasis mine): > effective for all sales taking place at or after Sept. 13, 2021. Using your example the equivalent is imposing a widget tariff, passed at date X, for widgets that have already been delivered at some previous date X - N.
    - jefftk 5y ago
      It is equivalent to announcing a planned widget tariff on date Y, for widgets delivered on date Y and later. Because if you announce it on date Y, but it doesn't go into effect until formally passed on date X, people will import a whole lot of extra widgets quickly to get around the new tax.
      - hn_throwaway_99 5y ago
        > Because if you announce it on date Y, but it doesn't go into effect until formally passed on date X, people will import a whole lot of extra widgets quickly to get around the new tax. So? I mean, my answer to that is, "tough shit". Doesn't matter when it is "announced", there are a million things that are announced that never make it into actual law. And there have been many tax laws in the past that have not been ex post facto laws, and yes, people take advantage of the current situation before the law changes. That's literally exactly how a fair legal system should work. At some point people will want new widgets again, and they will have to import them after date X, and that's when the government should fairly be able to get their extra pound of flesh.
kentonv 5y ago
If it wasn't retroactive to the date of announcement, though, then it could trigger a mass sell-off of stock before whatever date it actually takes effect, which could have economy-destabilizing consequences. What does seem wrong to me is not that it's retroactive to 9/13, but rather that it applies to all gains realized after 9/13 even if the majority of the actual gain occurred before 9/13. So if you've been holding a stock for 10 years, you now get to pay the new tax on the entire 10-year history of gains, not just the gains from this year. It seems weird and unfair that the new tax disproportionately affects people who have been holding their assets for a long time, compared to those who buy and sell frequently. Couldn't they have made a rule where you could independently calculate how much of your gain was pre-9/13 vs. post-9/13 and pay the two different rates on the different portions?
- lmm 5y ago
  Unrealised gains have always been a tax avoidance measure, if you swim with the sharks don't complain about getting bitten. Honestly it's time to eliminate the whole concept of "realization". Even secondary-market shares are liquid enough to value reasonably reliably, or we could bring back in-kind taxation.
  - kentonv 5y ago
    > Unrealised gains have always been a tax avoidance measure, if you swim with the sharks don't complain about getting bitten. Are you asserting that everyone who has held assets long-term is "swimming with the sharks" and thus deserves to have sudden unexpected taxes applied to their historical investments? > Honestly it's time to eliminate the whole concept of "realization". Even secondary-market shares are liquid enough to value reasonably reliably, or we could bring back in-kind taxation. You'd have to figure out how to deal with illiquid assets. If property values in my neighborhood go up will I be forced to sell or refinance my house to pay the tax bill? If I manage to pay the taxes while holding on to the house, and later the value goes back down, and I don't have other gains to offset, do I get a refund?
    - jamesmaniscalco 5y ago

by krasin 5y ago

avmich 5y ago

I would argue that laws are imprecise, and taking advantage of the law, as opposed to intent, is questionable. So they probably reduce planning horizon for some and expand that for others, so I'm not sure the efficiency ultimately suffers.

vlovich123 5y ago
How about as a matter of fairness? When I made my small angel investments, I thought the QSBS would apply to me. Revoking that for investments already made seems a bit unfair as the tax advantage was locked in by competitors who saw payoffs sooner.
- avmich 5y ago
  Maybe you thought that QSBS would keep being the way it was set. But there was a chance people would find QSBS written bad enough to change; I don't think analysis of that would show that no, QSBS is pretty close to being ideal from a point of view which well reflects opinions of people. In a sense it's like an investment into an autocratic country - profits are high, but so also is uncertainty. In more developed countries uncertainty is lower - but it doesn't mean that laws are perfect.
  - vlovich123 5y ago
    From a general perspective, retroactive changes to the law aren’t a great idea. It’s one of many foundational philosophical realizations of the American criminal system that modernized it. So why do we accept it in the civil realm? There are variations here that are better. I would say this change is more likely to actually entrench existing wealth. It would be better if adjustments to it were made: * Disallow tax games with the QSBS. Currently if you carefully structure your allocation, you can get 30 mil or more tax free even though the limit is 10 (give shares to your spouse and a family trust - each gets an independent 10 mil). Tax games are an economic inefficiency that serve to entrench existing wealth holders and are parasitic on the overall economy (my tax attorney is not an important part of my investments or helping innovation in tech yet I have to pay him fees to figure out things that should be simple) * Make the tax progressive like with income tax. 100% up to 10 million in net worth or 500k in salary all the way down to 0 at 20 million net worth or 1 million in income. At some point the government helping you become an elite investor isn’t necessary. * Start the clock on when changes will be made impacting investments made today while changes are being debated. Then when/if it changes, make it retroactive. That way it’s done transparently with general knowledge in the market.

hn_throwaway_99 5y ago

I realize the US Constitution only means whatever the heck the Supreme Court says it means, but Article 1 is explicit in preventing both the federal govt and the states (which is relatively rare, most of the restrictions on states are a result of the "incorporation doctrine") from passing ex post facto laws. And I think this prohibition was made specifically for purposes like this, where you shouldn't be penalized if you plan things above board according to the law at the time your decisions were made.

jefftk 5y ago
I sign a contract to import widgets, but they have not been delivered yet. Congress imposes a new widget tariff. Should I be able to import my widgets without paying the tariff?
- hn_throwaway_99 5y ago
  The linked article states the bill (which has not been passed yet) says this (emphasis mine): > effective for all sales taking place at or after Sept. 13, 2021. Using your example the equivalent is imposing a widget tariff, passed at date X, for widgets that have already been delivered at some previous date X - N.
  - jefftk 5y ago
    It is equivalent to announcing a planned widget tariff on date Y, for widgets delivered on date Y and later. Because if you announce it on date Y, but it doesn't go into effect until formally passed on date X, people will import a whole lot of extra widgets quickly to get around the new tax.
    - hn_throwaway_99 5y ago
      > Because if you announce it on date Y, but it doesn't go into effect until formally passed on date X, people will import a whole lot of extra widgets quickly to get around the new tax. So? I mean, my answer to that is, "tough shit". Doesn't matter when it is "announced", there are a million things that are announced that never make it into actual law. And there have been many tax laws in the past that have not been ex post facto laws, and yes, people take advantage of the current situation before the law changes. That's literally exactly how a fair legal system should work. At some point people will want new widgets again, and they will have to import them after date X, and that's when the government should fairly be able to get their extra pound of flesh.

kentonv 5y ago

If it wasn't retroactive to the date of announcement, though, then it could trigger a mass sell-off of stock before whatever date it actually takes effect, which could have economy-destabilizing consequences. What does seem wrong to me is not that it's retroactive to 9/13, but rather that it applies to all gains realized after 9/13 even if the majority of the actual gain occurred before 9/13. So if you've been holding a stock for 10 years, you now get to pay the new tax on the entire 10-year history of gains, not just the gains from this year. It seems weird and unfair that the new tax disproportionately affects people who have been holding their assets for a long time, compared to those who buy and sell frequently. Couldn't they have made a rule where you could independently calculate how much of your gain was pre-9/13 vs. post-9/13 and pay the two different rates on the different portions?

lmm 5y ago
Unrealised gains have always been a tax avoidance measure, if you swim with the sharks don't complain about getting bitten. Honestly it's time to eliminate the whole concept of "realization". Even secondary-market shares are liquid enough to value reasonably reliably, or we could bring back in-kind taxation.
- kentonv 5y ago
  > Unrealised gains have always been a tax avoidance measure, if you swim with the sharks don't complain about getting bitten. Are you asserting that everyone who has held assets long-term is "swimming with the sharks" and thus deserves to have sudden unexpected taxes applied to their historical investments? > Honestly it's time to eliminate the whole concept of "realization". Even secondary-market shares are liquid enough to value reasonably reliably, or we could bring back in-kind taxation. You'd have to figure out how to deal with illiquid assets. If property values in my neighborhood go up will I be forced to sell or refinance my house to pay the tax bill? If I manage to pay the taxes while holding on to the house, and later the value goes back down, and I don't have other gains to offset, do I get a refund?
  - jamesmaniscalco 5y ago