According to the WSJ, the proposed “Inflation Reduction Act” will lead to higher taxes on business investment:
Start with the 15% minimum tax on corporate book income over $1 billion, which Democrats claim will raise $313 billion through 2031. This new alternative minimum tax will slam businesses whose taxable income is lower than the profits on their financial statements owing to the likes of investment expensing, tax credits and business deductions.
Many companies pay less than the 21% corporate tax rate because they can expense investments under the tax code up-front. Hence, the new tax will increase the cost of business investment
The media often report this sort of policy change as representing higher taxes on “the rich.” But investment is a key factor in boosting productivity, which is what ultimately determines the living standards of ordinary workers. Taxes on investment have the effect of taxing future consumption at higher rates than current consumption, which reduces saving and investment and slows economic growth.
I am trying to get up to speed on the rest of the bill. Price controls on the purchase of drugs by Medicare might be beneficial in reducing federal spending, or they might be detrimental in slowing the development of new drugs. More money on IRS enforcement might be beneficial in terms of reducing tax fraud, or it might be costly by adding to the number of aggravating tax audits. Environmental provisions might help to reduce global warming, or they might lead to wasteful pork barrel spending. In almost every case, better alternatives were available. Tax code simplification would make existing IRS resources go much further. A carbon tax is superior to a complex mixture of subsidies. I understand that the actual bill was the option that was politically feasible, but it is still disappointing to see so many missed opportunities. (I suspect the next GOP administration will restore expensing of investment.)
On the brighter side, the carried interest loophole that benefits rich hedge fund managers was somewhat reduced in size. I’ve never understood the rationale for that tax loophole. And Senator Manchin suggests that there are vague promises to reduce regulatory barriers to new projects in areas like energy and infrastructure. I’m not optimistic that this will be a game changer, but it’s certainly a hugely important issue. Thus it’s nice to see an indication of at least some movement on that front.
I don’t know enough to have a firm view on the overall bill. My instincts are usually to be skeptical of change, as almost everything Congress does seems to make things worse. The same issue of the WSJ has an article pointing out that it’s the 20th anniversary of Sarbanes-Oxley, which was supposed to fix accounting fraud. It seems to have done more harm than good:
A 2009 study by the Securities and Exchange Commission found that smaller public companies have cost burdens more than seven times those of large ones.
The disproportionate burden on small and midsize companies has spurred bipartisan criticism of Sarbanes-Oxley. As the Obama administration council noted: “Regulations aimed at protecting the public from the misrepresentations of a small number of large companies have unintentionally placed significant burdens on the large number of smaller companies.”
There’s always so much optimism when Congress does something big and complex, and then years later there is disappointment over the results. I recall when “environmental impact statements” were seen as something that would help the environment. Today, they are widely used to block projects creating clean energy or housing and transportation projects that reduce urban sprawl.
Senator Manchin gets a lot of criticism from progressives for being an “obstructionist.” Ironically, he may have saved the Democrats from electoral disaster this fall by refusing to go along with a far more massive spending proposal last October, before the scale of the inflation problem was fully recognized.
PS. Progressives sometimes taunt the GOP for “defunding the tax police”, due to the GOP cutting spending on the enforcement of tax laws. I’ve seen conservatives respond that the IRS often hassles small business owners with intrusive audits. I’ve also seen progressives argue that big city cops hassle young black men with stop and frisk policies. It’s worth thinking about how different people focus on different types of government abuse. Might their focus have something to do with which party each victim is likely to vote for? What type of victims do you tend to focus on? How does that shape your political views?
I’m a utilitarian, so I favor funding all types of police as long as the extra resources produce greater benefits that exceed costs. Unfortunately, in the real world it’s hard to know what level of spending is optimal. In my view, the best way to reduce government abuse is to have fewer laws (especially regarding drugs), fewer regulations, and a less complex tax code.
READER COMMENTS
Market Fiscalist
Jul 30 2022 at 8:42pm
The “Inflation Reduction Act” sounds like something from Atlas Shrugged and the content of the act could be too. I’m glad we don’t have Trump as POTUS but sad (and pessimistic) that we have got a cartoonishly bad president instead.
vince
Jul 31 2022 at 4:10pm
Inflation Reduction Act. What a bunch of marketing garbage. It reminds of Reagan selling his 80s plan as Tax Simplfication, otherwise called the Accountant and Lawyer Job Protection Act.
Michael
Aug 2 2022 at 6:25am
The agreement between Manchin and Schumer on the reconcilation bill included a side agreement on a separate piece of legislation that reforms the building and environmental review process for energy projects (whether fossil fuels or renewables) and expedites a pipeline out of West Virgina (Manchin’s home state). On the one hand this looks like a giveaway to Manchin to secure his agreement, but on the other, Manchin was demanding good things this time.
https://www.washingtonpost.com/us-policy/2022/08/01/manchin-pipeline-drilling-permit/
It is early and this agreement is on legislation that hasn’t been written yet, but it would be a step in the right direction. Manchin’s pipeline could eventually contribute to more home heating conversion from oil to gas in the Northeast (which would lower emissions) or turn the US into more of an LNG exporter, allowing natural gas to supplant dirtier fuels abroad.
Fazal Majid
Jul 31 2022 at 8:01am
I don’t think Carried Interest is even a loophole, more like brazen tax fraud that has somehow acquired a veneer of respectability through lack of enforcement. It’s worth noting Trump advocated abolishing it in his 2016 campaign, but his support from the Mercer family is probably why he reneged on that promise.
Mark Louis
Jul 31 2022 at 9:12am
This bill is characterized as “fighting inflation” because it lowers the deficit. But isn’t that only true in the later years. So should expect the bill to be initially inflationary, then deflationary (yes, i know there is a theoretical monetary offset but we’ve seen that isn’t timely in practice)?
Alan
Jul 31 2022 at 2:15pm
If the investments lead to more energy production then it would be deflationary. Green energy projects are tied to additional gas and oil leasing on federal land and there are provisions to encourage the continuation of nuclear plants. Energy is one of the biggest factor in inflation now. Won’t do much today but should increase energy supply in a few years.
Thomas Lee Hutcheson
Jul 31 2022 at 6:07pm
Deficits have nothing to do with inflation. If the Fed is doing it job, it takes that into account when setting its monetary instruments so as to achieve its Congressional mandate. Deficits shift resources from investment to consumption* and that is bad for growth, but has no effect on inflation.
* One might imagine a deficit created to finance some high return investment with the higher interest rates crowing our some private consumption, but I think as a rule of thumb deficit reduction means more private investment.
Scott Sumner
Jul 31 2022 at 10:25am
Everyone, I ignored the IRA designation as it was obviously just politics. They might just as well have called it the Earthquake Prevention Act.
Ken P
Jul 31 2022 at 10:34am
The bill is clearly inflationary for green energy. The $7500 rebate will increase demand for EVs which already have insane demand and long waiting periods for delivery. Automakers will raise prices to reduce the gap between supply and demand.
It makes little sense to subsidize an industry that is heading into the growth part of the S-curve (past the 5% early adopter phase). It makes even less sense to subsidize internal combustion engine cars with a tiny battery (aka hybrid cars).
Scott Sumner
Jul 31 2022 at 11:14am
Yes, but when you consider (much worse) alternatives such as removing the SALT cap, this policy doesn’t seem so bad.
Ken P
Jul 31 2022 at 12:03pm
Good point.
vince
Jul 31 2022 at 4:46pm
It also makes little sense (besides pork) if the global warming issue demands an international response, for example including India and China. Why reduce our competitiveness without the required global cooperation?
Thomas Lee Hutcheson
Jul 31 2022 at 6:15pm
“Competitiveness?” Please, no Davos-speak on EconLog. 🙂 Perhaps you are worried that the green energy investments will have NPV<0 when evaluated at the shadow price of CO2 emitted. That’s a valid point, but why call it “competitiveness?”
vince
Aug 1 2022 at 2:14pm
How about: the imposition of ineffeciency on one competitor but not on another?
Thomas Lee Hutcheson
Aug 2 2022 at 12:48pm
But countries are not essentially in “competition” with each other. Different firms is different industries may be, but generally what states do to improve the “competitiveness” of one national firm cones at the disadvantage of others.
Scott Sumner
Jul 31 2022 at 11:23pm
Couldn’t they say the same thing? If international cooperation is impossible, then we are in big trouble.
vince
Aug 1 2022 at 2:10pm
Yes, everyone can say the same thing. That’s why it must be a cooperative effort. For example global limits along with global cap and trade.
Maybe China and others don’t believe climate change is a problem or don’t believe it’s a man-made problem.
Thomas Lee Hutcheson
Jul 31 2022 at 11:12am
Definitely, the needed increase in revenue would be much better done with a tax on net emission s of CO2, a VAT, or higher taxes on personal incomes (ideally with higher maximum contributions to IRA/401K. But the 15% minimum corporate tax at least reduces some of the distortions in the non-uniformity the exemption ridden corporate income tax as it is and is probable better than the same amount of deficit.
vince
Aug 1 2022 at 2:21pm
Or, just get rid of double-taxation of income, which itself overly complicates taxation. At the same time, get rid of the capital gains differential and the preferential rate on dividend income. More simplification.
BC
Jul 31 2022 at 3:15pm
I think the rationale behind carried interest is that partnerships are pass-through entities. Partners are taxed on partnership income as if they earned that income directly. So, when a partnership earns capital gains from its investments, those capital gains are passed through to partners, both general and limited partners, as capital gains. Conversely, if a partnership earns ordinary income, e.g., a law practice earning legal fees, then that ordinary income is passed through to partners as ordinary income.
Typically, a hedge fund (“HF LP”) is set up as a partnership with a hedge fund management firm (itself a partnership or LLC, “Mgt LLC”) as the general partner and investors as limited partners. HF LP pays Mgt LLC fixed, guaranteed investment management fees, which I believe are taxable as ordinary income to Mgt LLC’s partners, similar to legal fees earned by a law practice. Carried interest, however, refers to Mgt LLC’s share of HF LP’s investment profits. If those investment profits are derived from capital gains, then those capital gains pass through from HF LP to Mgt LLC to Mgt LLC’s partners.
I guess the “loophole” exists because, to close it, requires deviating from the general principle that partnerships pass through the tax character of the underlying income.
Interestingly, the so-called “loophole” doesn’t actually cost the government any revenue given that the underlying income came from capital gains. If Mgt LLC didn’t receive any carried interest and all of the capital gains instead accrued to the HF LP’s limited partners, that income still would have been taxed as capital gains instead of ordinary income.
vince
Jul 31 2022 at 4:07pm
“If Mgt LLC didn’t receive any carried interest and all of the capital gains instead accrued to the HF LP’s limited partners, that income still would have been taxed as capital gains instead of ordinary income.”
The guy getting the carried interest still wants to be compensated for his services. Compensation isn’t capital gains. That’s the problem. Carried interest converts compensation to capital gains.
Personally, I believe they should eliminate capital gains differentials completely and tax all income the same. The differential leads to all sorts of wasted manpower put into tax game playing.
BC
Jul 31 2022 at 4:20pm
When a partnership earns income from selling securities held more than one year, that’s long-term capital gains, not compensation for services.
vince
Jul 31 2022 at 4:48pm
“When a partnership earns income from selling securities held more than one year, that’s long-term capital gains, not compensation for services.”
Selling securities is investment income, not earned income–unless you’re a securities dealer or trader.
Dick King
Jul 31 2022 at 10:11pm
If you buy an asset for $100, and sell it several years later for $200 after prices have doubled, you cannot buy more goods with the $200 than you could have bought with the $100 instead of investing it, and you therefore have received no income and should not have to pay any tax.
I would like to remove the capital gains preference, but I strongly believe that we should index the bases of investments, so “capital gains” which are only the result of inflation are not taxed.
-dk
vince
Aug 1 2022 at 1:37pm
“If you buy an asset for $100, and sell it several years later for $200 … you therefore have received no income and should not have to pay any tax.”
You could make that argument for all types of income.
Thomas Lee Hutcheson
Jul 31 2022 at 6:18pm
But this assumes that capital gains should not be treated as ordinary income. What (except for the lack of indexing of gains) is the logic of that?
Steve
Jul 31 2022 at 9:08pm
This is correct.
There are two triggers for me that indicate that an author just doesn’t understand how partnership taxation works and Scott hit them both.
It’s just not a loophole. It applies equally to all taxpayers and has been an integral part of partnership taxation since well before anyone ever used the term “hedge fund”. The fact that some people don’t like those that it applies to does not make it a loophole.
Also, singling out hedge fund managers doesn’t make any sense, because it applies less to them than to private equity, venture capital, or even real estate because those investment vehicles generally get a higher percentage of their income as long term capital gains.
Of course, the easiest way to solve all of this is to just get rid of the preferential tax rate for capital gains.
bill
Jul 31 2022 at 9:41pm
This is correct.
Also, if this change is enacted, partnerships will get restructured (or at least new ones will) with a preferred equity tranche that will allow the partners to recreate the current economics to look like equity.
Scott Sumner
Aug 1 2022 at 1:39am
I’m confused. If the hedge fund employee is truly earning capital gains, and not wage income, why not do so outside the firm? If they earn $10 million working at the hedge fund, then why can’t they take that money and buy stocks and bonds with their personal investment account and pay cap gains taxes on the profit?
Luke
Aug 1 2022 at 8:58am
“’I’ve never understood the rationale for that tax loophole.”
I thought perhaps I could take a swing at this rationale, because no one in the comments has accurately captured what carried interest really is yet, and the WSJ and other media outlets have similarly done a poor job (if any) explaining it.
______
Carried interest is an incentive structure through which limited partners reward investors controlling the partnership’s investments for ‘excess’ (read, superior to public equity market) returns.
Consider a private equity firm that has a 10% GP commitment and “1 and 20” fee structure. Breaking this compensation down:
The “10% GP commitment” means that 10% of all the investment $ that the partnership invests are coming from the ‘general partnership’ — that is to say, the investment managers — and the remaining 90% are coming from the other limited partners
The “1” in “1 and 20” refers to the management fee, whereby the GP receives management fees equal to 1% of the deployed capital per year. This management fee helps fund operations at the investment firm (i.e., salaries, research, ‘broken’ deal costs. etc.). Any investment managers’ salaries or bonuses paid by this management fee are taxed at ordinary income.
The “20” in “1 and 20” refers to the carried interest. In addition to their pro rata 10% from #1 above, the GP receives 20% of all returns above a ‘preferred return’, usually set at a compound interest rate approximately equal to 8% (or the longterm average annual return to the stock market).
To illustrate with an example, suppose the private equity firm buys a company for $100 and sells 3 years later at $200. For simplicity, let’s assume this is an all equity deal (i.e., no debt) and there are no or negligible transaction expenses. What are the returns?
The ‘preference’ to clear carried interest is ~$126 ($100 * 1.08 ^ 3). The limited partners each receive their pro rata share. (i.e., PE firm / GP earns 10% or $2.60 profit)
The surplus return is $200 – $126 = $74. The GP earns 20% of this amount ($14.80) and the limited partners share pro rata in the remaining 80% ($59.20). So the total GP returns here are their carried interest + their pro-rata share of the excess ($14.80 + $5.92 = $20.72)
Therefore, instead of earning just $10 (10% of the $100 gain), the private equity firm has earned more than twice that — $23.32 — driven largely by the carried interest.
__________
What framework should we use to calculate the tax on the $14.80 carried interest (63% of the PE firm’s total returns in this example)?
One possibility is to consider the carried interest as like a ‘super-performance bonus’ that a CEO might receive for hitting a certain annual or lifecycle milestone (i.e., $1 million bonus when we hit $10 billion in revenue, or $1 million bonus if the investors make 3x+ on their money). These type of super-performance bonuses are taxed at ordinary income, and it would therefore follow that carried interest should be taxed at ordinary income too.
Another possibility, and what seems to be the current rationale, is to consider the carried interest as a fundamental part of the underlying security that all the limited partners are buying into. The GP buys into the fund at rate $X, and the rest of the LPs effectively buy in at some premium $X+Y. The LPs view paying a premium of ‘Y’ for the security as justified based on their expectation of earning returns in excess of the public markets. Their willingness to pay this premium is independent of how the GP is taxed. Since the returns from carried interest are attributable to the underlying security that the GP has held the whole time, taxing at the top capital gains rate (and not ordinary income) is the logical consequence.
__________
I can understand the rationale for either side, but I find the argument for the second scenario — treating the carried interest as a fundamental part of the underlying security held by the LPs and therefore taxing it as capital gains — as the better, more practical approach.
If carried interest were to be taxed as ordinary income, I find it likely that the hedge funds, VCs, and PE firms would develop some other financial structure to receive favorable capital gains treatment on their excess returns. This end result is likely to exist so long as we have different tax treatments for capital gains and ordinary income.
Moreover, from a practical standpoint, I’m weary of dis-incentivizing private investment through new taxes on investment at the same time that our country continues to struggle so mightily at growing GDP.
I would much rather see something like the elimination of the tax basis step-up on assets transferring at death — this is tax that would have been due had the person sold / transferred the asset before death but somehow that liability just ‘magically disappears’ when they die — before reaching to increase capital gains tax // change the treatment of carried interest.
Vivian Darkbloom
Aug 1 2022 at 6:23pm
“…no one in the comments has accurately captured what carried interest really is yet, and the WSJ and other media outlets have similarly done a poor job (if any) explaining it.”
Indeed, and the comment I’m responding to doesn’t do a very good job either. I’ll try to keep things simple: capital gains and other income and deductions are normally allocated among partners (general and limited) according to their capital investment. Thus, if I’ve contributed 20 percent of the capital of a partnership, the basic rule is that I’m entitled to 20 percent of the CG earned by the partnership, 20 percent of depreciation, etc., etc. But, the partnership tax rules generally allow income an deductions to be allocated diffently, according to the partnerhip agreement. Thus, a GP (generally the investment manager) can be allocated 20 percent of capital gains earned by the partnership even if the GP has only contributed 1 percent of capital.
Here’s where the media does a terrible job: they make it sound as if the GP is producing capital gain income out of thin air. However, capital gain income is capital gain income–the same rules apply to partnerships as to individuals. A capital gain is a gain derived from the sale of a “capital asset” as defined in section 1221. A capital asset is any asset not included among the exceptions, most notably, it is property held for investment *other than* property held in a trade or business, inventory etc. If you are in the business of trading, for example, rather than investing, the asset you trade is not capital.
So, the question is, given the definition of a capital asset, how, among partners in a partnership, is it divided? Most importantly, why, as a (limited) partner, would I agree to give up part of my otherwise allocated capital gain to the general partner? His gain is, after all, my loss! The answer is simple: 1) to reward the GP for superior performance and to act as an incentive; and 2 (more importantly) I don’t care because the distinction between capital gains and ordinary gains is not relevant to me. This category includes pension funds, endowment funds and other non-taxable entities who are not subject to *any* income tax. It may also include US corporations who are not entitled to CG rates. Or, foreign investors in the partnership who are not subject to US tax (doesn’t work if the partnerhip is engaged in a US trade or business, including real estate under FIRPTA (foreign invesment in US real estate). Why should they care if the GP takes a larger portion of CG rather than ordinary income? Implicit in this arbitrage is that if this were not the deal the GP would be demanding even more than the typical 20 percent.
So, fundamentally, “carried interest” is plain old tax arbitrage among partners contracting freely among themselves. You shouldn’t be puzzled why politicians and the media focus on hedge fund managers as the “bad guys” rather than your union pension fund.
vince
Aug 1 2022 at 7:33pm
“Most importantly, why, as a (limited) partner, would I agree to give up part of my otherwise allocated capital gain to the general partner? His gain is, after all, my loss! The answer is simple: 1) to reward the GP for superior performance and to act as an incentive; and 2 (more importantly) I don’t care because the distinction between capital gains and ordinary gains is not relevant to me. ”
As you say, the reward to GP is for performance. A reward for performance should be taxed like any other earnings. It shouldn’t based on whether or not the LP cares. It probably would be more approprite to allocate the capital gains to the LPs, whose money is the source of the investment, and let those LPS deduct investment expenses for the compensation paid for the GP services.
No one should call the hedge fund managers the bad guys. They’re just minimizing taxes like anyone else. Blame the lawmakers.
BC
Aug 1 2022 at 10:42am
The hedge fund *partnership* as a corporate entity earns the capital gains. The investment portfolio belongs to the partnership, not the hedge fund investors, and both hedge fund investors and employees are partners in the hedge fund partnership. Then, those capital gains pass through to the partners, including hedge fund employees that are partners.
Suppose an individual manages his own portfolio, making the same trades as a hedge fund. He works really hard at managing his portfolio. How are his profits from asset sales taxed, (1) 100% capital gains or (2) 80% capital gains and 20% ordinary income because 20% of those gains are deemed to have arisen from his work effort? Rightly or wrongly, 100% of the asset sale profits are treated as capital gains. Ditto when a partnership manages its portfolio.
Johnson85
Aug 1 2022 at 11:48am
“Suppose an individual manages his own portfolio, making the same trades as a hedge fund. He works really hard at managing his portfolio. How are his profits from asset sales taxed, (1) 100% capital gains or (2) 80% capital gains and 20% ordinary income because 20% of those gains are deemed to have arisen from his work effort? Rightly or wrongly, 100% of the asset sale profits are treated as capital gains. Ditto when a partnership manages its portfolio.”
I believe the difference is the individual had to pay taxes on the money he earned to invest to begin with. With Private equity managers (I don’t think hedge funds use carried interest much?), the PE manager is granted “sweat equity” and basically gets to treat that as valued at $0 for income tax purposes, and then when he cashes out all that carried interest is taxed as a capital gain. It’s a simplification for tax purposes. If I take $100k and give it to somebody to invest in small rental properties, and tell them they can get 20% of the profits in exchange for doing all the work, they don’t get taxed at $20k up front as ordinary income (I don’t think?), even though they have essentially been granted $20k of equity.
If they are taxed at ordinary income rates as if they received that equity grant in cash, then I don’t see a problem with carried interest or how it is even a “loop hole”.
Scott Sumner
Aug 1 2022 at 12:47pm
I admit that I know less about this than you guys. My basic principle is the consumption tax, which you might view as a sort of perfect 401k. The money goes in tax free, and comes out paying the labor tax.
If we looked at your rental example, ideally you’d want 100% of the initial investment to be before tax income, and then all the subsequent cash flow out (rent and cap gains) taxed at the labor rate.
Now of course that’s not how we do things, we often double tax saving. In that case I’d like hedge fund income to be taxed sort of like other income. But the flaw in our current system makes it hard to “compare apples with apples”. How much of the hedge fund guy’s earning are from labor, and how much from saving? With a 401k approach you never have to ask that question.
vince
Aug 1 2022 at 1:49pm
An individual managing his own portfolio is not engaged in a business activity. He is an investor. Once you’re in business, taxation changes. If you perform services for others, you’re income is business income and not capital gains income. That’s where it gets complicated. Is the hedge fund manager an investor or a businessman? You could argue where the line is. You could argue his activity is entirely business, and so is his resulting income. But you couldn’t argue it was entirely investment.
Get rid of the capital gains differential and you don’t have this problem.
Scott, your 401K example is relevant. Employees defer earnings into a 401K, which typically generates untaxed capital gains within the 401K. But when those capital gains are distributed to the employee, it’s taxed as non-capital gains.
Scott Sumner
Aug 1 2022 at 6:04pm
Vince, I think I agree. If a man makes $60,000/year as a house painter, he pays income tax. If I paint my bedroom, I don’t pay tax.
If someone manages wealth for a living, that’s his career. If I spend a few minutes buying an index fund, that’s saving.
No tax system is perfect, but we need to make reasonable distinctions.
vince
Aug 1 2022 at 7:12pm
” If a man makes $60,000/year as a house painter, he pays income tax. If I paint my bedroom, I don’t pay tax.”
Right, and the painter doesn’t get capital gains for ANY of his income. Some claim the hedge fund manager should get some capital gains for his sweat equity. Who sweats more, the painter or the hedge fund manager?
vince
Jul 31 2022 at 4:17pm
“Many companies pay less than the 21% corporate tax rate because they can expense investments under the tax code up-front. ”
Poor writing by WFJ, mixing book income with taxable income. Companies pay 21% tax–measured on taxable income.
The difference between book income and taxable income is mostly for deductions provided by Congress as incentives, for example R&D and equipment write offs. So this new minimum tax basically punishes corporations who do what they were incentivized to do.
Thomas Lee Hutcheson
Jul 31 2022 at 6:55pm
It is precisely that not all activities pays the same tax rate on income that makes business taxation inefficient. That’s half the reason to eliminated business income taxation. The other half that it is that not all owners have the same marginal tax rate. Business income taxation taxes some owners at higher rates that others in the same tax bracket.
vince
Aug 1 2022 at 1:54pm
“Business income taxation taxes some owners at higher rates that others in the same tax bracket.”
Could you elaborate. The corporate tax rate is a flat 21%.
vince
Jul 31 2022 at 4:18pm
“There’s always so much optimism when Congress does something big and comple.”
Optimism for whom? The party that gets to reward its cronies with pork and candy?
vince
Jul 31 2022 at 4:20pm
“I’m a utilitarian, so I favor funding all types of police as long as the extra resources produce greater benefits that exceed costs. ”
By costs, I hope you are referring to opportunity costs.
vinc
Jul 31 2022 at 4:23pm
“Environmental provisions might help to reduce global warming, or they might lead to wasteful pork barrel spending.”
Besides pork, will it really make much difference if countries like China and India don’t go along? Why reduce our competitiveness without the required global cooperation to resolve the issue?
vince
Jul 31 2022 at 4:28pm
“More money on IRS enforcement might be beneficial in terms of reducing tax fraud.”
Does it really need more money? The IRS budget was 13.7 billion in 2021, up from 13 billion in 2015, in constant dollars. It loses mail, ignores requests, and doesn’t answer phones, yet finds money to spend on Youtube, Facebook, Twitter, Instagram, taxpayer letters in 21 languages (more to come!), and glossy colorful brochures. Just this year it established a new layer of bureaucracy, the Taxpayer Experience Office, to show its committment to “help unify and expand efforts across the IRS to improve service to taxpayers.”
vince
Jul 31 2022 at 4:35pm
“In my view, the best way to reduce government abuse is to have fewer laws … and a less complex tax code.”
The tax code is beyond absurd. It’s IRS lawyers who write the regulations. Each lawyer specializes in a limited area of tax law. The more complex he writes the regulation, the more he becomes the content expert, enhancing his future earnings–especially when he then jumps to a private law firm. The IRS could (should) simplify implementation of tax laws. If they did, I doubt Congress would dare criticize them about it.
vince
Jul 31 2022 at 4:37pm
“Start with the 15% minimum tax on corporate book income over $1 billion, which Democrats claim will raise $313 billion through 2031. “‘
Higher corporate taxes encourage companies to move headquarters to countries with more favorable systems. That’s why Trump lowered US rates–to bring them back.
Regardless, corporate taxes are notorious for double-taxation. The company pays tax on the income, and then the shareholder pays tax when that same income is distributed as a dividend. A simple solution, oddly ignored, is to allow corporations to deduct dividends paid to shareholders, just like corporations deduct interest paid to bondholders.
Knut P. Heen
Aug 2 2022 at 3:59am
Corporations don’t pay taxes. People do. This is a tax on retirement savings and labor income (lower wages).
Comments are closed.