
Tax Plan Punts on a Loophole for the Wealthy - pdog
https://www.nytimes.com/2017/09/27/upshot/the-republican-tax-plans-magic-asterisk.html
======
nemo44x
If you're truly wealthy there's a good chance your "personal income" isn't
coming from a paycheck you worked for. Your income is in the form of qualified
dividends, proceeds from long term capital gains and other investment income.
Of which you're likely paying very little (long term capital gain) to no
(qualified dividend) tax on.

Any tax reform that does not address the fact that investment income is taxed
more or less flat compared to labor which is taxed progressively is missing a
huge opportunity to tackle income inequality and making the wealthy "pay their
fair share".

\- Lower the corporate tax rate significantly. This creates more value in
companies and possibly a larger labor pool.

\- Install a progressive tax system on capital gains similar (larger standard
deduction than labor) to how labor is currently taxed. Investors are making
more on companies that pay lower taxes now. If investment is your sole source
of income you'll actually be paying your "fair share" now.

\- Lower taxes on working people who spend most of their income. This creates
more consumption and investment which leads to better markets.

~~~
WalterBright
> This creates more consumption and investment which leads to better markets.

This is another variation on the old "rich people hoard cash" trope.

Rich people invest the money that they don't spend. They tend to invest well,
meaning highly productive investments, because (naturally) wealthy people get
wealthy by being good at investing.

Productive investments are good for the economy. The notion that wealthy
people invest in unproductive things doesn't make any sense.

~~~
viraptor
> because (naturally) wealthy people get wealthy by being good at investing.

[Citation needed]. There's lots of wealthy people who got funded, got lucky
(some investments are good only looking back - would you like to pay me to
sign a few bytes 7 years ago?), got family fund, play the right sport in the
right country, etc. People can get continuously more wealthy just by owning
things - at that point you can outsource the investing to someone good at it.
We've got very well known examples of people who inherited fortunes, failed at
investing it multiple times and are still wealthy.

~~~
WalterBright
> [Citation needed]

See "The Millionaire Next Door" by Stanley

It stands to reason that if wealthy people as a group are bad at investing,
they'd sooner or later stop being wealthy. Then, by survivorship bias, the
wealthy ones remaining were good at investing.

------
jobu
It's too bad a Wealth Tax isn't even discussed in politics anymore. Seems like
it could solve a significant amount of these tax loopholes.

[https://en.wikipedia.org/wiki/Wealth_tax](https://en.wikipedia.org/wiki/Wealth_tax)

~~~
X86BSD
What would solve all "loopholes" is just going to a damn flat national sales
tax. Period. End of story. Thank you drive through. Stop trying to mangle this
demonic beast of a tax code we have now, it won't work and never has. And
simply toss it. One paragraph as the replacement.

38% or whatever agreed upon percent as a national flat sales tax. And for the
bleeding hearts that will scream this hurts the poor, Sentence two: The first
5,000/year in clothing tax free, and the First 10,000/year in food tax free.

IRS? Dissolved. H&R block? Dissolved. No more audits. No more income tax. You
keep your entire paycheck! No more asset seizure by the IRS. No more tax
fraud. No more tax evasion.

~~~
ddebernardy
So in other words, the bum down the street pays the same tax rate as the
billionaire's _spending_ up the hill?

Take your average thrifty bum. Pays X% on the totality of what they earn,
minus some lump sum. And your average billionaire. Pays X% on the totality of
what they _spend_ , minus the same lump sum.

That doesn't quite seem right, unless you tax financial transactions at the
same rate as groceries. It might be just me, but methinks Wall Street will
have none of that.

As to not needing tax auditors, just no. You'll still need to audit companies,
and their incentive will be sky high to get cash transactions and declare only
some of them.

------
millstone
That tax is worst which distorts most. Differential taxation of income and
capital gains has resulted in many financial products for transforming
ordinary income into capital gains - obviously non-productive "work."

Differential taxation of ordinary income and pass-through income will do the
same thing. This is just bad tax policy design.

------
munk-a
I am rather disappointed that the mortgage rebates will remain in effect in
this cut, providing an additional advantage to those who purchase and build up
assets rather than rent is unnecessary.

It also looks like this cut would make it even more advantageous to use an
S-corp for funneling income from contract work. Piggy-backing onto methods
used to reduce top-earner's tax burden always has it's advantages for those
who can exploit it, I guess.

~~~
djrogers
You realize that the tax deduction for mortgages lowers the cost of rent by
reducing the expenses involved in maintaining a large capital investment like
a rental house?

~~~
dragonwriter
> You realize that the tax deduction for mortgages lowers the cost of rent by
> reducing the expenses involved in maintaining a large capital investment
> like a rental house

In a sense the does, but that's somewhat illusory. As with other businesses,
any reasonable and necessary expenses of maintaining and managing the property
being rented are deductible as business expenses for landlords; mortgage
interest is, AFAIK, currently excluded from that only because, with the
mortgage interest deduction, it would be double counted. Virtually no one who
supports removing the mortgage interest deduction opposes the general notion
of deduction of reasonable and necessary business expenses.

------
ringaroundthetx
Nice, just yesterday I asked on here how that pass-through entity tax rate is
not the primary discussion, glad to see someone else noticed.

[https://news.ycombinator.com/item?id=15354110](https://news.ycombinator.com/item?id=15354110)

My only gripe is that this isn't just a loophole for the wealthy.

Any schmuck can make a pass through entity for $100 and do all their business
through that. They might opt to be corp-to-corp contractors for every
employment contract they sign.

This would be a godsend that spans all socioeconomic classes.

~~~
djrogers
>My only gripe is that this isn't just a loophole for the wealthy.

The article addresses this - the tax rate for a married couple making ~150k or
so is already 25%, so it's only people who make more than that who would be
impacted by this.

~~~
ringaroundthetx
ah nice, to not see that I must be part of the bourgeoisie oblivious to the
socioeconomic woes of the underclass

finally.

------
Necromant2005
That's AWESOME news! The more you earn the less you must pay in taxes. There's
a simple explanation for this the low income people getting more services from
society, than wealthy one. So it's fair share for society depends on amount of
service society provides for you.

~~~
Necromant2005
Ideal taxation system must follow normal distribution:
[http://www.itl.nist.gov/div898/handbook/pmc/section5/gifs/no...](http://www.itl.nist.gov/div898/handbook/pmc/section5/gifs/normal.gif)
where: x - income f(x) - taxes

For example: $5k annual income = 0% taxes $10k - 10% taxes $75k - 150k - 35%
taxes $150k - $250k - 30% $250k - $1kk - 25% $100kk - 1%

------
calvinbhai
Any tax plan that promises to increase taxes for the rich, often tends to be
something that ends up increasing the taxes for the rest, while the rich will
have enough loopholes to pay less taxes, legally.

------
Joking_Phantom
The 9 page Republican tax plan draft is pretty awful.

Not just awful in the sense that Trump promised that it didn't benefit rich
people, which it does ("It's not good for me, believe me"). The elimination of
the estate tax on the top 0.2% of estates in America is the most egregious
example. The immediate write off of depreciable assets, elimination of AMT and
reduction of corporate taxes largely do not apply to small businesses. In
particular, the immediate expensing of depreciable assets may further serve to
exacerbate irrational purchases of equipment by small businesses, potentially
locking them into unprofitable business practices, while benefitting large
corporations that make these specialized products (see the corn glut). No
comment on whether this is moral or not, in the end it brings profits to big
business at the direct expense of small business.

But its also awful in the sense that its not even close to complete or
reasonable. Half of the 9 page document is just empty words and opinions that
have no business being on a document meant to form the basis of our new tax
code. Republican analysts have yet to make up for the optimistic 1.5 trillion
dollar projected shortfall introduced by this tax reform, and the various
"tricks" being discussed to bridge that gap are unpalatable at best. Clever
accounting reminiscent of the practices that brought Enron to its downfall,
punting the problem of shortfalls 10 years down when the debt becomes to big
to ignore. Taxing of retirement plan contributions and proceeds which will be
borne by middle class workers. If this is all the Republicans have to show
after 2 years of bluster, I can't see any significant reform going through.

Moreover, the duplicitous wording of the document gives less reason to view
the Republicans in a charitable light. The whole section on the "zero tax
bracket" and dependent deduction elimination represents little to the lower
class Americans it purports to help. Replacing the deduction for non child
dependents with a 500 dollar tax credit is a tax increase in most cases. The
unspecified increase in the child tax credit is also balanced by the loss in
the $4000 deduction - there is no reason to expect an actual effective tax
break of significant magnitude when the Republicans can't even give us a flat
answer. The elimination of most itemized deductions perturbs me as well - give
people even less of a reason to spend their money in incentivized manners,
punish the middle class further? We'll see what exactly they eliminate, if its
comparable to the nearly doubled standard deduction.

"Finally, the committees will work on additional measures to meaningfully
reduce the tax burden on the middle-class." It's amazing how long it took them
to produce a mere 9 page document, much of which contains words that impart no
meaning. I've written essays in high school longer than this.

------
0x27081990
Tax cuts always have a higher impact on the wealthy because, well, they pay
more taxes.

This isn’t a bad thing. That money won’t dissapear. It’ll get spent or
invested (either directly or indirectly by a bank if saved).

Tax cuts are good. Stop saying they’re bad. The wealthy always find loopholes
because they can afford lawyers and accountats to deduct taxes or skip taxes
through offshore companies, so it’s the not-so-wealthy who have a yet bigger
impact but not so directly visible.

~~~
trendia
We should probably stop calling them "loopholes", too. The two biggest
policies that reduce a wealthy person's taxes are:

1) capital gains is lower than income

2) there are deductions for almost everything

3) tax-free retirement accounts

4) charitable deductions

The truth is that many of the above affect the middle class, too.

~~~
basseq
They absolutely help the middle class, too. The issue with being middle class
is that you don't qualify for the "social safety net" deductions, but the
other loopholes don't net you much in the way of absolute dollars—particularly
given the investment (documentation) required.

Plus:

1) Middle class typically doesn't have the ability to structure _income_ as
capital gains.

2) (See above.)

3) Given modest contribution caps in retirement accounts, _not_ a major
"loophole" for the wealthy.

4) Something we should encourage at all levels.

