This post and discussion surely illustrate the need for a much higher level of economic education in the population. FDL is doing an exemplary service in presenting and hosting these economic discussions, particularly in complex subjects where there is either no correct answer or several correct answers. There is still a long way to go until there is a common language in economics, this is another step towards that end. So much of today’s problems stem from economic policy. All the best…….

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burnspbesq @ 52

We institute a tax on wealth, like the one in France: maybe in the range of 1% for total capital in excess of some minimum like $2,000,000, with one or two exemptions, like a house under some realistic limit.

No, once again, that’s communistic theft and Americans simply don’t accept that, even if it’s meant in good spirit.

For one thing, who would feel safe with a government capable of such power over an individual? Aren’t we experiencing too much of that even now?

suzinmpls @ 45

For us dummies (well, This dummie), can someone give a couple -sentence message to convey the gist of the message…

…

Grossly oversimplified …, the issues with the taxation of hedge funds and private equity shops are two-fold. …

First, there is the differential taxation of capital gains and ordinary income. It’s never made sense to me. I suspect it doesn’t make sense to hardly anyone who hangs around here on a regular basis. But as it currently stands, capital gains are taxed at 15 percent, while corporations pay roughly 34 percent on their operating income.

On operating income or after expenses and earnings distributions?

It seems to me companies might be more willing to invest if their corporate taxable income rate was lower even if their capital gains rate was higher.

You risk capital up front and don’t want to if the taxes are gonna take it all away. If the rate were lower (more like 18% as Buffet mentioned), then you wouldn’t be risking as much.

Short-term vs. long-term, vs. fees, vs. income is always going to be confusing (no need for me to tell you that). After all, what is the proper rate to tax the income from the sale of an investment? If the investment is earning rent or interest, then that certainly should be taxed as a form of income. Long-term? Maybe you just simplify it and say any time you receive income from any investment of capital (including human labor), then tax it at the time it’s received and at one constant rate (as you suggested).

Why tax at different rates except to satisfy some economics theory?

I suppose one issue to be discussed is when the super wealthy invest in large amounts of stock and don’t EVER sell, thus generating no income or income tax (presuming no earnings distributions). Of what value is an increased stock price? Is that of no taxable value at all? The estate tax is closely related to this. Are we taxing death? Are we taxing the transmission of wealth from one person to another or are we recognizing that the wealth will never be taxed if it’s never sold?

What do you think, what of families which pass along stocks & bonds (and perhaps other investments) without ever selling?

Second, one of the fundamental principles of partnership taxation is that while partnerships aren’t separate taxpaying entities, income earned by a partnership retains its character when it is allocated to the partners.

Ah, the question of double taxation, eh?

Tax the income at one rate and it doesn’t matter whether you tax at the corporate receiver or tax the individual receiver. That clarifies and allows everyone, including tax lawyers, a much easier time.

… The managers get an interest in partnership profits (typically, 20 percent) in exchange for agreeing to provide management services.

So, hypothetically, let’s say that a fund managed by Blackstone pays Jane $100 for all of the assets of FDL. … Three years later, the fund sells FDL to Josh Marshall for $1,000. That’s a $900 gain, and at the partnership level it’s a long-term capital gain. Blackstone’s share is $180, and that $180 retains its character as long-term capital gain in Blackstone’s hands.

A fee? A long-term capital gain? An income? They all seem to be the same thing in this example. So, why not use one tax rate?

Probably political favoritism has played a role in helping this or that industry.

Presto! Compensation for management services, which under any cognizable theory of the U.S. income tax law should be taxed at ordinary income rates, is turned into long-term capital gain.

…

But to answer your precise question, the sound-bite is really simple:

ALL COMPENSATION SHOULD BE ORDINARY INCOME!!!

The one catch is that if you do that and you don’t want to tax investment too heavily (nobody wants to stifle business), then do you raise enough revenue for government? Who wants government revenue to bounce up and down over time with the economy?

How do you raise a steady flow of revenue for the government while being fair and allowing for economic recessions and business cycles?

To me part of the answer is a consumption tax. As consumption varies with the ability and esire of the public & business to consume, the revenue flow to government would change quite a lot. But, add to that the constant rate income taxation and you get more stability in government revenue flow.

It might work best for the public as their tax bill follows their ability to consume, rather than being fixed tightly to their income level.

Oklahoma kiddo @ 7

Here’s a radical thought. There should be a cap on wealth.

Really.

At what arbitrarily chosen level? And why is that arbitrarily chosen level preferable to any other abritrarily chosen level that one might arbitrarily choose?

I don’t know how considered is that opinion, but I’d say the people who do support such a view are more interested in a powerful and over-reaching (IMO) government than I and most Americans prefer.

Ownership, control, regulation, governance, pressure, these are different and ‘capping’ wealth or income is definitely a degree of ‘control’.

The closest most Democrats would ever come to that view is to suggest to those who win the wealth lottery that they step aside and let another person have a shot at it.

Perhaps it’s just that I’ve never been super-wealthy and wouldn’t know what to do with a billion dollars. But, as I’ve said before, the idea that we need to learn to share more could be spread by that kind of idea. Got enough(?), then why not retire?

companies are now required to value fair value of the reporting units, using present value of future cash flow, and compare it to their carrying value (booked value of assets plus goodwill minus liabilities.) If the fair value is less than carrying value (impaired), the goodwill value needs to be reduced so the fair value is equal to carrying value. The impairment loss is reported as a separate line item on the income statement, and new adjusted value of goodwill is reported in the balance

So, Mr. Parrish, if you’re still around, is this the part that explains why the structured entity has to receive management fees (or something)? They have to have some real cash flow to set against the intangible asset (which was only sold in the first place to create a favorable tax spread)?

It’s really clear why so few white collar matters get the public attention they probably require, isn’t it?

We institute a tax on wealth, like the one in France: maybe in the range of 1% for total capital in excess of some minimum like $2,000,000, with one or two exemptions, like a house under some realistic limit.