Asymmetrical Information

Dreck responds in italics:

What does this have to do with carried interest?
the reason carried interests cause so little tax burden is because of the lower capital gains rate, which I'm proposing we eliminate

1. Doesn't reduce anyone's personal income tax rate but does increase net income, which is nice for people who own entire companies, like private equity funds.
..but makes them pay individual tax rates when they realize dividends or capital gains, as opposed to reinvesting. Effectively it reduces rates on reinvested capital.

2. Same as 1 and would drastically shift capital structures over to equity. Don't know what effect that would have, but worth looking into. Also, one would think you'd want to favor dividends over compensation, since the CEO is not indifferent.
not to drastically. There is still a 15% rate to deduct interest against.

3. So you really want my tax rate to stay at the ordinary income rate.
as opposed to?

Right, not sure what any of this has to do with the article or carried interest, which is like buying $1 of stock and getting dividends on $20 of stock and being able to call it all capital gains. It certainly wouldn't make Schwarzman start paying more than his secretary.

read again the part about limiting the preferred treatment of capital gains. Schwarzman already pays more than his secretary, but this would mean he pays the same or higher *percentage*

This proposal made an interesting "whooshing" noise as it went over my head.

What forms of non-ERISA compensation are currenlty untaxed? (With cites to IRC, please)

deferred more than untaxed altogether, such as 'tophat' plans, although certain deductible perks might be considered compensation (use of the corporate jet). Get your own cites, I don't accept assignments.

Also, why exempt ERISA plans? Haven't you read the health care comment threads?

a bow to entrenched interests. Couldn't bring myself to even imagine making 401k matches taxable.

(Too bad your "remember info" button never works for me - always a pain to retype my info - in any case...)

I like your tax plan. I'd support it. My only concern is that it leaves one huge loophole open for the rich, unless I'm missing something. Right now, the rich who control companies end up using the companies as if they were their own private property, living in houses owned by the company, using company jets, etc. That is compensation that is never treated as compensation and is never taxed.

Even if you counted it as income, they would come up with a dodge to get around that, claming all of their private jet travel is for "company business" and therefore isn't compensation, scheduling phony meetings in Hawaii, for instance, at an odd hour so that they just MUST use the corporate jet to get there on time. Policing that would destroy the simplicity of your proposal, because now we have to dig deeply into everything a company does to make sure it isn't disguised compensation (untaxed income) for the fat cats.

Yes, compensation would be taxed at ordinary income, while dividends would be taxed at ordinary income + 15%, so there is still a bias.

No. Read *again*. Cash dividends are *deductible* to the corporate payer (and not taxed at the LLC/partnership level) and therefore are taxed only at OI, regardless of whether they are from private equity investing or regular common stock.

I am also not sure what you mean by the difference between LLCs and regular corporations. LLCs are taxed as disregarded entities or partnerships by default, and can elect to be taxed as corporations. Is there some other type of taxation?

LLCs are essentially taxed as pass-through income to the individual. The lower the corporate tax rate, the less the double-taxation or difference between corporations and LLCs/partnerships. The dividend deductibility further narrows the gap.

OK, I see how this works now. But,

3. So you really want my tax rate to stay at the ordinary income rate.
as opposed to?

Taxing mine at theirs!

Your plan is close to my plan, which is to eliminate all intermediate taxation and have households pay the entire tax burden explicitly, once a year in a lump sum, the day after Christmas.