The world could get its first trillionaire within 10 years (refund, millionaires, money)

[mysticaltyger]

I suspect we already have trillionaires. We just don't know their names and they want it that way.

[ChiGuy2.5]

Originally Posted by Rocko20

I’m still racking my brain trying to understand how tax loopholes have anything to do with preventing one from becoming successful. It seems you're misunderstanding wealth obtainment in a 1st world developed country as a zero sum game and think Elon Musk is “taking away from the pie” that would’ve otherwise been “your piece.” Elon Musk’s pie is not even in your bakery, and your solution is to seize all the bakeries.

There is no “level playing field” that can be legislated. My sister is a high school dropout. I’m a college graduate. Let me guess, having the same parents, school, teachers, upbringing, household, and genetics wasn’t “a level playing field?”

You cannot legislate equal outcome and ambition. Your income power is a reflection of your value to society. When you create a company that employs 1.2 million people, you’ll be a billionaire like Bezos too.

I supposed your confusion is because I was responding to someone saying that the system wasn't rigged. That's all. I wasn't saying someone couldn't be successful because of any loopholes. Plenty of people crawl their way out of poverty every year.

The impact of the system being unfair is not well understood to me, or anyone. However, it's clear it isn't fair and that should be fixed. That's all. I'm not blaming that tax system for me not being a millionaire...

[EDS_]

Originally Posted by ChiGuy2.5

No, everyone calls them loopholes because they are. If you are a partner of a private equity fund, you can claim your entire income as a long term investment and be taxed on the paltry 15-20% as opposed to the average income earner who gets taxed closer to 30-35%. The loophole is IN the tax law. My brother in law is literally a partner in a hedge fund and calls it a loophole. The thing that makes it a loophole is that the rich can classify their income in a way that lowers their tax obligations. It's an oversight created in the tax code that was never closed, hence a loophole.

1. All this talk about rich people hiding their wealth fails the smell test as rich people pay grossly disproportionate amounts of taxes. The IRS and Tax Foundation post the info. as it were.

1.1. By most people's thinking I'm fairly rich. I'd like to know where and how all these other rich people hide their wealth from the tax man.

2. Grossly simplified...........hedge fund partners and founders (general partners) pay longterm capital gains taxes + net income taxes on investments for portions of remuneration not paid as salary or wages. Any salary or wages are taxed as income obviously. Most often general partners are in fact paid incentive fees that must come from pools of assets held long enough to meet long term capital gains rules. Your relative may well call it a loophole - it's not as everyone can and most people do take advantage of long term capital gains rules in one way or another. FE many in the business world are compensated via long term incentives taxed at long term rates as well.

Hopefully, TaxPhd. will tidy up any errors I made above.

[ChiGuy2.5]

Originally Posted by EDS_

1. All this talk about rich people hiding their wealth fails the smell test as rich people pay grossly disproportionate amounts of taxes. The IRS and Tax Foundation post the info. as it were.

1.1. By most people's thinking I'm fairly rich. I'd like to know where and how all these other rich people hide their wealth from the tax man.

2. Grossly simplified...........hedge fund partners and founders (general partners) pay longterm capital gains taxes + net income taxes on investments for portions of remuneration not paid as salary or wages. Any salary or wages are taxed as income obviously. Most often general partners are in fact paid incentive fees that must come from pools of assets held long enough to meet long term capital gains rules. Your relative may well call it a loophole - it's not as everyone can and most people do take advantage of long term capital gains rules in one way or another. FE many in the business world are compensated via long term incentives taxed at long term rates as well.

Hopefully, TaxPhd. will tidy up any errors I made above.

Rich pay grossly disproportionate taxes because they earn far more. If someone earns 80K and pays a 20% effective tax rate, they will pay only $16K. If someone earning $3,000,000 pays a 20% effective tax rate, they will end up paying $600,000. It's not hard to understand why the rich pay a majority of the taxes.

As I stated above, I am not about the rich paying more taxes. I want everyone to pay less. But the tax code should be fair. It isn't.

Your note about hedge funds above is exactly what I am talking about. To become partner you have to put up an allocated amount of capital. That capital is invested in the fund and pays out annually after the long term gain is achieved. Thus partners are paid primarily on earned income from a long term hold, limiting their tax obligation. I cannot defer my salary for a year in order to pay long term tax instead of income tax. That's not an option for the average person.

What you're doing wrong is you're not earning your income in the correct way. It's how the rich EARN their income not how they classify it. I'm also not talking about tax dodgers which is an entirely different issue that can never be totally solved, as it's already illegal.

[EDS_]

Originally Posted by ChiGuy2.5

Rich pay grossly disproportionate taxes because they earn far more. If someone earns 80K and pays a 20% effective tax rate, they will pay only $16K. If someone earning $3,000,000 pays a 20% effective tax rate, they will end up paying $600,000. It's not hard to understand why the rich pay a majority of the taxes.

As I stated above, I am not about the rich paying more taxes. I want everyone to pay less. But the tax code should be fair. It isn't.

Your note about hedge funds above is exactly what I am talking about. To become partner you have to put up an allocated amount of capital. That capital is invested in the fund and pays out annually after the long term gain is achieved. Thus partners are paid primarily on earned income from a long term hold, limiting their tax obligation. I cannot defer my salary for a year in order to pay long term tax instead of income tax. That's not an option for the average person.

1. I understand relativistic arithmetic well enough. My point is rich people must be terrible at using all these income hiding tricks you speak of or they wouldn't be paying so much more in taxes.


1.1. We have the most progressive federal tax structure in The OECD. That is so because legions of working Americans pay between zero and very, very little federal income tax.

The Washington Post says we have the most progressive tax system in the world.

https://www.washingtonpost.com/news/...ong-the-least/


2. Many jobs allow one to minimize/defer current salary/compensation in favor of stock allocations/investment pool participation or other compensation taxed at long term rates later. My wife did so several times across her career. I did so as well.

3. As of now the only way to make our current system more fair would be to ask people on the bottom half of the income ladder to pay a lot more.

4. The US also has high long term capital gains rates.

5. I'm not doing anything wrong.

[jiminnm]

Originally Posted by ChiGuy2.5

Rich pay grossly disproportionate taxes because they earn far more. If someone earns 80K and pays a 20% effective tax rate, they will pay only $16K. If someone earning $3,000,000 pays a 20% effective tax rate, they will end up paying $600,000. It's not hard to understand why the rich pay a majority of the taxes.

Except that someone earning $80K will have about $53K in taxable income and pay about $6,000 (married) in federal income tax (about 7.5%).


Someone earning $3M in carried interest will have a top tax rate of 23.8%.

[EDS_]

Originally Posted by jiminnm

Except that someone earning $80K will have about $53K in taxable income and pay about $6,000 (married) in federal income tax (about 7.5%).


Someone earning $3M in carried interest will have a top tax rate of 23.8%.

Thanks for that.

[ChiGuy2.5]

Originally Posted by EDS_

1. I understand relativistic arithmetic well enough. My point is rich people must be terrible at using all these income hiding tricks you speak of or they wouldn't be paying so much more in taxes.

1.1. We have the most progressive federal tax structure in The OECD. That is so because legions of working Americans pay between zero and very, very little federal income tax.

The Washington Post says we have the most progressive tax system in the world.

https://www.washingtonpost.com/news/...ong-the-least/

I can't speak to why every rich person doesn't take advantage, how do you expect me to respond to this "argument"? Also, what does the progressive nature of our tax code have to do with anything we are discussing? It's important to note that even if every rich person took advantage and paid 10% less than the average person, they would still pay a majority of taxes because they have a significantly disproportionate amount of wealth.

Originally Posted by EDS_

2. Many jobs allow one to minimize/defer current salary/compensation in favor of stock allocations/investment pool participation or other compensation taxed at long term rates later. My wife did so several times across her career. I did so as well.

I assume you refer to Restricted Stock Options (RSO's). Those are issued as shares in the company that employs the person receiving them. It's an incentive based on the performance of the company. Much different than earnings provided in a hedge fund. It's also not something everyone has access to which furthers my point.

Originally Posted by EDS_

3. As of now the only way to make our current system more fair would be to ask people on the bottom half of the income ladder to pay a lot more.

You don't get my point do you? It's not about how much everyone is paying. I'm talking about the percentage of income that people pay in relation to others. It's not right that the connected have ways of lowering their tax obligation even though they earn significantly more than the rest. Asking someone making $40K a year to pay more in taxes is not even remotely fair.

Those paying 0% taxes are doing so because of write offs that the rich and middle class all take advantage of as well. Or are you pseudo arguing a flat tax here?

Originally Posted by EDS_

4. The US also has high long term capital gains rates.

So? This has nothing to do with the argument around the rich classifying their income to lower their tax obligation. I still wonder if you really understand what I am saying.

Originally Posted by EDS_

5. I'm not doing anything wrong.

You got me here, you're right that you aren't doing anything wrong. The reason you can't take advantage is because you aren't rich enough to have your sole income come from long term gains taxes. You should be just as upset that you can't take advantage of such wonderful tax codes in your favor.

[ChiGuy2.5]

Originally Posted by jiminnm

Except that someone earning $80K will have about $53K in taxable income and pay about $6,000 (married) in federal income tax (about 7.5%).


Someone earning $3M in carried interest will have a top tax rate of 23.8%.

Yes, but the first $80K earned by the person paying $3million would also be taxed at the same rate as the other person. I didn't need to figure out the math to make my point. There are too many variables in play to know for sure how much A or B would pay, so it's distracting from my main argument.

[moguldreamer]

Originally Posted by ChiGuy2.5

But the system is rigged to favor those with the most power.

Incorrect.

Originally Posted by ChiGuy2.5

No, everyone calls them loopholes because they are.

Incorrect.

Originally Posted by ChiGuy2.5

The thing that makes it a loophole is that the rich can classify their income in a way that lowers their tax obligations. It's an oversight created in the tax code that was never closed, hence a loophole.

False. There was no scrivening error. There is no loophole.

Originally Posted by ChiGuy2.5

The rules the wealthy play by are not the same rules a normal person plays by.

False.

Originally Posted by ChiGuy2.5

It's as simple as that.

Incorrect again.

Originally Posted by ChiGuy2.5

Unfortunately, I wasn't smart enough to get a finance degree at a top 10 university.

Finally - something that is correct!

Originally Posted by ChiGuy2.5

I'm fighting for fairness as a morale obligation...

I assume that's a typo. Regardless, incorrect.

Originally Posted by ChiGuy2.5

Just close the damn loopholes

You have yet to articulate a single loophole.

Originally Posted by ChiGuy2.5

and force congress to refrain from investing in businesses that have to do with whatever bills are on the floor. There should be oversight in what they can invest in.

I agree with your point. I'd go one step further and say that Congress, as well as all employees of the federal government, should only invest through blind trusts.

You may have heard of two ETFs that track the holdings of individual members of Congress:

KRUZ and NANC.

KRUZ is "Unusual Whales Subversive Republican Trading ETF" with the following description:

"The investment seeks to achieve long-term capital appreciation.The fund is an actively managed diversified exchange-traded fund (“ETF”) that seeks to achieve its investment objective by investing primarily in equity securities of publicly traded companies that sitting Republican members of United States Congress and/or their families also have reported to have invested in through public disclosure filings made by such Congresspersons pursuant to the Stop Trading on Congressional Knowledge Act (“STOCK Act”)."

You'll note that the performance of KRUZ (in black) absolutely sux compared to the S&P 500 (in pink):



Now let's look at NANC.

NANC is "Unusual Whales Subversive Democratic Trading ETF" with the following description:

"The investment seeks to achieve long-term capital appreciation.The fund is an actively managed diversified exchange-traded fund (“ETF”) that seeks to achieve its investment objective by investing primarily in equity securities of publicly traded companies that sitting Democratic members of United States Congress and/or their families also have reported to have invested in through public disclosure filings made by such Congresspersons pursuant to the Stop Trading on Congressional Knowledge Act (“STOCK Act”)."

You'll note that the performance of NANC (in black) slightly beats the S&P 500 (in pink):



The Democrats appear to be better at investing.

Originally Posted by ChiGuy2.5

The fact they can garner returns in the 100-200% is WELL beyond how any average person's portfolio would perform.

The above data on KRUZ, where Republicans suck at investing, and NANC, where Democrats slightly beat the S&P 500 show your view of potential returns is incorrect.

Originally Posted by ChiGuy2.5

The reason for their success? Insider knowledge that the average person doesn't have. A CEO is able to be held liable if they are caught insider trading, there has never been a case tried against a congressmen for the same.

Perhaps you’ve heard of the Efficient Markets Hypothesis (EMH) in finance. https://www.investopedia.com/terms/e...ex%20investing. and https://en.wikipedia.org/wiki/Effici...ket_hypothesis

The idea is that all publicly available information is rapidly propagated throughout the investor community and incorporated into the price of a securities. There are several flavors of the EMH with varying tightness of assumptions. Quantitative tests seem to show pretty good support for the EMH, especially for large cap domestic companies, but the support is not perfect - there certainly are anomalies in the data and in varying geographies. The EMH isn't perfect, of course, because it is model, and no model perfectly describes the real world.

To the extent markets are efficient, do elected representatives have special investing acumen? KRUZ and NANC says no. Or do they trade on inside information that is not publicly available? If they trade on inside information (which you point out is legal for them but not for us), is that inside information reliable? Do they have skill in interpreting the inside information and skill in forecasting that inside information’s future effect on security prices once the information becomes public? The evidence of KRUZ and NANC says no.

Although above you assert, in your words, "Unfortunately, I wasn't smart enough to get a finance degree at a top 10 university" I assume you have the ability to perform rudimentary research. Here's your homework assignment: Find a scholarly article published in a peer-reviewed academic journal on the topic of Congress' investing acumen & performance.

Originally Posted by ChiGuy2.5

That loophole was never closed.

There was no scrivening error. There is no loophole. Carried interest is an intentional feature of The Code. Thus, there is no loophole to close.

Originally Posted by ChiGuy2.5

I also want the super rich to pay their fair share compared to the average citizen. They simply don't.

Factually incorrect once again.

Academic studies show that during the 1950s and 1960s when income tax rates exceeding 90%, the federal government raised minuscule additional tax revenue.

America’s federal tax code is already the most progressive in the Organisation for Economic Co-operation and Development (OECD) and has become sharply more progressive over the past 40 years. Much of this tax progressivity is the result of drastic cuts to low- and middle-income taxes while leaving upper-income-tax rates closer to international norms.

Treasury data show that, in 2023, the bottom 40% of earners collectively pay no income tax and will instead receive a collective tax rebate of $123 billion. Overall, the bottom-earning 60% of families altogether financed just 23 days of federal spending in 2023.

Let me state that again: the bottom-earning 60% of families altogether paid for a mere 23 days of federal spending in 2023.

THAT is the problem that must be addressed.

Meanwhile, the top-earning quintile—while earning 58% of all income—pays 69% of all federal taxes and 90% of all income taxes. And the top 1% of earners—while earning 18% of all income—pay 25% of all federal taxes and 40% of all income taxes. By contrast, the bottom-earning 60% earns 23% of all income, yet pays just 13% of the total federal taxes, including a combined negative income tax.

When it comes to the budget deficit and the national debt, the real problem is the vast majority of people with no skin in the game. They pay no federal income tax whatsoever - yet are allowed to vote.