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Comment by ptero | Hacker News Reader

I suspect most of those strategies are perfectly legal under the current (insanely complex) US tax laws. Instead of trying to further complicate those laws to outlaw a few arcane tax strategies (likely in vain; more complexity likely leads to more arcane loopholes) we should be simplifying our laws. It should be dead simple to determine legality and IRS should be left with simple enforcing function.

I would be much in favor of flat rates with negative tax rates on first $X to help bridge the gap from minimum wage to living wage. And a better safety net for those who cannot work. My 2c.

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Even with a concise and simple tax code the problem is that those with large amounts of wealth are better off spending a portion of that wealth on intentionally obscuring their assets and incomes than by simply paying their fair tax.

From the article:

> They often have trusts, foundations, limited liability companies, complex partnerships and overseas operations, all woven together to lower their tax bills.

Which is to say that...even if you set out a flat tax rate of X% it is possible to arrange situations where multiple trusts, companies, partnerships, etc, are arranged in such a way that even though they are operated for the benefit of an individual that individual has little to no real obligation via their engagement, and the interactions of those independent entities behave in such a way as to - on paper - present a reduced income then it becomes exceptionally hard to determine who owes what without devoting massive amounts of effort collecting all of these loosely related entities and analyzing flows of money.

I always say - for every regulation in the book, there was someone at some point in time who figured out a way to screw over everyone else by exploiting a loophole.

I mean, foundations and trusts, especially, are artifacts of a complex tax code.

LLCs maybe less so. Overseas operations much less so.

And look, the complexity of the tax code isn't (solely) a result of raw dysfunction. We decided that we didn't want to treat all income the same as all other income, and all organizations the same as all other organizations, in ways that are pretty defensible.

But that's generally true of the insanely high-complexity legal systems of modern countries: most individual decisions make sense, but the aggregate result of them is bewildering, easily-parasitized complexity.

You can't manage what you can't measure.

Until people (citizens) know the dollar value of the loop holes, subsidies, lack of enforcement, penalties, etc., it's hard to have a rational conversation.

One of my state legislators changed our law to make that information public.

Previously, only the chair of the finance committee could see those numbers, any public disclosure was a felony (yes, resulting in jail time).

His reform is now model legislation being pushed in other jurisdictions.

> Instead of trying to further complicate those laws to outlaw a few arcane tax strategies (likely in vain; more complexity likely leads to more arcane loopholes) we should be simplifying our laws.

The issue is that the complexity of the tax laws are a feature, not a bug. Each of those subsidies, exceptions, tweaks, hiccups, and exemptions is a payout to the members of the winning coalition in our electoral system. “Simple” tax laws would indicate an unresponsiveness by the government to the interests of the governed, by virtue of the fact that the governed have complex interests. Analyses that start and stop at “simple or complex” are thus doomed to be fruitless.

The strategy described in the article to avoid tax on cancelled debt was not "perfectly legal", more like "ambiguously legal" It relied on a specific interpretation of laws; another interpretation would deem it illegal. (To your point on complexity). A tax court would need to make the call.

Just defining the word "income" is a quite complex problem.

You are overlooking a simple fact: Rich dont want to pay taxes.

You will always have problems when taking from the rich. 800 years ago It was barron rebellion (Magna Carta). Now its army of lawyers and gutted IRS. IMO War between taxman and rich is not entirely off table in future.

> IMO War between taxman and rich is not entirely off table in future.

Except I fear being labeled "rich" as someone in the top 1% globally but making 85k a year in the US. If you want a Russian Revolution, where the farmers were the "rich", that's how you get a Russian Revolution.

Definitely taking "war" to be literal, so these were the thoughts I had.

The problem isn’t the progressive tax system, the problem is the heaping pile of exceptions and special rules that take forever to wade through. All a flat tax would do is make it even easier for the ultra-wealthy to pay less.

Could be a wealth tax instead of income tax.

But, let's stop worrying about "the wealthy"...just make a systems that's easy for everyone and funds the government. Soaking the rich shouldn't be the goal...a balanced government budget providing the basic services we together agree on should be the goal.

How does a wealth tax work when the majority of your assets are illiquid? Stake in a company, real estate, etc. are difficult to tax and still have predictable recurring tax revenue, right?

It works great! We shouldn't be allowing people to avoid taxation, or a wealth tax, by structuring their wealth into illiquid assets, purposefully or accidentally.

You’ve just made it completely impractical for anyone to invest their cash in, say, heavy machinery or a new fabrication plant.

Is that your intention?

It's pretty clear he wants to tax people out of spite.

Guessing the intentions of others is an ugly look.

Did I? If you invest in a piece of heavy machinery does it just sit around doing nothing, i.e. not generating any sort of profit.

No it's an item that produces work, unlike a painting which I'm totally OK with making it impractical to invest in.

"illiquid asset" was all you wrote. That's completely orthogonal to "doing nothing."

How would you have handled taxing commercial/investment property (illiquid asset) from 2006-2012. Do you mark to market? If so, how? How can you do this at scale so the process is fairly applied in all regions, repeatable and trackable?

IANAA(I am not an appraiser), but I'd assume there exists processes to value these assets already. Maybe these processes were gamed in the lead up to 2008, but that doesn't mean safeguards can't be implemented(or not purposely weakened) to prevent this.

Part of the point of a progressive taxation system is to help clamp down on wealth inequality. The ultra wealthy have more means at their disposal to turn their wealth into more wealth or political power. A strong progressive tax system and an estate tax is necessary to prevent them from turning into a literal aristocracy.

So yes, I consider “soaking the rich” a valid policy goal, despite your pejorative spin.

there's already a tax on wealth/savers, its called inflation.

Few people hold all their wealth in banknotes, and none of them are rich. The rich invest their wealth in companies and assets that appreciate much faster than inflation.

Inflation is a tax on currency, not a tax on wealth.

Real estate is wealth but inflation doesn't decrease its value. Stocks are wealth but inflation doesn't decrease their value.

Quibble on stocks: as with other asset classes, they are highly sensitive to the quantity of money and availability of credit, so they're not insensitive to inflation. Though they are generally positively affected by increases in the money supply: see QE and US stock market respose.

Eh, is also what we tax.

We tax cancelled debt as income. Simple enough at first glance.

But when is debt cancelled vs restructured?

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