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Comment by bradleyjg | Hacker News Reader

> A lot of growing companies have US taxes that are quite low because they lose money for a long time while they're investing in growth. When they finally become profitable, they're allowed to roll forward those losses (within limits) to offset their profits.

Human beings cannot do the equivalent. Spend the entirety of your 20s making very little money because you are investing in growth and then make $800k as an orthopedic surgeon at age 30, and you’ll pay the top marginal rate. You don’t get to go back and use all the unused 24% bracket income from prior years. You also can’t deduct the interest on the loans you took to finance that growth.

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> Human beings cannot do the equivalent.

They can to some extent, actually... See IRS publication Publication 536, "Net Operating Losses (NOLs) for Individuals, Estates, and Trusts".

> Spend the entirety of your 20s making very little money because you are investing in growth

To actually do the equivalent you would need to spend your 20s _losing_ money. And if you do (in the NOL sense per publication 536) then you can in fact keep rolling the losses forward to offset future income until the losses are exhausted.

Now one issue is that things like medical school tuition are not considered "losses" for individuals. So in that sense there is a definite asymmetry here.

But businesses can't "go back and use all the unused 24% bracket", not least because US federal corporate income tax does not have brackets. What they can do is that _if_ they have negative taxable income (i.e. revenues - deductible expenses is negative) then they can roll the "unused" part of the deduction into future years to offset future revenues, which is exactly how NOL works for individuals. The primary difference between businesses and individuals here is in what counts as "deductible expense". The business definition is much wider in general, not just for purposes of NOL.

> You also can’t deduct the interest on the loans you took to finance that growth.

Well, you can until you start making that $800k/year. And only up to a limit, etc. Just like so many other things in the personal tax code, there's an income phaseout and a cap for student loan interest deductions...

If tuition is not considered a loss, surely every other expense would be considered a loss then. A medical school student isn't working a part time job to pay their rent and feed themselves; that's all out of pocket and a pure loss.

The set of things that are considered "losses" (i.e. deductible expenses) for personal tax filings in the US is pretty limited. State/local taxes (now up to a cap). Mortgage interest payments (also with some cap). Mortgage points, mortgage insurance premiums. Medical expenses exceeding some percentage of AGI. Investment interest expenses. Capital losses. Gifts to charity. Casualty/theft losses, subject to a bunch of constraints. Gambling losses (but can't exceed gambling winnings). Some other things I can't recall off the top of my head.

As I said above, corporation have a much larger set of things that are considered deductible against revenue to determine taxable income. Starting with the fact that corporations are generally taxed on "profit" while people are generally taxed on "income", which is closer to "revenue" in general.

> Human beings cannot do the equivalent. Spend the entirety of your 20s making very little money because you are investing in growth

That’s not really an equivalent, though.

These companies aren’t simply giving up opportunity cost. They’re spending real money on real R&D expenditures. In software, that R&D expenditure is largely wages for developers like us.

The tax code gives companies benefits for spending this R&D money because we want to encourage them to make the R&D investment even if it comes at a loss (to the company, the employees still gain wages) for several years. We need to think long and hard about changing incentive structures in ways that reduce incentives for companies to invest in R&D and spend money on paying people.

That doctor is spending real money on attending medical school, which pays professors. It is an equivalent.

Yes, the Doctor likely makes to much to even deduct the interest on student loans from their taxes where a company could in effect deduct both the interest and principal from those student loans as an expense.

Deducting every cost associated with a job would be a huge tax benefit that simply doesn’t apply to people. It’s one of the ways that referring to tax burdens based on income as defined by the tax code is misleading.

First of all you can deduct interest but the standard tax deduction already given usually accommodates a lot of that deduction. Companies can’t deduct principal payments either. There is a crazy amount of people including this article that have no concept of what taxes are. Taxes are not on gross income they are on profit. Calculating taxes on gross income, as this article says, would be outrageous. Take this articles reference that a deduction on stock paid to employees should not be given. The employees who receive that stock have to pay taxes on that money so if it was taxed it would then be essentially double taxed. Also this article states that accelerated depreciation does not encourage investment, and that is just bollocks. Anyone who works in finance would know that accelerated depreciation allows better cash flow on your investment and can make a project feasible or not feasible.

> Companies can’t deduct principal payments either.

The initial cost would be tax deductible and could rollover across multiple years, therefore in effect the principle is deductible even if the specific payments aren’t. The way the deduction actually works is actually better than simply deducting principle payments from the loan due to time value of money.

The issue with accelerated depreciation is it’s a subsidy. The government is paying interest on it’s debt so companies can defer tax payments, that’s directly costing actual taxpayers money. Further, communism has already been tried and it’s a bad idea, we really don’t want central planning as part of the tax code because it’s a bad idea. Subsides for industry X over industry Y has all the same issues.

Principle is not at all “in effect deductible” in the slightest. If you spent money on expenses that is deductible whether you borrowed that money or not and has absolutely nothing to do with principal. On the second point accelerated depreciation is NOT a subsidy in the slightest either and not at all related to government debt. Depreciation is already a delayed acknowledgment of expenses. Without depreciation someone would deduct the entire amount of a cost immediately and pay much lower taxes. Accelerated depreciation costs taxpayers nothing. The government is not funding anything, the government is collecting less tax up front but more over time. Whether the government has liabilities is irrelevant. I don’t understand the point you are making on communism or how that relates at all unless you assume all tax collected is communist.

> Depreciation is already a delayed acknowledgment of expenses. Without depreciation someone would deduct the entire amount of a cost immediately and pay much lower taxes.

No, if a company buys say land they can’t deduct anything because land retains value until the point of sale. The same is true buying stock or other items that maintain value over time. The general rule is something is a deductible expense at the point of destruction or sale not purchase.

Depreciation is therefore an acceleration of that process. Companies for example used printing presses for a hundred years meanwhile during much of that time the actual value increased above it’s purchase price due to inflation. It’s surprisingly common for companies to sell something for a profit that they have already fully deprecated.

> I don’t understand the point you are making on communism

All specific tax exemptions for business are communist in nature because they replace market forces with government choices. It’s very obvious in the case of farm subsidies for example, but it’s a generalizable rule that government subsidies reduce market efficiency by incentivizing inefficiency.

Your comment again makes no sense. Land is NOT depreciable and neither is stock. Depreciation is not an exemption of taxes. You must realize that selling something that has been depreciated results in you selling it for a profit and thus is taxable. Depreciation reduces the cost basis. I’m not sure if at this point you are trolling by your comments always saying the opposite of the actual tax laws.

I never said land deprecated try reading my comment again: “if a company buys say land they can’t deduct anything” that’s an example of default behavior. Try rereading what I actually said where again you can deduct the purchase price at the time of sale not purchase.

As to depreciation being an exception that’s what it means when you change the baseline rules of a system with new rules. By default you take the deduction on sale, depreciation means you can take deduction early. It’s literally called “Modified Accelerated Cost Recovery System (MACRS)” the entire point of it is to speed things up rather than as you suggest slow anything down. Thus removing depreciation from the tax code and companies would need to wait years or even decades or deduct these costs from their profits. Thus as I said before it’s a hand out which happens to be built into the tax code.

It’s not a hand out whatsoever. Firstly you are making an assumption that everything that is depreciated can be sold when the majority of depreciated items are not sold, ever. They get used up over time, kind of like... depreciation. That is why that capitalized items are capitalized, not land, which again _does not get depreciated_ so I don’t know why you would use that as your comparison for normal deduction. You are looking at this absolutely backwards. Let’s say depreciation was eliminated completely in your perfect world, because you say it’s a hand out right? Now you buy something for $100,000, say construction of a building, that building falls apart and breaks down after 39 years, it was not sold. Now you have nothing to sell and never got any deduction. Now who wants to spend their money on something that is never recognized as a cost? Depreciation is there to normalize the recognition of that building falling apart. Of course all types of items depreciate at different time periods which are all defined by law. Unless you are in favor of there being no deductions for taxes of all costs, meaning you tax gross revenue, there is no reason not to depreciate. Accelerated depreciation means you pay less tax and have more money at the start of a project when it is needed and pay more to the government later when it has stabilized. Again depreciation reduces cost basis, so even if you sold it, you pay additional taxes on that when you sell it, offsetting the benefit of your depreciation. Now where is the hand out in that?

Now you buy something for $100,000, say construction of a building, that building falls apart and breaks down after 39 years, it was not sold.

The day it falls down it stops being useful, the day before that you have full use and therefore value of the building.

Or as I said several posts ago: “The general rule is something is a deductible expense at the point of destruction or sale not purchase.” Sure, it burned in a fire fine assuming you don’t have insurance then it’s a loss at that point.

Really equipment is generally binary either it works or it’s broken, unless you’re selling it then it’s exactly as useful on day 2854 as 2855. Worse, well maintained equipment lasts far beyond the accelerated depreciation benchmarks used. Anything not thrown away the day it’s theoretical value hit’s zero is unambiguously a subsidy, but so is anything with scrap value etc. But, as I clearly demonstrated the idea of depreciation it’s self was created as a subsidy.

> Accelerated depreciation means you pay less tax and have more money at the start of a project when it is needed and pay more to the government later when it has stabilized.

People say stuff like this, yet hopefully suggesting the government hands out zero interest loans to group X raises red flags. Depreciation is a subsidy in effect a zero interest loan and that in and of it’s self is a problem. Opportunity cost is a huge deal and trying to ignore that is why central planning fails.

And who decides when it has “stopped working.” It is standardized to 39 years because it is impossible to prove for every single item individually and people would then be incentivized to not take care of their possessions so they can finally deduct it. This is all besides my original point which is that accelerated depreciation is a big factor in determining whether projects occur, the opposite of the article. You yourself are calling it a subsidy and a loan, and so even if your reasoning is wrong, would agree with me that it is something that helps make a project feasible. So all this arguing is just you trying to argue. Get your CPA and talk to me again.

> And who decides when it has “stopped working.”

Initially the company, though audits and penalties help keep them honest.

> accelerated depreciation is a big factor in determining whether projects occur

And clearly that’s a problem. Just as government farm subsidies waste money growing excess food accelerated depreciation causes significant economic waste.

> CPA

Ahh, there’s your problem a CPA has nothing to do with economic issues. This is an economic and thus a policy issue but you’re trying to argue based on the existing law rather than the underlying reality. I don’t expect you to get a in depth education on the topic, but if you’re interested I can recommended some good books to get you started.

But to summarize a huge body of work, the broken window fallacy demonstrates that economic activity isn’t inherently beneficial. Maximum efficiency isn’t equivalent to maximum GDP etc. As such policies that increase economic activity can be and generally are detrimental.

Didn’t read, I’m not here to teach you accounting.

Sure, I point out being a CPA is meaningless here and you get really defensive. Grow up and you might break 200 karma before 2022.

The medical school is the equivalent, which likely deducts the salary of the professors (if it’s private). Most private schools also pay no taxes.

Can you deduct the interest paid on student loans in subsequent years? I think this is possible in some countries (iirc Belgium always deducting certain interest payments for personal taxes)

There’s a low cap ($2500) on the amount of interest that can be deducted and if the tax payers income gets too high ($85k for a single filer) you can’t deduct anything.

Not to mention that unless you're taking losses from other investments or doing fairly complicated things with your income, the standard deduction is likely high enough that you don't benefit at all from student loan interest deductions. So other people without interest get the same deduction as you anyway.

That’s the one bright spot, student loan interest is above the line (i.e. can be taken in addition to the std deduction). But the other limitation are very low.

Also, if the doctor goes into private practice, they will live with significant loses until the practice is established:

Expenses such as:

1. Rent 2. Marketing 3. Equipment 4. Student loans 5. Malpractice insurance 6. Billing service, unless they want to do this themselves 7. Staff

All these expenses can be written off until the business is established and profitable.

> Human beings cannot do the equivalent

Some can. Those with assets to depreciate, for example.

Frankly, the whole corporate tax debate seems manufactured to obscure the top personal tax bracket being about $500,000. Raise corporate taxes and you tax everyone with shares. That hits the rich, sure [1], but it also hits every pension fund and middle class saver. And if the corporate tax rate goes up instead of a $1mm, $2mm, $4mm and $8mm tax bracket being created, everyone at the top comes out ahead.

[1] Screw with the tax code for companies, legal fictions, enough and they’ll magically start moving. Then it’s a game of whack-a-mole. People are much less likely to change their way of life in response to tax codes; this is well documented.

the ultra rich are paid in stocks, not salary. Raising the tax brackets wouldn't do anything

if you receive stock as compensation, it is taxed as income. if the stock wildly appreciates after that event (and is later sold), it is capital gains.

So, new brackets or not, tax capital gains, gifts, and inheritances as regular income to the recipient.

Also, apply taxes (and corresponding benefit eligibility) equivalent to payroll/self-employment taxes to that income.

At the same time, allow corporations to expense disbursements: you are taxing individual income fairly, corporate tax just is a tool to prevent indefinite tax-free deferral of income.

it doesn't really make sense to tax long-term capital gains as income, especially under a progressive system. if I hold an asset for ten years and then sell it, a significant part of the nominal gain will be due to inflation (though this is also a problem with the existing cap gain rules). but conceptually, an LTCG is not a sudden windfall, and should not be taxed as such. it is the result of one or more years' appreciation that happens to be realized all at once.

A flat reduced rate after a year isn’t much of a fix to that problem. Given that we have CPI and use it in lots of other government programs it’d be easy enough to just adjust the basis for inflation (and while we are at it we can get rid of the step up basis at death.)

my preferred solution would be to (after adjusting for inflation) calculate the annualized gain over the years the asset was held. then go back and tax it as if it were additional income in each of those years, using the historical brackets, adjusting (again?) for inflation.

unfortunately I don't write tax law. maybe I could get the tax prep companies to lobby on my behalf.

> it doesn't really make sense to tax long-term capital gains as income, especially under a progressive system.

Yes it does.

OTOH, it doesn't make sense to not have a means of spreading out irregular income by recognizing it for tax purposes over several years in advance of realization if it can be anticipated, or deferring it over several years otherwise, in a progressive tax system. Which is why you should provide that, too (it applies to some subset of LTCG, especially that earned by the middle class, if taxing LTCG as income, but it would apply to lots of non-capital income, too—the income pattern for say, a novelist eho sends several years writing each book thar is a hit isn’t flat or steadily growing year-to-year, but spiky, and ir should be possible to smooth it for tax purposes.)

You don’t have to structurally preference capital income to deal with the fact that, as is true for other income, some capital income is the result of processes that the taxpayer can’t expect the same realized gain from year-to-year.

I posted elsewhere that it would make sense to allow individuals to apply some smoothing to their yearly income to reduce the impact that progressive brackets have on highly variable incomes.

so let me rephrase my statement about capital gains. it doesn't make sense to treat LTCG as income unless we first make significant changes to the way we assess income tax in the first place. obviously this would be a lot more complicated. imo the existing cap gain rules is a somewhat reasonable solution for a tax system that mostly looks at each year in isolation. the 15% rate is really not much of a concession to a retirement saver who has held a lot of those assets for decades and has experienced meaningful inflation. but the whole system leaves a lot to be desired.

> so let me rephrase my statement about capital gains. it doesn't make sense to treat LTCG as income unless we first make significant changes to the way we assess income tax in the first place.

I disagree. LTCG as income without smoothing makes exactly as much sense as taxing regular income without smoothing does.

Yes, there’s a strong case for smoothing. There’s, independently, a strong case for not structurally favoring capital income and not structurally disfavoring labor income. While it is desirable to address both of those (and doing so simultaneously would be a good idea since there is no conflict), there is no dependency between them.

(Likewise, indexing capital asset basis values for inflation is a third thing that there is a good case for, but neither of the other two things depends on it to be a good idea; I’d oppose furthering the favoring of capital by doing it without first taxing capital income as income, though.)

> obviously this would be a lot more complicated.

Smoothing doesn’t have to add significant complication. The essence can boil down to:

(1) a taxpayer may freely recognize any amount of as-yet-unrealized income for tax purposes in any tax year and pay appropriate income tax on it. Any amount of the unused balance may be freely applied to reduce taxable income in any future year to no less than $0 (with one exception, see below.) Unused balances are indexed for inflation.

(2) a taxpayer may defer to the following year recognition of any amount of income over the greater of the top of the lowest marginal rate bracket or prior year taxable income (after applying any deferrals or advance recognition), with thr caveat that no more than 90% of any previously-deferred income may be deferred again.

(3) In final taxes after death, all remaining advance/deferred amounts are applied, with negative taxable income resulting in a refund calculated by applying the minimum marginal rate to the balance.

> I disagree. LTCG as income without smoothing makes exactly as much sense as taxing regular income without smoothing does.

> Yes, there’s a strong case for smoothing. There’s, independently, a strong case for not structurally favoring capital income and not structurally disfavoring labor income. While it is desirable to address both of those (and doing so simultaneously would be a good idea since there is no conflict), there is no dependency between them.

in theory yes, in practice no. the current system treats the common case where wages slowly increase pretty well. people with highly variable income get screwed, but it's much more common to get a yearly 2-5% salary bump.

in contrast, assets are much more likely to be sold in chunks. I haven't realized any capital gains over $100 in the last five years. but soon I will have to liquidate a large portion of my holdings for a down payment on a house. having those gains taxed at my highest marginal rate would be far worse than the fact that I can't smooth out my yearly raises. it would almost double my taxable income for the year.

aside from that, I agree with what you wrote. I would certainly vote for your solution.

The thing that would make the most sense to me for smoothing out irregular income is to have progressive taxation with the bracket based on cumulative lifetime earnings so far, not on current-year income.

I should also note that even our current tax code admits that the setup with marginal taxes we have is kind of insane. See "Schedule J: Income Averaging for Farmers and Fishermen" which allows those occupations to do exactly what you suggest: average income over multiple years for tax purposes (can average with the previous 3 years). Why only farmers and fishermen? And why do you not get to do the averaging for AMT purposes? That's back to the "insane" part....

I'd be very curious to see HN's perspective on Biden's plan to scrap the LTCG tax (aka tax it the same as income.) On the one hand, it would be a fairly clean way to tax the wealthy (basically nobody poor has LTCGs.) On the other hand, it disincentivizes long term investing. It'd also cost a lot of people here a lot of money, so I imagine that would make it at least mildly unpopular.

I can’t speak for HN as a whole, but to me I can see an argument for dividends to be taxed favorably but why all capital gains? If I buy a collectible stamp and later sell it for a big gain, there’s no double taxation argument. Adjust the basis for inflation, sure, but that’s about it.

That would also incentivize companies to pay dividends, which I think is good for various reasons.

> I'd be very curious to see HN's perspective on Biden's plan to scrap the LTCG tax (aka tax it the same as income.)

That’s not Biden’s plan. Biden’s plan is to limit the tax preference for capital gains by setting the top rate for LTCG equal to the top rate he has proposed for income taxes, with the top LTCG rate kicking in at $1 million+, while the same rate for normal income would at ~$400K.

> On the other hand, it disincentivizes long term investing.

Even if we assume an actual elimination of the preference, it would only “disincentivize” long teem investing to the same extent that taxes on normal income disincentivize income-producing activities generally, and still less than the even higher taxes on labor income (thanks to payroll/self-employment taxes) discourage labor and its employment.

Thank you for the clarification! Somehow I didn't see that detail in an article I read about Biden's plans.

And yes, I generally agree with your last paragraph. But that said, it is worth noting that taxes on normal income do discourage people from making money. (I'm not saying this to support a reduction in income tax, just as an interesting note.) So I think it is worthwhile to consider incentives. For example, income at x%, short term cap gains at x+10% and long term cap gains at x-5%.

Of course, if you really want to go all the way regarding fairness and incentives, you'll tend towards entirely different systems (Georgism, for example)

it doesn't really make sense to tax long-term capital gains as income, especially under a progressive system.

LTCG is simply any capital asset held for longer than 365 days. It makes perfect sense to tax gains on assets held for a year or two.

Moreover, capital assets include real estate and other items that appreciate faster than inflation. It absolutely makes sense to tax those assets, since those assets are generally not held for productive use. (See, for example, all the empty storefronts in NYC. Those properties are held with an eye toward making money on the eventual sale of the building without regard to ongoing income; the finances work out as long as incoming cash flow from rents in other units covers debt service payments.)

Indeed, not taxing long-term capital gains would be the biggest subsidy to the wealthy that the world has ever seen. It would encourage the wealthy to acquire assets en masse, hold them without use for long periods, and then sell them at appreciated and untaxed values despite having done nothing to earn the appreciated value.

Stocks paid to employees are taxed at the same exact rate as cash salary income.

There is so much politically motivated misinformation going around on social media - it's really concerning.

If you spent your 20s making money, little or no, you didn't have losses.

If you spent your 20s conducting losing trades in the stock market, you accumulate capital gains losses that you can only apply $3,000 per year against your regular income. If at age 30 you made $800,000 in capital gains you are able to apply all those unused losses against those gains.

So "human beings" aren't much different.

A difference is that just about everything a business spends money on is a business expense, while many of the things people spend money on aren’t treated like business expenses. Travel is an example where buying exactly the same thing can have very different tax consequences depending on whether it’s considered for business or not.

To some extent this is made up for with the standard deduction and various other deductions, but you can’t carry it forward if you made less than the standard deduction, even if you actually are spending more than you make.

The idea of carrying forward losses is unintuitive to most people because we mostly don’t get to do that.

Personal expenses are just that, personal. While some have a limited effect on your ability to earn a living, most are just consumption.

Business expenses are almost always only the costs of actually generating revenues. Thats why there are strict limits on travel & entertainment deductions. Of course there are always exceptions, does the company need that private jet? But their accountants have to justify private jets, etc to ensure the company doesn't face tax fraud charges.

The purpose is to equalize the amount of tax that companies pay. Consider the following example: Assuming a tax rate of 30%, Company A has net income (profit) of $100 in year 1 and $100 in year two pays $60 in tax on a total profit of $200. Company B has a net loss of $100 in year 1 and net income of $300 ni year 2 has a total profit still of $200. Assuming loss carryforwards are allowed, Company B pays $60 in tax still. Without loss carryforwards, Company B ends up paying $90 in tax on the same amount of profit.

It leads to bad headlines when companies claim a bunch of loss carryforwards, but it actually is a fair practice. The other thing to keep in mind is that losses are only paid out in refunds when you actually pay tax. Company B does not earn $30 back from the government for losing money in year 1, it instead gets money back once it starts making profit.

Note that at least in Canada, these rules apply to all types of income, not just business income, although losses on employment income basically never happen.

I understand why the rule exists. What I don’t understand is why a similar rule doesn’t exist for people.

Here’s another example of where it could help. Take two men, one earns $75k/year (let’s say inflation adjusted) for thirty years as a bus driver. The other plays in the NFL for 1 year makes $2MM and thereafter only makes $250k over the next twenty five years. They’ve made the same amount of money over their lifetimes but the second man paid much higher taxes.

NOL (net operating loss) carryforwards, which is what is being described above, would not make a difference in the situation you have laid out here - it sounds like your issue is the fact that we have a progressive tax for personal income (versus a flat tax for corporations)

Your example is bad one because of time value of money and because the rates aren't equal. Better example is someone who invented an amazing technology after 25 years of failure, or someone who works for the same hourly rate but does 3000 hrs one year and 1000 hrs the next.

that's not really the same thing. the football player didn't realize a loss in any of those years, at least not in the same way that a company can. they just made less money over time. the real difference here is there are no marginal brackets for taxes paid by a company.

it makes sense that companies are taxed differently than individuals. corporate revenues and assets ultimately end up in the pockets of real people, either as wages or capital gains.

that said, I do think you make a good point about income tax. it would be more fair if there were some smoothing over time. another example of someone who might get screwed is a contractor with highly variable income. if I make $75k every year, and you oscillate back and forth between $25k and $125k, you pay a lot more income tax for no real reason.

> it makes sense that companies are taxed differently than individuals. corporate revenues and assets ultimately end up in the pockets of real people, either as wages or capital gains.

But only some of those real people are subject to the jurisdiction of the country taxing the corporation. So while some corporate income is subject to double taxation some is not.

> the real difference here is there are no marginal brackets for taxes paid by a company.

Companies can smear revenue out over time to optimize the taxes they face. People cannot. The marginal part is orthogonal.

That's not equivalent. An equivalent example would be a person who makes a large amount of money in their 20s, but spends the majority of it on things that could conceivably appreciate, such that their income artificially represents a loss. Then all of a sudden, whatever they spent money on becomes extremely profitable in their mid 30s.

Someone doing that will normally do it within the confines of an LLC by convention (because it almost always implies a business). But you could do it with investing, too. In either case you need not be a megacorp.

There are also income tax offsets for education, provided your tax bracket isn't too high.

> That's not equivalent. An equivalent example would be a person who makes a large amount of money in their 20s, but spends the majority of it on things that could conceivably appreciate, such that their income artificially represents a loss. Then all of a sudden, whatever they spent money on becomes extremely profitable in their mid 30s.

Like someone getting a $150k student loan to go to college and/or post-college education?

A loan isn’t a loss. A business can’t deduct that either.

It can deduct the interest. It can also get an R&D credit+ for how it spent the proceeds of the loan.

+Depending on a lot of details

Yeah, and if an individual creates a sole proprietorship they could probably hire an instructor and deduct that R&D.

Of course not. The $155k tuition is the loss. The $150k loan is just a sudden influx of money used to compensate for the investment losses, the same as a company receiving investment funding.

It's not a loss - it's training. If the individual created a sole proprietorship it might be deductible, too.

No, because that's a loan rather than an R&D expenditure from income. I guess that probably sounds flippant, but the mechanics are different. If a business received a loan, the tax prospects wouldn't be as favorable as expenditure either.

loans are different for corporations due to the interest being deductible (colloquially called 'tax shields'). along with the carryforward provision, that can so valuable that it's the principal reason why a given company is bought. personal loans have no such leeway and value.

The interest on personal loans is also deductible, if used for (a) education, (b) buying a residence, or (c) for business activities of the individual.

sure, there are a few exceptions, but carveouts result in distortions that lead to unintended consequences, as we see in all of those instances (e.g., higher economic rents). for greater fairness and more efficiency in markets, we should reduce carveouts for both corporations and individuals, not try to justify the ones we have.

> (a) education, (b) buying a residence

Only up to some low limit. Netflix can deduct unlimited interest.

No, it can't. Business interest deduction is limited to 30% of taxable income...

Different how? Different in practice or in tax law?

The point of the thread is that the two are essentially the same in practice (investing current monetary influxes towards future revenues) but the tax law differences favor one over the other.

I see your point, but who would benefit most from making loans function the way you're suggesting? It obviously would be businesses.

True, but I think the sentiment isn't "make individual loans work like business investments" so much as it is "make business investments work like individual loans". In other words, if individuals are expected to pay taxes, businesses should be expected to pay taxes as well (rather than being allowed to minimize them due to earlier losses).

It's not black and white, of course, and I'm not an accountant, so my knowledge is limited and most likely filled with holes and misunderstandings. But I imagine there's also a matter of scale that's at play here, with tax laws meant to make things easier on small, privately owned businesses in their early years, having unintended consequences to the benefit of companies already behemoth in size investing in getting even bigger. Bigger in ways only made possible in the new digital, globalized world.

If you do that by investing, it does work the same way. You can roll forward capital losses indefinitely and offset them against future capital gains, something which investors in 2000 and 2008 became well-acquainted with.

The difference is few people start with financing that allows them to amass large investable sums without showing a cash income early in life. That’s because companies can raise VC and sell equity while we (rightly, of course) banned the equivalent practice for people.

I’m pretty sure you can use previous material capital losses to offset current gains.

You can but the problem is finding a lender to underwrite a mortgage when you're in your 20s in your part time collage job.

Individual humans don’t employ large groups of people and don’t move forward the economy like a company does.

I don’t understand why we want to equate rules for companies to rules for individuals? People say “it’s not fair”?

Who’s going to employ people? The government can’t produce your salary, companies do that.

Btw, many countries should regulate companies more IMO, but that’s not to say companies shouldn’t be encouraged to grow and prosper.

Of course companies and individuals should have different rules and of course tax should be one of them. Help companies start and grow and salaries will be paid to people.

Why not let people employ each other where they are instead of importing grandpa’s beliefs about how money is produced?

It’s the workers doing that produce the real value, not a rich person holding capital they’ll only spend on us if we capitulate.

Why do we need the age old tale of a shared ephemeral store like religion and fiat finance when we see those things become monopolized and gamed by the previous generation every time?

We need to believe one old person is literally worth 100x the average person?

Who does that benefit?

Most companies are not AT&T. To cite one European example, in Spain 80% of companies are 1-3 employees. Giving the entrepreneur a tax break is a great way to help 80% of employers.

In the US that number might be even higher [0] (99% percent according to that article but we’d have to cross check what “small business” means in this context).

Your rhetoric seems to imply that all companies are owned and managed by greedy monopoly-esque despots wearing a penguin suit and smoking a cigar, but reality just doesn’t follow.

You should also consider the alternative. Where is wealth generated if not through companies? Is it the government? In this scheme, the government is the company and covers 100% of business. How’s a government different than the closed board of a monopolic company? Or are they just “the good ones” and therefore somehow immune to produce injustice? To me, as you can probably tell, this notion is naive at best.

I have no issues with taxing the super rich a lot more. I don’t think anyone needs to be worth USD 185 Billion. However, I’m not sour about it and don’t believe a “revolution” is the only solution. Far from it. We’ve dealt with this before: it’s about regulation and policy. Very incremental.

IMHO what makes fairness is a social ladder. As long as there’s a way for the willing, there’s fairness. Any immigrant will tell you as much.

[0] https://www.fundera.com/blog/small-business-employment-and-g...

Why must the masses be tethered to a monopolized ephemeral value store?

None of us owe servitude to old debts, contracts, wives tales, sonnets, limericks, hymns, poems, stories.

When the world changes it does so because society decides there are different words to better represent its goals.

Laws are no longer based upon the words of Gods. The rich are not Gods. They don’t represent meritorious effort when they’re inheriting and being gifted wealth with no strings (see Trump admin and covid payouts, it’s still happening under Biden; he’s just less gaudy.)

Why not just logistical distribution of materials to boost communal health, etc.

The masses are already used to only being able afford a vacation every X months. Working off a home for X years.

Why do we still enable a minority to shrug off the same responsibility in deference to old contracts none of us are legally obligated to mind?

You're not reading me. We are the companies. 99% of companies are small business. No such monopoly.

I’m not disputing the value of collective effort.

I’m disputing our implementation that favors minority capture of collective effort.

Why do I need to be a “company”?

We already have a system of collective effort called “government”.

Why another layer of abstraction?

Why must they run on grandpa’s fiscal beliefs, and previously brokered debt servicing and network effects?

> Why not let people employ each other where they are instead of importing grandpa’s beliefs about how money is produced?

Corporations and small businesses already do this

> It’s the workers doing that produce the real value, not a rich person holding capital they’ll only spend on us if we capitulate.

Yes, but the worker is fungible. The capital holder was entrusted with the money and risk. Workers have little risk, they can walk away from a company at any time. The capital holder is stuck.

> Why do we need the age old tale of a shared ephemeral store like religion and fiat finance when we see those things become monopolized and gamed by the previous generation every time?

What is the alternative? It isn't communism or socialism, both have failed numerous times before.

Also, you're posting on a board for capitalists. YC literally bets capital on moonshots to get a return on investment.

> We need to believe one old person is literally worth 100x the average person?

If the old person, had the capital and took the risk, then yes financial value is higher. In terms of being a person, no, they both go in the same box at the end.

> Who does that benefit?

Society. Jobs created a new economy by introducing the iPhone. YC gambles on new companies that benefit society. The phone in your pocket, the internet and computer you use employees tons of people. More than any government jobs program could.

But the example you're responding to does employ people. A surgeon will have to hire a whole host of employees to run his outpatient clinic. Or if she works in a hospital, an entire team will be built around her.

Plus there is the fairness issue. Corporations are just groups of people working together. So why does a single surgeon not get to be treated as the economic growth engine she is, but two surgeons can incorporate and get special treatment?

Because if the surgery/hospital operates at a loss (which they often do), they also get to carry forward those losses to deduct in future years. That's just notionally separate from the salary that the surgeon personally receives from the practice.

None of that makes sense. The corporation they work for employs people, and you can start a company by yourself.

How is a company the same as an individual? How do you compare risk the company takes when investing in research, marketing, hiring, etc to a person going to medical school?

This is an apples and oranges comparison at best. If companies were treated exactly as individuals in this case, I don’t think many companies would survive. With less of the pie to go around, that’s effectively fewer jobs and less wealth created for people who work at these companies.

You can do what describe with education credits, along with other tools.

And in your example you could also use student loan repayments for taxable income reductions in the same manor. Only the interest, but that is the same a business not being able to deduct capital investment.

With the assumption that we are treating debt like income for the individual, except that individuals do not report that as other income.

Paying tuition is more like an investment in a non-depreciating asset.

How is it non-depreciating? You can’t practice medicine forever.

we really should do away with tax-advantaging corporations. those regulations have done the work they were designed to do, which is not, strictly speaking, to 'encourage investment', but rather to juice the american economy into global competitiveness. now what we need is to more widely disperse capital to again encourage competitiveness, an edge we're losing rapidly as capital stagnates in the west (as opposed to the vibrancy of the east and global emerging markets).

Why would you expect it to be the same (besides some nonsense appeal to 'corporations are people')?

not sure what side you are trying to argue?

The whole point, is corporations get the benefits of both, and the downside of neither. They have liability and tax advantages that people don't have, yet they also have tremendous politic power as if acting with personal free speech (citizens united)

Well, and US corporations are taxed on profits, not income...like people are.

> Human beings cannot do the equivalent

Please do not spread disinformation. This is some Qanon level bs.

https://www.irs.gov/taxtopics/tc409

Student loans interest is deductible at lower incomes. You can deduct mortgage interest (investing in long term housing). You can defer taxes on income through a 401k.

It’s not like individuals don’t have mechanisms to save on taxes.

This isn't really equivalent. The current maximum deduction for tuition is 4000$, and that gets phased out at incomes above ~150000$ if you are filing jointly. I have no idea what the limit on a corporation carrying forward losses is, but I'm sure the percentage is significantly greater.

Yes, individuals can save on taxes, but can most of us get an effective tax rate of 1%? And, many of the common deductions (mortgage interest, charitable deductions, tuition) all have caps. I don't believe there's a cap on a corporation carrying forward losses from year to year.

Why should there be a cap on carrying forward losses? There’s no cap on individuals carrying forward capital losses.

Why should there be a cap and income phaseout on student loan interest deductions?

In my opinion, there should not be caps on anything productive that we allow deductions for.

When you want to tax high-income people at a higher rate, have the courage and forthrightness to simply raise their rate; don't do it via the backdoor complexity of phaseouts.

Because progressive income tax rates.

There are all sorts of limitations on carrying forward corporate losses.

There was a 20-year cap on corporations carrying forward losses.I had clients that actually timed-out on using carried-forward losses because they had insufficient profits to use their losses against. However, since 2017, losses can be carried forward indefinitely, but in any given year may only offset up to 80% of taxable income. (As a result of the CARES Act, losses between 2018 and 2021 are not subject to the 80% limitation.)

There are section 382 limitations on losses of acquired companies. (In a nutshell, the idea is to discourage a company from being acquired so that the acquirer can use those losses to offset their own taxable profits.)

There are other limitations on loss carrying as well but they tend to be pretty esoteric.

Yes, individuals can save on taxes, but can most of us get an effective tax rate of 1%?

Yes, you can get a 0% (combined tax rate) as an individual if your income is primarily municipal bonds or other tax-free government bonds, even before taking into account deductions. And wage-earners can get single-digit combined tax rates if they are below the poverty line (the exact threshold varies from state to state).

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