Tax reforms I would like to see

Annachie wrote:
You mean there's more than one broken Presidential promise to close loopholes in the bill?

And you're OK with that?


Specifically, I was refering to the "pass through" loophole, which simply put, allows those earning millions, or even billions, of dollars to pay at a lower tax rate than say a fireman, police officer, soldier, or really any normal working person.

Indeed, the tax plan LOWERS the tax rate they pay.

No I'm not ok with it. As you know I like the flat tax idea.

But in any piece of major legislation there are AWAYS loopholes and it's hard to comment without knowing which one.

It being sold as a way to help small businesses and I'd be OK with it if there was a cap or more precisely a much lower cap. As is this is one of aspects of the bill I dislike.

Pass through income comes from small business investors. So if you invest $50,000 in your grandson's new business in exchange for 10% ownership then the money would be taxed at the personal rate about 37%. This would drop it to 25%. The fear is that the millionaires and billionaires would restructure their income to take advantage of it. That part won't happen. Millionaires and billionaires already have their money structured to be capital gains income which is taxed at 20%. No way would they take a 5% tax increase. Most likely people to use it as a loophole rather than as intended is upper middle class business owners. But to count as pass through, they can't be active in the business. Probably they'd do something like have non active family members "invest".

biochem wrote:Pass through income comes from small business investors. So if you invest $50,000 in your grandson's new business in exchange for 10% ownership then the money would be taxed at the personal rate about 37%. This would drop it to 25%. The fear is that the millionaires and billionaires would restructure their income to take advantage of it. That part won't happen. Millionaires and billionaires already have their money structured to be capital gains income which is taxed at 20%. No way would they take a 5% tax increase. Most likely people to use it as a loophole rather than as intended is upper middle class business owners. But to count as pass through, they can't be active in the business. Probably they'd do something like have non active family members "invest".

Ahem.

https://www.treasury.gov/resource-cente ... WP-104.pdf

The rise of pass-throughs accounts for much of the rise in income inequality over the last three decades. Figure 2 uses Piketty and Saez (2003) data (updated through 2013) to plot two series: the actual share of Form 1040 household income accruing to the top-1% highest income tax-filing over the last century and the hypothetical share holding pass-through income fixed at the 1980 level. As is well-known, the top-1% income share doubled (from 10.0% to 20.1%) between 1980 and 2013. Less well-known is that 41% of that increase came in the form of higher pass-through business income.

And...

We find that pass-through participation and pass-through income are especially concentrated among high-earners. Relative to households in the bottom half of the income distribution, households in the top-1% of the income distribution are over fifty times as likely to receive positive partnership income. And the average top-1% household earns over six-hundred times the amount of partnership income as the average household in the bottom half. Overall, 69% of pass-through income earned by individuals accrues to the top-1%

What were you saying?