Category: taxes

The Billionaire Tax: The Worst Tax Idea Ever?



If you have been tracking the torturous workings of the infrastructure bills working their way through Congress, consideration is now being given to a "billionaire" tax, focused on a extraordinarily small subset of Americans, and intended to raise tens, perhaps even hundreds, of billions of dollars in revenues, to cover the costs of the bill. I am constantly amazed by the capacity of legislatures to write bad tax law, but this one takes the cake as perhaps the worst thought-through and most ineffective attempt ever, at rewriting tax code. That is a little unfair, I know, because the details are still being hashed out, and it is conceivable that the final version will be redeemable, but given that the clock is ticking, I am not hopeful!

The Billionaire Tax: History and Proposal

    To get a sense of why we are discussing a billionaire tax, you have to start with a historical context, beginning with a recognition of increasing wealth inequality and the perception (real or otherwise) that the wealthiest were not paying their fair share of taxes, continuing with promises made during  the most recent presidential campaign and culminating in the last few months of legislative slogging to get a passable bill.

The Rise of Populism

    For much of this century, the big story in economics and politics has been increasing inequality, with the spread in income and wealth between the richest and the rest of society widening over time. The graph below, from the Pew Research (Read more...)

Study Shows Significant New Taxes on Carried Interest Damages Economic Opportunity



New research reveals that taxing carried interest at ordinary income rates will harm new venture capital (VC) fund formation in emerging technology regions in the United States. The study, by Professors Yael Hochberg and John Barrios (of Rice University and Washington University in St. Louis, respectively), finds that taxing carried interest as ordinary income would make starting a new fund less economical and instead make steady employment at incumbent companies by comparison far more attractive than forming or participating in venture capital.

In particular, the lower potential earnings due to additional tax burdens could significantly reduce the number of VC funds in areas with less mature startup ecosystems, reduce diversity in the startup ecosystem, and limit the effectiveness of several programs in the Build Back Better agenda. The success of several significant priorities under consideration by policymakers today—such as the U.S. Innovation and Competition Act, the Infrastructure and Jobs Act, and the Democratic reconciliation bill—rely to great extent on the availability of funding to support the creation and growth of new innovative entrepreneurial ventures.

Study Highlights:

  • Carried interest tax changes “have the potential to have far-reaching effects on the creation and growth of innovation-driven entrepreneurial ventures in precisely the locations where policymakers are often seeking to increase entrepreneurial activity and growth.”
  • VCs under a tax regime taxing carried interest at ordinary income rates face a wage equivalent approximately 20-25% lower than under the current tax regime, a substantial income hit.
  • Over the life span of a (Read more...)

Ranked: The Revenue Impact of U.S. Tax Hikes


This post is by Aran Ali from Visual Capitalist


historic tax revenue increases from tax hikes

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The Briefing

  • Tax increases backing the American Jobs and Families Plan are expected to exceed 1% of U.S. GDP
  • Only 3 tax increases in U.S. history have ever equaled or exceeded 1% of GDP
  • The infrastructure plans will require 15 years of higher taxes on corporations to fund 8 years of spending

Ranked: The Revenue Impact of U.S. Tax Bills

The United States is opening up its wallet and writing some serious checks under the Joe Biden administration. The American Jobs Plan and the American Families Plan are expected to cost a combined $3.2 trillion in total taxpayer dollars. For comparison, the federal government spent slightly more than $6.5 trillion across all of 2020.

In order to foot the bill, tax hikes will roll out for corporations and the ultra-wealthy.

A History of Tax Hikes

But how do these present tax hikes compare to those of the past?

When comparing the estimated increase in tax revenue as a percentage of GDP, the Biden tax hikes fall on par with the Revenue Act of 1951 under Harry (Read more...)

Mapped: The World’s Biggest Private Tax Havens


This post is by Omri Wallach from Visual Capitalist


Biggest Tax Havens

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Yes. Visualizations are free to share and post in their original form across the web—even for publishers. Please link back to this page and attribute Visual Capitalist.
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Licenses are required for some commercial uses, translations, or layout modifications. You can even whitelabel our visualizations. Explore your options.
Interested in this piece?
Click here to license this visualization.

The World’s Biggest Private Tax Havens

When the world’s ultra-wealthy look for tax havens to shield income and wealth from their domestic governments, where do they turn?

If you’re putting money in offshore bank accounts in order to save on taxes, there are two main criteria you’re looking for: secrecy and accessibility. Based on pop culture and media reports, you might imagine a secretive bank in Switzerland or a tiny island nation in the Caribbean.

And though there is some truth to that logic, the reality is that the world’s biggest tax havens are spread all over the world. Some of them are small nations as expected, but others are major economic powers that might be surprising.

Here are the world’s top 20 tax havens, as ranked by the 2020 Financial Secrecy Index (FSI) by the English NGO Tax Justice Network.

Which Countries are the Biggest Tax Havens?

The FSI ranks countries and territories from all over the world on two criteria: secrecy and scale.

  • Secrecy Score: How well the jurisdiction’s banking system can hide money. (Read more...)

Timeline: 150 Years of U.S. National Debt


This post is by Marcus Lu from Visual Capitalist


Looking Back at 150 Years of U.S. Debt

The total U.S. national debt reached an all-time high of $28 trillion* in March 2021, the largest amount ever recorded.

Recent increases to the debt have been fueled by massive fiscal stimulus bills like the CARES Act ($2.2 trillion in March 2020), the Consolidated Appropriations Act ($2.3 trillion in December 2020), and most recently, the American Rescue Plan ($1.9 trillion in March 2021).

To see how America’s debt has gotten to its current point, we’ve created an interactive timeline using data from the Congressional Budget Office (CBO). It’s crucial to note that the data set uses U.S. national debt held by the public, which excludes intergovernmental holdings.

*Editor’s note: This top level figure includes intragovernmental holdings, or the roughly $6 trillion of debt owed within the government to itself.

What Influences U.S. Debt?

It’s worth pointing out that the national debt hasn’t always been this large.

Looking back 150 years, we can see that its size relative to GDP has fluctuated greatly, hitting multiple peaks and troughs. These movements generally correspond with events such as wars and recessions.

DecadeGross debt at start
of decade
(USD billions)
Avg. Debt Held By Public
Throughout Decade
(% of GDP)
Major Events
1900-4.8%-
1910-10.0%World War I
1920-22.9%The Great Depression
1930$1636.4%President Roosevelt's New Deal
1940$4075.1%World War II
1950$25756.8%Korean War
1960$28637.3%Vietnam War
1970$37126.1% (Read more...)

The Life of a Dollar, Taxes and Wealth Creation


This post is by Jeff Carter from Points and Figures


Last night, Biden’s speech was really good, if you are a socialist.  If you are interested in raising standards of living and wealth creation, it was a disaster.  Because the envy game is played so hard, people really don’t understand how wealth is created in the US.

Higher proposed taxes on high-earning people is a stupid idea.  So is raising the capital gains tax.   All proposals like that do is foment envy and tribal thinking.  Proposals like that seek to divide us, not unite us.

Remember, the government can never invest. It can only spend.  Government cannot get an investment return from the dollars it spends, because it doesn’t save or pay down debt with those dollars it simply respends them.  The multiplier effect of government spending as it relates to gross domestic product is close to zero.  Why?  Because it has to get those dollars from taxpayers, or issue debt which is a tax on future earnings, or simply print them which devalues existing dollars since the supply is now greater.

The other thing to remember is all resources are scarce.  If the government is spending on something, it crowds out the private sector.  Very few things are public goods.  When you look at the budget of NY state and the budget of the state of Florida you know something is amiss.

Keynesians will look at the above differently but like ostriches, they have their heads in the sand.

Most people think that if you make $500,000 in (Read more...)

Stripe acquires TaxJar to add cloud-based, automated sales tax tools into its payments platform



Stripe, the privately-held payments company now valued at $95 billion, has made an acquisition to expand the range of tools (and services) that it provides to online businesses. It has acquired TaxJar, a popular provider of a cloud-based suite of tax services, which can be used to automatically calculate, report and file sales taxes.

One key point about TaxJar is that it works across a number of geographies and the many different sales tax regimes that each uses — a complex area for a lot of companies that do business online.

Financial terms of the deal are not being disclosed but for some context the company was valued at $179 million post-money when it last raised money, in January 2019, according to PitchBook data.

Stripe has confirmed that all 200 employees of Woburn, MA-based TaxJar are joining the company.

Stripe will be integrating TaxJar technology into its revenue platform — where it will sit alongside Stripe Billing (its subscription tools) and Radar (its fraud prevention technology), and potentially build new services using AI and other technology to automate more functions — but businesses can continue to use TaxJar directly, too.

Launched in 2013, TaxJar today has around 23,000 customers. Stripe didn’t comment on how much of an overlap the two companies have in terms of users, but both have over the years gained a lot of traction with startups and other online businesses, which is likely one reason why TaxJar caught Stripe’s attention.

“There’s a reason TaxJar (Read more...)

43.8%


This post is by Jeff Carter from Points and Figures


Joe Biden unveiled his tax plan yesterday and predictably it was dumb with lots of unintended consequences.  The thing that gets me about Biden is he is the dimmest president in my life.  I mean truly dim.

Combined with the tax increases and spending increases, the Bernie Bros also announced that they want a financial transaction tax to be put on trading.  This has been proposed in various forms since at least 1980.  It too is one of the dimmest ways to tax.  Totally stupid and I have written about it several times before so I won’t waste your time.

Instead, young Jason Rowley a tech writer in Chicago asked me what I would do instead.  It’s a very fair and good question.  It’s pretty easy to stamp your feet and scream and yell about whatever policy you disagree with but what would you do instead?  More importantly, why and what are the implications of the policy?  That’s what is truly important.  How the tax, the price support, the policy, filter down and influences people’s behavior.

It’s not enough to say “it’s unreasonable”.  Better to show the math and not give single anecdotes.

First off, when you look at government policy you have to make a couple of assumptions.  Here are two that I always make that have been verified by Nobel Prize-winning economists both dead and living.

  • The multiplier effect of government spending on GDP is zero or very close to zero.
  • Governments never “invest”.  They only “spend”.  A (Read more...)

Venture Capital Investment at Work



Venture capital investment is often associated with job creation and higher wages, innovation, and economic growth, as numerous studies have found.  A primary reason for this is the power of equity investment, where investors aligned with the long-term goals of a growth company provide capital to finance activities that lead to value creation over a period of years.  We have been interested in learning more about the activities VC-backed companies prioritize to create this growth, so we conducted a survey to identify broadly what happens with venture capital investment once companies receive capital.

The findings, which we are sharing in this post for the first time, are striking.  The survey results show that four out of five respondents spent at least 70 percent of their budgets on two activities, wages and compensation and research and development.  This statistic highlights the extent to which venture capital finances job creation and innovation despite the risks inherent in funding companies expected to operate in revenue loss positions for years.  57% percent of companies surveyed responded that at least half of their total annual expenses were devoted to compensation, while 48% of companies spent at least 60% of total annual expenses on compensation.  These percentages illustrate that startups and growth companies devote considerable amounts of the funds they raise to compensating their workforces.

Innovation is closely linked to productivity growth, a key source of economic growth and essential to progress in living standards.  For this reason, the percentages of capital deployed to finance (Read more...)

Backdoor Tax on The Middle Class and Poor


This post is by Jeff Carter from Points and Figures


Yesterday President Biden unveiled his infrastructure plan.  Trllions, but only $157MM dedicated to infrastructure.  It’s typical of the pork we see in Washington and why our national debt continues to balloon.  By the way, in negotiation you are trained to put out as wild a proposal as possible first so that everyone anchors on it.  Then, when it’s negotiated down, you get what you really wanted.  In this case, establishment Republicans will crow how they got the bill down and how much money they saved on the deficit when we all know that the deficit will balloon.  We also know the GDP multiple of government spending is close to zero so the money will just line cronies pockets and little will get done to help the commoners.

How does Biden propose paying for it?

The wealthy and corporations of course!

The funny thing is that for “not doing their fair share”, it’s worth remembering the top 5% of income earners pay most of the taxes in the US.  60%!

It’s great soundbite politics.  Wealthy politicians like Illinois governor JB Pritzker and Secretary of Climate John Kerry and Senator Mark Warner say, “Tax me more.  I am rich.  I should pay more in taxes.”  Meanwhile, they structure their estates and domiciles to make sure they pay the minimum in taxes.

By the way, when you are as wealthy as the above people, most of your income doesn’t come from actually working.  Your nest egg makes you money and you pay at (Read more...)