Yapping Yak

THINKING ALOUD

Tag Archives: Taxation

Best analogy for a tax shelter

Hariton: maybe a tax shelter really is like pornography and cannot be coherently defined.

— The Frame Game: How Defining the ‘Transaction’ Decides the Case, 63 Tax Lawyer 1 (2009)

 

it’s vague, it’s tempting, it’s necessary, and damn it might even be awesome

Kiva For Smartie-pants?

Read about the Jumpstart Our Business Startups Act  on Bloomsberg.

My first thought: this sounds like a bad idea

Then I thought: well, kiva works well, microfinance is functioning too. Maybe with good regs from SEC, this is actually feasible. I love love startups, but I am cautiously optimistic.

Lastly, so much for mark-to-market. sigh

 

IT’S TIME FOR TED

It’s time for TED

Am I a disciple of the cult of rationality? This is really circular reasoning and bothers me now.

But so funny though. I wish there were a karaoke version.

Oh Kathryn Schulz. She is still so breath-taking.

This link is found from Cheap Talk, A blog I followed diligently. The owner of the blog seems to be very interesting. Cult mind-set.

Also, TED wiki entry. Why is it a LLC?

How U.S. Tax-free Money Goes to Help Isareal on the West Bank

I read the excerpt of a tax journal paper on TaxProf Blog and its link to a NYT article two years ago.

I really don’t know enough to say anything on the Palestine-Isareal issue. It is tragic to both sides, as well as the whole human society.

But gaming the system and undermining principles, that I can’t tolerate.

What Kills You and What Makes You Stronger

what didn’t kill you makes you stronger, and what made you stronger may eventually kill you.

- Yapping Yak

If I were to die in the next minute, I would be a very pessimistic and sorrow soul. Not because of the perpetual singlehood or unemployment. I have bigger things to worry about, including but not limited to:

Does man have a future?

I have been reading up on behavioral economics and cognitive bias. Daniel Kahneman and this boring dude called David DiSalvo (I don’t understand why this dude got 5 star reviews on Amazon. He makes me really start to think I should stop reading books by science journalists and whether I should quit trying to be one). Also there are ideas from my Financial Products Taxation class, the professor of which is a disciple of Nassim Taleb  (Kahneman cited Taleb in his book actually). I am still at the intro part of all the books (thanks Kindle!), so hopefully I will have some sort of clear idea when I finish the books (and correspondingly get a poor GPA due to lack of focus).

From DiSalvo I learned: 1) like all muscles or any organs, our brains tend to shift towards a “happy”/uncomfortable state. 2) the happy state may not produce good results.

(Reason why I dislike DiSalvo’s book is that it makes me feel like I am reading a term paper, a mediocre one (so far). It basically builds on the innovative ideas from Kahneman and throws in a bunch of “real-life” examples, many of which are cliche. A nice intro read I guess)

From Dahneman’s book I learned: we are all biased. The automatic fast actor System 1 in our brain is the default mode, which gives us essential surviving skills yet can make blunders, while System 2 needs to be activated and is lazy and slow to reaction, upon which we need to rely on to make careful decisions required by many complex tasks.

They say, what doesn’t kill you makes you stronger. Totally makes sense. From all the surviving struggles humans become beings that possess unparalleled capability to navigate through complex world and thrive in it; however, this surviving got so good, that it muffles the alternative. Supposedly during a certain period of time, this strong skill enabled us to prosper, but when the times come, calling for alternatives, we find it is so hard, biologically, to become “naturally” good in a different kind of scenarios.

So basically, what makes us stronger, may eventually kill us. Like how arrogant people would trip on small things, and the old Chinese saying “it is those who are swimming masters tend to drown”.

Is this bias predisposed? Can it be compensated, if not solved? Because, I really can’t muster enough interest to solve all the financial/tax stuff, if all we know is, damn we are gonna screw up again, even harder.

Hence the sorrow.

First World Problem – Tax Law Edition

Oh I am so proud. I am finally becoming one of those OBSCURE NERDS

my first meme: FIRST WORLD PROBLEM

 

also, just another meme that I like

The Facts about Tax Progressivity

The Facts about Tax Progressivity

1. Do not conflate tax progressivity with fair fiscal redistribution

2. U.S. does have a pretty progressive tax system

3. But this system does not achieve redistribution well, for several reasons.

Anyway, do not conflate those two.

Revisiting My Socialist Root: How About Guaranteed Basic Income To All?

I am so easily sold on free food and beer: when the old boy club professor who seems to be a die-hard  Republican and Obama hater invited the class to the pub for beer and appetizers, I went, for the free food, and conversed with some female colleagues on lawyer fashion and stuff, hording over the food and being patronized by the old boy. It’s easy when you don’t give a flying sugar.

That’s my introductory ranting. SKIP ABOVE.

=====================================================

Bob and Michi and I continued some discussion over equality and efficient tax system (tax lawyers with souls <3) over the left-over nachos. Basically this elitist professor suggested a low income(or anything rather) tax rate would be beneficial to the social welfare, as it reduces the stake people have in tax planing, thus saves the resources spent on tax compliance and planning/evasion. Making being smart on tax not worth the time, basically.

To ensure revenue, we can broaden the tax base, grant less exemptions (I forgot whether he mentioned this point but I think it makes sense because who cares about tax exemptions when you only have a 15% rate and it costs a lot to comply with the requirements for that exemption. of course, quantitative study needed), etc. Also, prof suggested that people should be left with their money to do whatever they want to, maybe he thinks this would reflect a truer market. High tax rate also induces lobbying, which wastes resources and distorts the market to a great extent (like taxation on carried interest, easily enabling the hedge fund managers to have a better rate on their wage compensation than others, as it is taxed at cap rate).

I certainly hope the tax rate goes up, because it would give me tons of work, and I will become a fat cat, and then I will lobby like a maniac to have the government exempt the exact form of my income.

Anyways. Taxation is thought to be existing for a few reasons:  generating revenue for the government (to do what? keep the machine running, and redistribute ), providing some incentive/disincentive for certain economic/social behaviors. Revenue generating is a vague concept, and where to “lay the incidence of taxation”, i.e. who to tax and how much, depends on the fair share based on usage of social resources, ability to pay, and of course ideological and lobbying consequences.

So I think it is fair to say, we 1) would like to make sure the society is functioning properly and provide a decent life for people living on the land; 2) improving the economy, with different schools fighting over how much government should get involved.

To realize these two goals, we can use 1) positive taxation, where government ask people for money, or 2) negative taxation, meaning the government gives money out to “deserving” people. (there is an interesting article on whether lazy people deserve our money, at here)

If one agrees with there should be progressivity in income taxation,one probably would agree that we ought to tax the right people at the right amount (actually flat rate and regressive income tax folks might think the same too).  The efforts to devise a tax system on these beliefs would be : taxing the rich at a reasonable amount to “subsidize” the society, and taxing the poor at a lower amount to have them pay their fair share, and redistributing the subsidies to the poor in various forms, including but not limited to: minimum wage, safety net (social security), child support, etc, which are forms of Guaranteed Minimum Income (GMI). Whether we should have a welfare system is beyond the scope of this discussion.

But there is one other form of GMI, which, if you are OK with giving people some money, you should not be TOO alarmed by this idea, which is: BASIC INCOME GUARANTEE. According to Wikipedia, the idea is this

basic income guarantee (basic incomecitizen’s income) is a proposed system[1] of social security, that regularly provides each citizen with a sum of money. In contrast to income redistribution between nations themselves, the phrase basic income defines payments to individuals rather than households,[2] groups, or nations, in order to provide for individual basic human needs. Except for citizenship, a basic income is entirely unconditional. Furthermore, there is no means test; the richest as well as the poorest citizens would receive it. The U.S. Basic Income Network[3] emphasizes this absence of means testing in its precise definition, “The Basic Income Guarantee is anunconditional, government-insured guarantee that all citizens will have enough income to meet their basic needs.”

I think the current tax system does address the “basic human needs” in form of deduction, basically saying we won’t tax you for an amount of income you have to spend to live like a human being. So, rather than having people take out those expenses first (where a lot of problems arise: what if they dont have the money to spend, no income to deduct from? some people dont have the chance to take advantage of the deduction/tax system as a redistribution system first), why not convert that “reimbursement” kind of system into an “allowance” type?

Granted, we now have SS and other things in the welfare system, and I am no expert in welfare system, aside from knowing the following things: it’s broken and incoherent, it lacks the support system to guarantee its proper functioning (outreach and advocacy). One thing  the welfare system struggles is the eligibility issue, and lot of resources are wasted on this area.

Basically what happens, roughly, is that we try to give people who have no resources to take deductions based on their own income some money, and on top of that, allow deductions for basic living expenses. In a perfect world, if equilibrium is achieved, deserving poor will get appropriate amount of govt subsidies and deductions and taxation will work out well.

But we don’t live in a perfect world, do we?

How about, approach this “we respect you need as a human being” from a different angle. Not a tax rebate system, but a prebate system. Just simply because of your being a member of this decent society, we grant you….(drum roll)….

BASIC INCOME GUARANTEE , which relates to  SOCIAL MINIMUM

Originally I accept this idea kinda naturally. As Bob said, maybe it is easier for ideologically socialist countries to adopt this, because we are brought up with this kind of noble ideas. Well, it does seem to ring a bell, similar to the communism ideas. But for the sake of dog, ideology worth less back home than here. Look at tbaggers and occupiers, and even the pro-life folks, they go all out for their (stupid) beliefs.

I guess my support originates more from a vague philosophical idea. In the Stanford Encyclopedia of Philosophy, on the subject of Social Minimum, it starts

‘People should not be allowed to starve in the streets.’ ‘No one should be denied access to a decent minimum of health-care.’ ‘Every citizen should be able to meet his or her basic needs.’ These statements all express a widespread view that a political community should seek to ensure that its members are all able to enjoy at least a minimally decent standard of living. They assert the importance of what is often called the social minimum. However, the exact nature of the social minimum, the considerations that support it, and, indeed, its basic justifiability, are all matters of intense philosophical controversy.

I guess I am just naturally gang-ho about social justice. I can’t stand injustice. I am such a baby.

In Wikipedia, there is a more economics-based explanation

…The connection between more and better has been broken; our needs for many products and services are already more than adequately met, and many of our as-yet-unsatisfied needs will be met not by producing more, but by producing differently, producing other things, or even producing less. This is especially true as regards our needs for air, water, space, silence, beauty, time and human contact…From the point where it takes only 1,000 hours per year or 20,000 to 30,000 hours per lifetime to create an amount of wealth equal to or greater than the amount we create at the present time in 1,600 hours per year or 40,000 to 50,000 hours in a working life, we must all be able to obtain a real income equal to or higher than our current salaries in exchange for a greatly reduced quantity of work…Neither is it true any longer that the more each individual works, the better off everyone will be. The present crisis has stimulated technological change of an unprecedented scale and speed: ‘the micro-chip revolution’. The object and indeed the effect of this revolution has been to make rapidly increasing savings in labour, in the industrial, administrative and service sectors. Increasing production is secured in these sectors by decreasing amounts of labour. As a result, the social process of production no longer needs everyone to work in it on a full-time basis. The work ethic ceases to be viable in such a situation and work-based society is thrown into crisis…
André GorzCritique of economic Reason, Gallile, 1989
It’s interesting. I am totally buying it. Granted there are barriers and hard to implement, but a nice approach nevertheless. Actually some of the objections directly linked to the Karl Smith argument I mentioned above. So a lot of it can be, theoretically, solved by scientific advancement. So where are all the scientists???
I need to follow up on this. But now, time for food. and PARTEYYYYY.

Tax Love: 14 Ways a Tax Lawyer Says “I Love You”

[This post is inspired by the link I previously shared on this blog. I am not attempting to outsmart economists, but it might conjure some dry laughter. Happy Valentine's Day ]

Yes yes, I know, we’ve all been there: the frowning face of your significant other over the dullness of your personality and the dryness of your attempted humor; the shame/embarrassment he/she subconsciously shows when introducing you to his/her circle; and the worst kind: the every-now-and-then accidental omission of the word “tax” before the word “lawyer”.

This is life. Our life.
The natural or unnatural sensitivity of ours over numbers may have been nagging you, and you have no idea. You look up from piles of returns and codes and look around, finally have eyes lie on the calendar: oh dear, it is 02/14/2012.
It is not too late to rush to Tiffany’s and buy a pair of ear studs. But you are currently unemployed and only working as a tax preparer. Creativity or craftsmanship is not your strong forte (duh). Well, actually we can’t help either, in any substantial way at least.
But we are still lawyers. We can talk, somewhat. Here is some pillow talk for you. Hopefully it will defrost the frowning face. Some of them may be lame.
And thank you, RG and MP. May the respective relationships of yours are ever-existing like IRS, and be the third thing you can’t escape besides death and taxation.
Here we go.

14 Ways a Tax Lawyer Say “I Love You”.

1. I will never complain about taxes if IRS is owned by you.

2. Your existence in my life makes me think I am subject to the Buffet tax.

3. We shouldn’t file joint returns, because with you I only realize gains.

4. Our love will never depreciate, because it is a real asset to my life.

5. You checked my box on our LLC.

6. All the gain you bring to my life is capital — nothing ordinary about you.

7. I’ve just enacted a treaty between Me and You and I’m gonna withhold nothing.

8. When we’re accruing interest on our bond, you make me want to report everything!

9. I can’t determine your transfer price: there ain’t no internal comparables, there ain’t no external comparables… hell, there ain’t even anything functionally similar!

10. I will always be there as the counterparty in a swap for you, taking on variable, short, long … whatever position you want..

11. My love never comes in contingent periodic payments… there is nothing contingent.

12. You can merge with me anytime, because I’ll always have a continuing interest in you.

13. You showed up on my balance sheet and erased all my previous NOL in life.

14. You’ll need to report me to the IRS now, because there’s no risk of losing me.

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