[FoRK] Limeys can't comprehend US tax law? ;-)

[Jeff Bone]

On Apr 24, 2008, at 5:26 PM, Rob Harley wrote:

> I'll stay on-list thanks and quote:
>
> "Partnership profits are taxed not to the partnership; instead
> partners are taxed
> on allocations of partnership income, and the nature of that income  
> (capital or
> ordinary) "flows-through" to the partners.  As a result, the  
> investment
> managers are able to have income for performance of services taxed  
> at the 15%
> capital gains rate."

As somebody who just last week wrote an absolutely sickening check to  
the IRS based on a K-1 encompassing precisely this sort if not order- 
magnitude of economic activity, let me just say DUH.  The above is all  
true up to the part that implies that all that flow-through is taxed  
at the lower rate.  For long term gains, it's taxed at the long term  
rate;  for short term gains, it's taxed at the maximum rate for your  
tax bracket (assuming your ordinary income, if any, maxes out the  
lower tiers.  Which in any case those guys divvying up that $29B pie,  
did without question.)  And as previously stated, it's a near- 
certainty that most of that income for most of those investment  
managers --- the prophetic Buffet notwithstanding --- stemmed from  
trades with tenor less than the magical threshold of 1 year and a  
day.  You can argue about whether ANY of that should be taxed at the  
lowest rate, but that's a policy argument;  as a matter of practice  
very little of that flow-through for anybody in this type of situation  
gets taxed at that preferential rate.

I very certainly understand and sympathize with Dr. Harley's and / or  
the author of that quote's profound confusion here, as US tax code -  
particularly as regards investment income of this sort - is a convoy  
of dump trucks full of steaming donkey and elephant shit.  If you've  
never looked at all the various forms that you've got to fill out  
(never mind the poorly-written instructions you've got to read) to  
deal with a K-1 based tax return of any complexity, let me just say  
that it's an incredibly amusing experience even with the help of a  
team of high-paid tax professionals billing hourly.  Makes you want to  
take a fork and stick it straight into your fucking brain through your  
eyeball.  My tax return was complicated before all this, but now it's  
threatening to empirically test the Beckenstein Bound.

The most annoying thing about this is that when you point it out to  
most folks they tend to say something like "good problem to have."

Grrrr....


jb