Comments on: How to Tax Wealth = Earned vs Found Money

By: Dave Moo

Dave Moo — Mon, 22 Sep 2008 22:08:02 +0000

Yes, just like Bethany McLean s upcomimg article on the credit crisis . If Blythe Masters were more attractive , it would make more interesting reading about her chain-smoking , gin swilling , baby dropping ( on head … long after birth .. thx DM ) , cuckolding (not cock holding DM , unless you include plastic in her case ) .

By: Rebecca

Rebecca — Wed, 17 Sep 2008 22:42:42 +0000

Great post. Good analysis of some of a major flaw in his plans. As an aside, what Obama claims about nobody under 250K having no tax increase isn’t exactly true. He has said he wants all income subject to Social Security tax, not just the first $100K. That tax rate is 12.4% for self employed and 6.2% for employees. If an individual makes $120K his/her taxes could go up by $2,480. Small businesses could really be hurt by his tax plans… he also supports a proposal to make all earnings of a sub-s corporation subject to Social Security tax, not just the salaries. In the case of my dad for example, it would mean 10K in additional tax. As he told me when he explained all of this to me, this would have a similar effect on millions of small businesses.

Don’t get me wrong, I’m not trying to make a political ad here… I toe no party line (though I have strong libertarian leanings) and am not crazy about either of the choices.

By: anonymous

anonymous — Tue, 16 Sep 2008 23:11:23 +0000

I’m hard-pressed to see a difference between creating a company and
owning stock in the company. How do you differentiate the two? Why
are Jobs’ stock options “found money” when clearly he has put sweat
equity into Apple?

Perhaps what you are really trying to do is to add a new tax bracket,
which takes effect at the “Geez that’s a lot of money” level.

By: Amy S

Amy S — Tue, 16 Sep 2008 17:46:42 +0000

Where do dividends fall – earned or found? If classified as earned, what about the companies whose stock prices appreciate because they’ve reinvested their liquid assets into company growth. Wouldn’t this spur executives to pay these earnings out (resulting in a lower tax for shareholders) than to invest them in growth? If classified as found, then we are back to placing a higher tax on the return of an investment.

I can think of several types of income that would be classified as “earned”, including million dollar commissions paid to the brokers who structured the sale of Broadcast.com. But to those who are making $250,00 a year it still smells like “It comes from hitting the lottery. It doesn’t matter whether you were smart or lucky, it is money you FOUND based on good fortune.” If the tax on their commissions was higher would they stop doing the deals?

Just another side to the equation to ponder. Good economics discussion though.

By: Noah Roth

Noah Roth — Tue, 16 Sep 2008 13:12:25 +0000

I love how clearly you point out the failures of taxing earned income.
While I think you are dead-on in the Steve Jobs example, I think there is also an unintended consequence that you are missing here.
When startups, well, start up, they offer equity in lieu of capital that they don’t have. It’s the only lever they have to compete for top talent in business and technology against capitalized competitors.
Those employees choose to offset some earned income with another form of earned income- Options, which have a value in terms of their potential to be exercised at a higher price. Some options will be worthless, some will have mid-range values, and others will shoot the moon. The potential employee evaluates the likelihood and scale of each outcome to determine how much income he is willing to compromise for options.
By dubbing this “Found money” and hitting it with a surcharge, you are limiting the upside- which lowers the potential value of the option, making it require more cash to compete for top talent.
That will have a negative effect on investment, innovation, income, and disposable income which will trickle down to consumer demand and corporate profit.

By: Robert

Robert — Tue, 16 Sep 2008 09:58:44 +0000

Dear Mark,

While I do agree with the concept of taxing found money based on a certain amount, i would like to point out the fact, that found money was based ( the money you used to invest) on already taxed money, thus the idea takes advantage of people who know better than just putting money in the pillow case. If i reinvest my earned money, i help the economy, regardless of what i reinvest it in. If i reinvest in a start up, and hit the jack pot – and it does not happen very often- i should be rewarded for my risk and willingness to put my savings back into the economy. similarly if i give it to the bank, they can use that to finance the growth of a company or a family in the form of loans. This is why i think that while the idea is noble, it is nevertheless unfair.
robert