At first glance, there's some fundamental flaws in this “study” from the @USChamber today (featured in @Morning_Tax)
It takes many leaps of logic to think ending the carried interest #tax loophole will lose the US ~5 million(!) jobs. The Chamber needs to try again 🧵
It takes many leaps of logic to think ending the carried interest #tax loophole will lose the US ~5 million(!) jobs. The Chamber needs to try again 🧵
https://twitter.com/USChamberCCMC/status/1435313004225105925
What’s going on?
Biden proposes closing a loophole letting Private Equity and Venture Capital managers pay 20% cap gains rate instead of the regular 39.6%
The Chamber says this costs as many jobs as in the state of Georgia and billions of tax $.
The argument is quite shaky
Biden proposes closing a loophole letting Private Equity and Venture Capital managers pay 20% cap gains rate instead of the regular 39.6%
The Chamber says this costs as many jobs as in the state of Georgia and billions of tax $.
The argument is quite shaky
Flaw 1: The Chamber’s own appendix
The Chamber says:Upping PE&VC managers’ taxes hurts firms activity, but offers no evidence.
Q:what happened when their taxes rose⬆️33% (5pp) in 2012?
A:PE deals increased, the opposite of what this “study” claims!
Why's this time different?
The Chamber says:Upping PE&VC managers’ taxes hurts firms activity, but offers no evidence.
Q:what happened when their taxes rose⬆️33% (5pp) in 2012?
A:PE deals increased, the opposite of what this “study” claims!
Why's this time different?
Flaw 2: The literature on raising tax rates
The Chamber assumes that for every 1% increase in taxes, managers decrease their income by .57
They take that number from this Saez&Slemrod paper: eml.berkeley.edu/~saez/saez-sle…
But that particular finding is not applicable here
The Chamber assumes that for every 1% increase in taxes, managers decrease their income by .57
They take that number from this Saez&Slemrod paper: eml.berkeley.edu/~saez/saez-sle…
But that particular finding is not applicable here
Saez&Slemrod say that .57 elasticity refers to raising the top rate (now 37%). Its high because raising rates causes rich people to use avoidance and loopholes (like carried interest)
Elasticities are not constant like this, closing loopholes lowers elasticity at the top
Elasticities are not constant like this, closing loopholes lowers elasticity at the top
Flaw 3: Taxable Income =/=real income
The Chamber says if PE managers report less tax income-> then real economic activity is going down. Saez&Slemrod disagree
Again, they cited this study, but even if they hadn’t, this is pretty basic stuff that any economist would tell you
The Chamber says if PE managers report less tax income-> then real economic activity is going down. Saez&Slemrod disagree
Again, they cited this study, but even if they hadn’t, this is pretty basic stuff that any economist would tell you
Flaw 4: this chain of logic
Increased tax on managers -> 20% decreased PE/VC investment-> AND -20% activity for all firms they invest in
PE and VC firms employ very few people, but if you count everyone they touch tangentially, that adds up! But, there’s no evidence for this
Increased tax on managers -> 20% decreased PE/VC investment-> AND -20% activity for all firms they invest in
PE and VC firms employ very few people, but if you count everyone they touch tangentially, that adds up! But, there’s no evidence for this
As @USChamber usually says, firms profit-maximize. Why would PE/VC activity disintegrate when their managers get a smaller post-tax profit? They’ll stop making profitable deals?
What about general equilibrium FX? Won’t other firms step in to fill the gap?
Nothing here on that
What about general equilibrium FX? Won’t other firms step in to fill the gap?
Nothing here on that
@USChamber Flaw 5: Their model
If instead we lower PE/VC taxes to 10%, the CoC model says jobs ⬆️to 27.5M
Then, if we re-raise taxes to 20%, jobs go to 27.5-(-19.5%)=22.1M: Less than we started with but same rate as before! Two different long-run steady-states at a 20% rate.
Neat.
If instead we lower PE/VC taxes to 10%, the CoC model says jobs ⬆️to 27.5M
Then, if we re-raise taxes to 20%, jobs go to 27.5-(-19.5%)=22.1M: Less than we started with but same rate as before! Two different long-run steady-states at a 20% rate.
Neat.
@USChamber In sum, the Biden Admin is doing what economists say to do: raising rates while closing loopholes and upping enforcement
This slapdash @USChamber “study” ignores simple econ concepts to pretend closing a millionaire loophole hurts real people. Their sloppiness shows you it wont
This slapdash @USChamber “study” ignores simple econ concepts to pretend closing a millionaire loophole hurts real people. Their sloppiness shows you it wont
Coda: See here for a technical dissection of the problem with how they use elasticities (including what the latest in the literature says) from @vicfleischer
https://twitter.com/vicfleischer/status/1435338729418153988
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