How Billionaires Sidestepped a Tax Aimed at the Rich

[u/D__Miller]

https://www.propublica.org/article/billionaires-net-investment-income-tax?utm_campaign=propublica-sprout&utm_content=1757035803&utm_medium=social&utm_source=bluesky

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[u/D__Miller]

Submission Statement:

ProPublica found that billionaires routinely avoid the 3.8% Net Investment Income Tax (NIIT), meant to make investors pay taxes similar to workers’ Medicare payroll tax. A loophole exempts profits from selling pass-through businesses, letting the ultra-rich sidestep billions in taxes. From 2013–2018, at least 17 billionaires each shielded over $1 billion in gains, saving $1.3 billion total. Donald Sterling paid no NIIT after selling the Clippers, while energy tycoons and trader Jeff Yass also escaped the tax. Experts say closing this gap could raise $250 billion over 10 years and restore fairness between workers and the wealthy.

[u/The_Law_of_Pizza]

It's an interesting and complicated topic.

Taxing investment income isn't impossible, nor always a bad idea, but it does tend to be a minefield because of the way it can potentially have far-reaching, unintended consequences.

That is to say that capital gains and distribution income should still be taxed, but we just have to be careful and thoughtful.

Imagine that somebody offered you a deal. Give them $100, and they will flip a coin. If it's heads, you get your $100 back plus another $100 in profit for a total of $200. But if it's tails, you lose your initial $100 and get no profit. Double or nothing.

Would you take that bet? Maybe.

Now imagine that the deal is changed. You still give them $100 and there's still a coin toss, but this time if you win you get your $100 back and only $1 in profit. So a 50% chance that you lose it all, and a 50% chance that you get $1 - with $100 on the line as risk.

Would you take that bet? Hell no.

The point I'm illustrating is that the potential income from a transaction is extremely important when weighing risk appetite. The more you reduce the potential gain (e.g. by taxing it), the less risk people are willing to accept - or, sometimes, the more gain they demand up front to offset the taxes.

This can result in scenarios where interest rates go up, because bondholders are less willing to accept lower rates because there's less reward to offset their risk.

Counterintuitively, this can result in the cost to the government for borrowing money increasing, and therefore offsetting some of the gains from the taxes levied in the first place.

In this particular case, it sounds like the intention of the law is to target the income of people who basically live off of securities investments. We work, and get Medicaid taxes deducted from our paycheck, and they invest, and get Medicaid taxes deducted from their profits. Makes sense.

But it also makes sense that Congress carved out active managers and personal businesses. The capital gains generated from selling a family business really isn't what the law was trying to target in the first place.

But therein lies the danger and difficulty in crafting these sorts of laws - they created a carveout, and now others are structuring their activities to take advantage of it.

I'm not sure there's a win/win scenario here.

The better path is probably a simpler tax system with less carveouts, and less tricky add-on taxes that surprise you out of left field, too.

Edit: As usual, this subreddit never fails to betray its stated purpose in favor of perceived tribal politics. I've been on Reddit a long time - almost 15 years now - and I distinctly remember a time when this subreddit wasn't a terminally progressive echo chamber. It's a shame, really.

[u/mrpickles → u/The_Law_of_Pizza]

Why do you have such a bias towards investors? Like a built in assumption they should operate outside the entire system of government and society?

Your example of a $1 profit is a ridiculous strawman because absolutely no one is proposing 99% tax rates. And even if there were a 99% top tier tax rate, you ignore the "unintended effects" tax rates would have, like billionaires spending it instead of investing it, which would go back into the economy and become someone else's wages, boosting GDP and per capita incomes.

Investment gains must be taxed at at least the same rate as work, or you inevitably get an oligarchy. Math.

[u/The_Law_of_Pizza → u/mrpickles]

Like a built in assumption they should operate outside the entire system of government and society?

That's not what I think at all - but I'm sensitive to the fact that investment activity has far-reaching consequences to all of the rest of us.

For example, like I was pointing out above, making it less attractive to buy federal bonds could result in the market demanding higher yield on those bonds, which in turn drives up borrowing costs for the federal government.

It's not as easy or as simple as just pounding the table and demanding higher taxes. This is complicated stuff.

Your example of a $1 profit is a ridiculous strawman because absolutely no one is proposing 99% tax rates.

It's not a strawman - you've misunderstood my point.

I wasn't saying that anybody is asking for 99% taxes - I was showing the two extremes to highlight the theoretical point: that changing the reward structure changes investment activity.

Showing the 99% extreme was just a useful way to get the reader to understand the underlying dynamic.

Investment gains must be taxed at at least the same rate as work, or you inevitably get an oligarchy. Math.

Essentially the entirety of the developed world disagrees with you - almost all developed countries tax capital gains differently than regular income, specifically because of the thorny issues I've outlined here. Avocado.

[u/10yearbang → u/The_Law_of_Pizza]

Alright The_Law_of_Pizza, I've watched you engage in honest conversation that gets misinterpreted for so long that I finally made an account and jumped in here. Basically you inspired me to continue adding to the good dialogue at TrueReddit.

BTW, why the 'avocado' at the end?

Onto the actual point of your post. I agree with your larger point that there is nuance. Every organization that has ever existed understands there is money to pay for 'widget' today (operational cash) and money to eventually 'own widget-making apparatus' (capital cash). Our tax is structured similarly. Basically, I agree with you regarding the current framework and the need to be careful with investment money.

But what's the fix? You're correct again - not simple or easy. However, I am sick of discussing/dissecting/understanding the problem. What's a potential solution?

A complex tax framework with carveouts just seems like a non-starter to me? If we're going to bother with the tax code at all (I'm Canadian, so we're not much better in terms of tax code), fuck all this 'if [a] then [b] when [c] does [d]'. The world is way too complex and way too amorphorous to ever try and keep this current or relevant or free of this insane abuse. A dude sold a fucking basketball team and paid no tax?

Yet, '10% tax of everything' seems so amazing from an admin/operations standpoint. Bought gum? 10% tax. Sold something? 10% tax. Wages? 10% tax Investment? 10% tax. I literally get giddy thinking of all the paperwork and useless arguing that becomes irrelevant overnight. I'm not exaggerating, I would weep tears of joy!

I'm not that new. There's waves ambiguously some financial implication to what I've described above that implodes the world. Bonds or stocks or inflation or whatever goes haywire. I don't really care about the how or the why, I just sort of know 'that won't work'.

Ok, what are the possible solutions is the objective and [x%] Flat Tax has Unsustainable Economic Stuff. Ergo we revert to defining-hard-to-define-things and if-and-or-statements to determine exactly who is paying what. i.e. the Existing Tax Code.

Doesn't that mean anything but a Flat Tax is basically a Remixed Tax Code? Like if we don't just apply a straightforward number, aren't we always going to be splitting these hairs until nobody knows who should pay what to who?

[u/The_Law_of_Pizza → u/10yearbang]

Basically you inspired me to continue adding to the good dialogue at TrueReddit.

Hey man, that honestly makes me happy. Sometimes it feels like I'm talking into the wind here - especially when I can tell that people are deliberately misconstruing my point because they perceive me to be "the enemy."

BTW, why the 'avocado' at the end?

Whimsy, and poking just a little bit of fun at the other poster. He ended his sentence about oligarchy with simply "Math," which I vaguely understood to be a statement about needing to tax people, but which I viewed as essentially a nonsequitur.

So I responded with one of my own.

But what's the fix?

One of the things about complex problems is that there isn't always a fix. I think we forget that all too often - thrashing and twisting ourselves into pretzels to try and solve something that can't be solved.

Now, that said, I don't actually think it's impossible to improve our tax code.

I just think that it's always going to be at least a little wonky and abusable.

Ultimately, I think simplicity trends towards fairness. Not a purely flat tax, mind you - despite the members of this subreddit treating me like a Fox News MAGA, I'm perfectly in support of a graduated tax system.

But all of these games where we try to play whack a mole to target specific activity but exempt other specific activity are just self-defeating in the end. We should aim to expansively apply a (relatively) low, graduated tax rate to as much as we can, with as few carveouts as we can. The broad nature of it should help to keep it low, as it won't be inflated to make up for exemptions elsewhere.

Now, of course, there will still be things that need to be exempted. Businesses can't be paying income tax on money they spend on expenses, for example. And capital gains and other investment income needs to be treated on a separate track - but still have the same principles of broad, low, and few exceptions applied.

The fewer loopholes we introduce, the fewer loopholes there are to abuse. The flipside of that is that we also need to keep these uniform taxes relatively low so that people aren't trying too hard to structure their way out of them, either.

[u/Docobonbon → u/The_Law_of_Pizza]

I'm not well read enough to argue either way, whatever I may feel about it, but your comments are coherent and non-belligerent which is far better than some of the responses I'm seeing. Good work both of you in keeping the spirit of this sub going!

[u/crusoe → u/The_Law_of_Pizza]

The US had record economic in the face of higher taxes back when the highest marginal bracket was 70-90%. In general billionaires don't grow the economy as much as people think. 

[u/thekrone → u/crusoe]

In general billionaires don't grow the economy as much as people think.

It's been shown time and time again that when we lower taxes on the rich, they just hoard more wealth. Trickle-down economics is just a scam.

[u/Korrocks → u/crusoe]

I think the takeaway from that is that might be better to have simpler and higher tax rates across the board instead of having a large number of small taxes targeting really specific types of economic activities.

At least in the US we tend to lean towards the latter in recent years, trying to keep the overall tax rates low and just having a large number of separate taxes on specific business activities or kinds of transactions. This creates an incentive to develop clever ways to evade the taxes through structuring economic activity in specific ways that are exempt from certain taxes. Maybe you think that’s a good thing but IMO it doesn’t really do much for society; it doesn’t generate revenue, it doesn’t reduce wealth inequality, it doesn’t reduce the power of billionaires, all it does is give accountants and tax attorneys things to do.

It would be better to just raise taxes.

[u/ass_pubes → u/Korrocks]

It is regressive to raise taxes across the board when over 90% of wealth is hoarded by less than 10% of the population. They literally have more money than they can spend.

[u/elmonoenano → u/Korrocks]

it doesn’t reduce wealth inequality,

I'm curious what the basis for that is. Every chart or figure I've seen from 1945 to 1963, when Kennedy's first cuts kick in, show less income and wealth inequality. And we see both jump after the Reagan tax cuts. It may just be correlation.

So, what do we have that shows that higher taxes on wealth didn't play a part in that?

[u/cluberti → u/elmonoenano]

The reality is, when the corporate tax rate and the income and wealth tax rates were extremely high in the US for the top few percent of earners and the wealthiest citizens, it wasn't necessarily that specific types of tax revenues on specific types of "targeted enforcement" increased the coffers by huge amounts in and of themselves - what the culmination of the tax code at the time did was incentivize re-investment in business growth, investment in research and development, investment in the education systems (both primary/secondary and post-secondary/university), and most importantly towards increasing wages and benefits to the working class (which were tax breaks) because excess profits were what was dis-incentivized with increasing penalties on increasing spending in ways that wasn't one of the above (aka "corporate profits", stock buybacks, etc.).

The tax code and the way taxes were levied against businesses (and the wealthiest few percent of people to a lesser extent) and how they spent their profits was a much larger driver of economic success and growth for the working classes (and the country as a whole) than simply trying to "tax the rich" into balancing budgets or providing revenue. Making it increasingly expensive to even get the money into their hands at the level to have such a wealthy .01% to 1% of the population worked far, far better than the types of ideas that we have today, because once they have the money they have the power to make sure they can keep it. There's a reason the growth of the wealth and size of the billionaire class in the US expanded starting around 1982...

[u/elmonoenano → u/cluberti]

I agree with your description of the mechanism, but it does seem that you agree that the high tax rates did lead to less wealth and income inequality, but through voluntary redistribution instead of government redistribution. I don't really see that as evidence that it didn't work, and I don't read your response as trying to explain that it didn't work, just evidence that it didn't work directly. And based on this explanation it seems to have been a much more successful incentive that anything we've tried since.

[u/cluberti → u/elmonoenano]

Taxes generally aren’t voluntary, and the reason those tax “incentives” existed to prod the correct behavior had a lot to do with the unchecked behavior of the capitalists in charge of the US economy prior to the first Roosevelt Presidential term. As soon as the restrictions and “incentives” were rescinded, things started to shift back to the precious, and we are heading dangerously close to similar behaviors and outcomes.

So while I suppose I agree, it is only to a very fine point - unfettered capitalism has proven time and again that without strict guardrails to take the masses along for the ride and distribute the wealth somewhat evenly, it will absolutely drive the economy it is powering off the road without any second thought. Competent and relatively unbiased oversight has proven to be required in capitalist systems (just like any other), and when the entities that control the oversight are the same that inordinately benefit from it at the expense of the many, the system does exactly as you’d expect and wealth is concentrated in the hands of the few. If a government’s role is not to protect the people and promote the general welfare and not just the welfare of the few who can already afford it, what good is it?

[u/Korrocks → u/elmonoenano]

Higher taxes overall can reduce wealth inequality.

Having lower taxes + a large number of new, smaller taxes that target specific forms of assets or specific types of economic transactions, on the other hand, are not really well supported. If you look at the tax situation in the US in the 1940s, they didn't do that for the most part; they instead relied on high top marginal income tax rates (usually in the 80s or 90% for the highest brackets) rather than the extensive (and easily evaded) array of tiny taxes that we have nowadays.

[u/cluberti → u/crusoe]

Billionaires in general hoard wealth, they don't spend it, and what they do spend tends to be on things that don't benefit the common man much, if at all, and they've got armies of people who's job it is to make sure they pay as little in tax as possible on any expenditures (not to mention the influence on the tax codes themselves to make sure they can continue to do so). The irony is, the lower down the economic totem pole one is the more likely one is to spend more of the money they have as a percentage of their overall wealth, and spend it in ways that directly benefit other working-class people even if some of that spending is still skimmed off as corporate profits.

Yes, the ultra-wealthy might be job creators indirectly, but most of the money used to run the businesses that create those jobs and keep them afloat come from their sales interactions with other businesses and/or consumers, and not in any way directly from the billionaire or three at the top's pockets. Those businesses would continue to create jobs and make/spend money with or without those people at the top, for the most part, and as such /u/crusoe is correct on multiple ways to view economic growth as it pertains to the ultra-wealthy.

[u/Books_and_Cleverness → u/crusoe]

I know the official 70-90% number existed, but do we have any information on whether or not anyone actually paid it? Like actual revenue raised by this bracket?

[u/retrojoe → u/The_Law_of_Pizza]

These are not "out left field" things that surprise the haggard homemaker madly shuffling through their IRS forms at midnight on April 14. This exact rule is one that billionaires setup businesses to avoid. It's a well-known point, and they have professional money managers and lawyers who look out for them on this score.

Let's not pretend this particular loophole has anything to do with normal people, and normal quantities of money.

[u/Title26 → u/The_Law_of_Pizza]

Except investors dont invest based on what tax rates are today. That doesnt matter to them because it could change. Historically capital gains rates have been all over the place.

Rates do have an effect on when people sell, because then the current rate has immediate consequences.

[u/stuffitystuff → u/The_Law_of_Pizza]

The US has been taxing unrealized gains for a long time because we have property taxes. I pay a wealth tax on my live-in capital structure.

Billionaires would not be billionaires if the government didn't build roads to get to basketball games or massage parlors (in the case of the New England Patriots owner).

Capital always costs resources to build and maintain. It's up to the billionaires if they want to give some of it willingly now or all of it later when people get fed up.

[u/rzelln → u/The_Law_of_Pizza]

I do not want any human to have a billion dollars. Whatever economic activity their money is currently incentivizing could still happen if we ripped their excess assets away and distributed it across the rest of the economy (in a progressive way). Now the people who previously weren't investing have funds to invest. The economy is still fine.

What changes is that you don't have people with so much money that they become too influential to be held accountable when they abuse their power. You get rid of the ability of a small number of people to apply pressure to society and to government to get what they want rather than what the public at large wants.

I know that obviously the billionaires and people who aspire to be billionaires would be upset. But we REALLY outnumber them. We should be working to enact policies to institute wealth taxes starting at with 1% annually for everything over 100 million, and scaling up to 10% annually for everything over 1 billion dollars.

Make them not want to keep trying to earn money once they're already stupid rich. If they're motivated just by money, I don't want them in positions of power.

[u/Sands43 → u/The_Law_of_Pizza]

I mean, we're just so far off the other end of power balance and cost benefit there's zero net downside for trying to get some of this money back.

[u/The_Law_of_Pizza → u/Sands43]

I don't know if it's true that there's zero net downside.

Being too aggressive and too ideological may shift moderates away from us and into Trump's camp - resulting in future Republican administrations that continue to mess things up.

We can't forget that we live in a complex democracy with a lot of different interests at play.

There is a reason that the Democrats created this active business carve out in the first place - fear of angering small business owners across the country.

[u/Synaps4 → u/The_Law_of_Pizza]

Being too aggressive and too ideological may shift moderates away from us and into Trump's camp - resulting in future Republican administrations that continue to mess things up.

There doesn't seem to be much of any moderates. What drives elections is more about getting your own people to turn out than the other side gets of theirs to turn out.

There aren't many truly middle ground voters especially in the modern, divided electorate. Chasing them in a way that makes your base stay home is a sure path to losing an election.

The key to winning modern elections is energizing your own people and making sure they all turn out, not chasing the other side's voters.

[u/The_Law_of_Pizza → u/Synaps4]

While it's true that the chunk of moderates has shrunk over the past few decades, it's still over a third of the country.

The idea that moderates no longer exist is something progressives say to distract and deflect blame for pushing moderates away and losing us the last election to Trump.

[u/Synaps4 → u/The_Law_of_Pizza]

Saying youre moderate does not imply you would vote for either party.

46% identify with or lean toward the Republican Party, and 45% identify with or lean toward the Democratic Party

https://www.pewresearch.org/politics/fact-sheet/party-affiliation-fact-sheet-npors/

That leaves 9% of the electorate not settled on a party, not 30%.

If you gain 6% of that 9, but it costs you 10% of your base, you lose the election. If you get all 46% of your base out and none of the 9% in the middle, you win.

[u/The_Law_of_Pizza → u/Synaps4]

You're acting like those "leaners" are permanently set, but that's not true.

From your own link, look at how the percentage of men has shifted towards Republicans over the past few years.

The fact that it shifted means it can shift back.

Those are moderate voters. They might "lean" one way or another in any given moment, but that lean changes. That's why they're important - doubly, tripley so because they are the lions' share of missing votes in the purple swing districts, while the staunchly progressive "base" are primarily in deep blue districts we've already won.

The math just doesn't work in favor of progressives. They desperately want the country to set in stone so that they can beat their drum about how only they can save the Democratic party - but it's just fantasy.

We do not mathematically need more progressives from NY or SF.

We mathematically need the moderate, white, blue collar men who abandoned our party because they perceived our progressive base to be hostile to them.

And they weren't entirely wrong about that.

[u/Synaps4 → u/The_Law_of_Pizza]

You make good points. I'm not with you on the last sentence though. I don't know of any progressive policy that was knowingly hostile to that group.

[u/The_Law_of_Pizza → u/Synaps4]

It's not necessarily about what was knowingly hostile though - or even truthfully hostile.

Just perceived by the white, blue collar male demographic as hostile.

And, of course, that perception has been shaped by propaganda like Fox News - no doubt about that.

But I think we also need to look in the mirror and admit that we've been lax in the way we let some of the more fringe progressive elements run unchecked.

• Every time some corporate diversity team boasts about how their Board is 100% diverse, and the photo shows that it's all women.

• Every time a news outlet like Reuters explains why it's now their policy to capitalize "Black" but not "white."

• Every time some ivory tower academic rails against white men as "colonizers" and how it's "problematic" when they date minority women (particularly the Asian women/white man discussion).

• Every time the nomenclature does a 180 from "don't ever call people colored" to "actually, say people of color."

To be clear, none of these things are of any particular importance. They're all small potatoes, and I think you and I both agree that the damage that Trump is doing is miles beyond all of these things combined.

But these things do act like a sort of acid on the minds of moderate, blue collar white men. They accumulate over time, and when the Democratic party just sort of sits idly by twiddling its thumbs, they start to feel that the party has made its choice.

That's why Trump's ad about "Democrats are for They/Them, not for you" was so incredibly effective.

It was tapping into a decade of slowly building frustration and sour feelings by a demographic that feels the Democratic party has allowed it to become the collective punching bag.

[u/Synaps4 → u/The_Law_of_Pizza]

It's not necessarily about what was knowingly hostile though - or even truthfully hostile.

Just perceived by the white, blue collar male demographic as hostile.

That's not what you said, though. Hence why I disagreed with your last sentence and not your second to last sentence...

Summarizing the rest of your post (uncharitably) is basically that white men as a demographic have to have their ego protected or they will vote against their own best interests. That seems to match the evidence and so I guess I agree with you, but I am saddened by it.

The same acid was put on other demographics for decades without them turning them into rabid authoritarians.

[u/Few_Map2665 → u/The_Law_of_Pizza]

So basically the Democrats must prevent anybody on the left side of the political spectrum from saying anything that could be construed as bad politics (I noticed that none of your bullet-point examples are things that Democratic officeholders routinely say so presumably we should be developing some kind of mind control technology?).

Meanwhile Trump and the Republican party are free to launch coups whenever they lose.

Our politics are completely unsustainable if we want to keep a democracy and idiots like you are pretty much the reason for this.

[u/Few_Map2665 → u/The_Law_of_Pizza]

We mathematically need the moderate, white, blue collar men who abandoned our party because they perceived our progressive base to be hostile to them.

Huh that's an awful lot of words to say "passed civil rights legislation"

[u/The_Law_of_Pizza → u/Few_Map2665]

We passed civil rights legislation more than a generation ago, and those moderates were voting for us in between then and now - even for a black president.

The idea that civil rights legislation pushed the moderates away just isn't true.

[u/Few_Map2665 → u/The_Law_of_Pizza]

We passed civil rights legislation more than a generation ago, and those moderates were voting for us in between then and now - even for a black president.

The Democrats haven't won the white vote since that time. Even Obama in 2008 only got 43% of whites.

Though I will give you it was AMAZINGLY generous of the US to give the Presidency to a black man after a series of foreign and domestic disasters had left the US economy in ruins and the government's credibility shot at home and abroad!

The idea that civil rights legislation pushed the moderates away just isn't true.

LBJ in 1964 was the last Democrat to have won the white vote.

[u/Few_Map2665 → u/The_Law_of_Pizza]

Hahaha yeah other people forced the uh ... "moderates" to go with the guy who attempted to launch a coup, routinely spread racist lies, and proposed economically disastrous tariffs!

It's always somebody else's fault huh?

[u/The_Law_of_Pizza → u/Few_Map2665]

I didn't say anything about "forced."

I said that progressives were so toxic that people fled from the entire Democratic party.

And, yes, that means they voted for a guy who attempted a coup over us.

We should all take a moment to think about that.

[u/Few_Map2665 → u/The_Law_of_Pizza]

I said that progressives were so toxic that people fled from the entire Democratic party.

Why were they so toxic? People didn't just decide this out of the blue! People like you who constantly yak about progressive slights, at least 50% of which were simply made up, set this tone!

And, yes, that means they voted for a guy who attempted a coup over us.

We should all take a moment to think about that.

Yes - the thought is that the people who voted this are scary dumb and vicious and if they continue to be this far gone, the country is unsalvageable no matter how gently progressives massage their balls!

[u/Few_Map2665 → u/The_Law_of_Pizza]

There is a reason that the Democrats created this active business carve out in the first place - fear of angering small business owners across the country.

This is a pretty serious problem - the Democrats are worried about not angering people when at this point, they need to work on making them afraid. Maybe punitive taxation could be a part of it?

I'm convinced that a big part of the disasters of the last election and the Trump presidency so far has to do with asymmetrical fear among the powerful in the US. Leaders knew that a Kamala Harris admin would basically be "business as usual". They'd continue to prosper. They also knew that pissing off Donald Trump could be unprofitable or even dangerous if he got elected.

The solution, then, was to make sure not to piss off Trump too much even though he's a fascist madman since with our insane electoral system he had at least an even chance of winning. That's how we get these ridiculous spectacles like Bezos, Musk, and Zuckerberg kowtowing to the President.

Until these people are afraid of real consequences if a Dem takes power (like getting thrown in prison or having their wealth taken away), they will continue to only work to appease Trump and the Republicans.

[u/Noname_acc → u/The_Law_of_Pizza]

The issue I have with the risk line of argument is displayed very effectively by the hypothetical used to demonstrate it: it necessitates arbitrary numbers that are totally detached from reality to sound compelling. If I choose different but similarly arbitrary numbers, the hypothetical would be a strong argument that taxation actually doesn't counter the economic incentives present to take a risk for profit. If the coin flip were instead starting from a 3:1 payout going to a 2.5:1 payout, you clearly take the bet either way. It would be laughable to say otherwise

If we could put real numbers on it, I think it would give a better idea of whether or not impact on risk appetite is actually relevant to the specific tax being discussed. And, since we can, why not invoke those numbers and see if the argument makes sense when appropriate contextualized by what it is being presented against? Do we think that a 4% tax on net investment income for earners with higher than a quarter million AGI meaningfully decreases the risk appetite of an investor in a way that would meaningfully impact their decision to go ahead with a venture? At best, its not obvious.

That said, I do agree that complicated, targeted carveouts create lots of opportunity for those with the appropriate resources to hide in those niches even if it was not intended for them. Especially when combined with the relative lack of will we have for closing said loopholes. This particular one has been known about for 30 years and has never actually been addressed thanks to advocacy groups outmaneuvering those who have sought to combat this sort of abuse. It is a good example of why agencies like the IRS need a broad and flexible set of tools with the appropriate and why said agency has been the target of political attacks backed by those who have the most to gain from never shutting down these loopholes.