Any thoughts on how this may impact BRK’s unrealized gains?
I don’t think it will affect provisions for unrealized gains at all.
I believe the unrealized capital gains are provisioned at the headline 21% tax rate.
Since that’s higher than the minimum, it shouldn’t cause a change.
A bigger problem might be within BHE.
They get a whole lot of tax credits. I don’t know if the minimum tax rate will remove the benefit of credits.
Last year, BHE had a tax rate of -21.4%. The year before it was 4.1%. (page 130 of their annual filing)
It would be nonsensical to remove the benefit of tax credits which exist for the purpose of encouraging specific corporate actions.
But lots of tax laws are nonsensical, so it’s worth checking!
Jim
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A bigger problem might be within BHE.
They get a whole lot of tax credits. I don’t know if the minimum tax rate will remove the benefit of credits.
Last year, BHE had a tax rate of -21.4%. The year before it was 4.1%. (page 130 of their annual filing)
It would be nonsensical to remove the benefit of tax credits which exist for the purpose of encouraging specific corporate actions.
But lots of tax laws are nonsensical, so it’s worth checking!
From a media report (so take with a big grain of salt), current accelerated depreciation benefits will remain. Add to that some likely benefits from more taxpayer handouts to “green” endeavors, and my guess is BHE will be a net significant beneficiary. Maybe enough to offset the 1% buyback tax that Berkshire and Apple and Coca-Cola and others will be paying.
I think that we will not know how unrealized capital gains will be taxed under the new Corporate Income Tax Increase Act of 2022 (or as some call this the: “Inflation Reduction Act of 2022”) until the Treasury writes its rules. This is somewhat common in tax bills. The legislation that allowed companies to file consolidated returns instructs the Treasury to write the regulations necessary for implementation of the act. The legislation for allowing consolidated returns provided almost no guidance.
I looked at the Senate version of the bill and it does not mention unrealized capital gains. It did contain the customary language of instructing the Treasury to write regulations necessary for the implementation of this act.
This is a very complicated piece of tax legislation. It will have to account for a host of book/tax differences, the ownership of a foreign company, changes in ownership of companies, various tax credits, net operating losses and loss carryovers, short taxable years, companies on different year ends, noncorporate entities such as partnership interests that are owned by a corporation, defined benefit plans, companies owned by a foreign parent, consolidated returns, etc.
There are many book/tax differences such as unrealized capital gains (which is also a timing difference) that will need to be addressed. Much of the differences between financial pretax income and the taxable income for tax purposes are timing differences. A big one is depreciation, which is why this bill will hit manufacturing companies the hardest. Since the treatment of these timing differences for the purpose of computing the adjusted income for the computation of the 15% minimum tax are only partially covered by the act, we will be forced to wait for the Treasury to write its regulations. Since this act is effective for tax years starting next year, they will need to do this quickly.
My guess is that they will exempt unrealized capital gains from the 15% minimum tax. But we are dealing with Washington, and by their prior history, we know that what they do does not have to make sense. If they do not exempt unrealized capital gains it will be a gross injustice.
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Yes,sure, I am from the government and I am here to help.
…zzzzzz…zzz.
Yes,sure, I am from the government and I am here to help.
I know it is popular to distrust the government and hurl insults, but significant progress made by USA is because of the government and its ability to enact “just” laws, implement it and as much as people hate it, “the distribution of wealth”.
The politicians who had no problem in preserving “carried interest” felt the need to tax “buyback’s”. Just saying…
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Both positions inconsistent with the intent of the law and tax code.
Taxing buybacks is arbitrary and reflects politicians lack of understanding of economics. Their reasoning I presume is that companies will reduce buybacks and increase labor rates. Basically it is just another junk new tax.
Protecting carried interest just goes to show that you can buy influence and that is very sad.
We can never have all 3 branches of government under one party! If we don’t correct this in November we won’t recognize this country 2 years from now.
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“ We can never have all 3 branches of government under one party! If we don’t correct this in November we won’t recognize this country 2 years from now.”
I know! At the rate we are going we could have lower drug prices for everyone, Medicare for all, a competitive chip building edge again, a more equitable tax code, women might have autonomy over their own bodies, we could have sustained low unemployment, climate change could be slowed, and we could reduce child hunger.
The horror!
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Watch yourself. There are some on this Board who have very delicate sensibilities and will ask for your post to be removed by the censors due to the political nature.
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The government will extend the subsidies for the affordable care act? Why? If you make less than 4X the minimum poverty level you already get subsidies. Big subsidies, half or more paid. But that is not enough. Now the government will pay part or all of insurance for over 13 MM people who make more than 4X the poverty level.
The problem is the subsidy cliff.
Make $1 less than 4X the minimum poverty level, get a substantial subsidy.
Make $1 more than 4X the minimum poverty level, zero subsidy.
It should be a sliding scale of subsidy. This does that, well, kinda. It caps premiums (not costs, just premiums) at 8.5% of Modified Adjusted Gross Income.
The real problem is why does it cost so much in the first place?
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The real problem is why does it cost so much in the first place?
It’s an interesting problem.
One theory:
Each country grew its health care system from a different seed…a different series of historical quirks and random decisions long ago.
The systems in place grew inevitably from those starting seeds and the incentives and structures they led to.
None of these decisions or systems can ever be changed in any big way in any country, because there is way too much politics and money and professional inertia involved.
So, whatever that starting seed eventually grows into, that’s what the country gets stuck with.
When picking seeds, maybe the US got unlucky and France got lucky.
US health care cost: 19.7% of GDP, maternal mortality rate 23.8 per 100,000 births.
France health care cost: 11.1% of GDP, maternal mortality rate 8-12 per 100,000.
This isn’t to say that the difference is all due to one factor, or even that it’s a rigorous comparison.
But it’s a striking example of the same result that you get measuring the US any number of different ways against other rich countries.
To wit:
Health care in the US is in aggregate very expensive, the average outcome is not correspondingly high, and the quality is unusually variable across the population.
It ranges from best in the world down to kwashiorkor.
One more of those things I’m glad I’m not in charge of.
The only thing I can think of is to seize power and become absolute dictator, metaphorically burn
the whole medical system to the ground, and start over with something that seems to work better.
https://en.wikipedia.org/wiki/Healthcare_in_Singapore
Then give up power. As mentioned, who’d want to be in charge of all that?
Jim
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Big smirk on arguments about the tax code in the US. It’s pretty clear the main purpose of the taxcode is for politicians of both parties to dole out goodies to their benefactors. If we wanted an efficient tax code to pay for government expenses implement a VAT applicable to all goods and services and be done with it. Adjust every X years as required to match revenues to expenses.
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“implement a VAT applicable to all goods and services and be done with it. Adjust every X years as required to match revenues to expenses.”
I really agree with this. I remember reading an article that the VAT as a % wouldn’t need to be that high. Certainly nothing like in Europe.
changing their brokerage accounts every few years and lying about their cost basis.
Cost basis comes with your brokerage account transfer.
US health care cost: 19.7% of GDP, maternal mortality rate 23.8 per 100,000 births.
France health care cost: 11.1% of GDP, maternal mortality rate 8-12 per 100,000.
Healthcare and private education are the two businesses where free market fails, because consumers don’t have the information, or knowledge, or power to make intelligent choices. The cost of private education in the US is also extremely high.
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We can never have all 3 branches of government under one party! If we don’t correct this in November we won’t recognize this country 2 years from now.
Sir Google tells me that since 1857 we have had unified government 47 times. (22 Democratic, 25 Republican.)
So out of 165 years, all three branches have belonged to one party for 94 of them, or about 2/3 of the time. This, presumably ignores the Supreme Court which tends to go its own way, at least sometimes, in spite of its partisan bent.
I do have to acknowledge what a disaster it has been, putting the US in the unenviable position of being the strongest, richest country in the history of the planet, but perhaps we can fix that by having more government by gridlock.
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Healthcare and private education are the two businesses where free market fails, because consumers don’t have the information, or knowledge, or power to make intelligent choices. The cost of private education in the US is also extremely high.
My theory is that the reason inflation runs rampant in both of those markets (healthcare & education) comes down to a basic disconnect between who is the receiver of the service and who is he payer. When that chain is broken or becomes overly complex, the incentives that the receiver of the service has to seek out reasonable costs (and thus apply downward cost pressure to the market) evaporates. And until we address that root cause, I suspect these markets will remain broken until consumers simply don’t have any more money to throw at them any longer (another, far less desirable form downward cost pressure can take).
Contrast those markets to other markets like hiring a handyman or buying a product from a store. The first thing people ask about is “what is the price?” But how many people with insurance featuring low/no co-pays or low deductibles ask that question when they schedule a Dr. appointment or procedure? There’s no incentive there. That’s how we end up with people visiting the E.R. over a stubbed toe and racking up thousand dollar bills. And even if insurance incentivized cost sensitivity, pricing is so difficult with the entrenched insurance schemes in place that it makes it incredibly hard to find - anything but transparent.
It’s the same story with education. Some college students have to foot every penny of their school bills, but they’ve become the minority. With endless sources of “other people’s funds” reducing their out of pocket costs, e.g.: government grants, school grants, merit scholarships, generous parents to foot the bill, and generous loans from multiple areas with long deferred payments, this makes the burden of paying those costs far less real/impactful, meaning they have far less incentive to seek out the best value for their money in education than they would otherwise. That’s how we end up with students majoring in Art History at a $50,000/yr college.
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Tuition alone at my university has inflated from $4K to $60K/ year over the last 43 years at a rate of 6.5% annual increase vs. the 3% overall inflation rate. Their endowment has compounded to $13B and the focus seems to add to it and grow it much more than how to distribute it in size. Was a great experience but I must question whether the current experience justifies the inflated tuition, especially at the undergraduate level.
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One theory:
Each country grew its health care system from a different seed…a different series of historical quirks and random decisions long ago.
You can’t talk about the historical development of the social welfare state in the USA (including the absence of universal health care) without also talking about our history of racial discrimination and exclusion. This book provides an excellent comparison between the development of welfare systems in the US, UK, and France in light of the presence or absence of racial politics in each country:
https://www.amazon.com/Shaping-Race-Policy-International-Per…
PP
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It is a sliding scale. All the way from 1X to 4X. But you are correct at 4X it cuts you off. Which I believe is over $90K of income.