4 ms·

What are the startup or hacker implications?

blasdel 17y ago
Less worrying about staying insured if you quit your job to found a company, which is a huge barrier for a lot of people (especially with dependents). More wanking over "oh noes I might not invest in your startup now that my payday would be taxed slightly more", followed by handwringing about a perceived slide into socialism, but nearly no change in investment behavior. Maybe a few people cash out earlier than they would have to avoid the tax increase.
- Xichekolas 17y ago
  Wanking is a good word for it. I've never understood how people looking for upside measured in the hundreds to thousands of percent can complain about a 3.8% tax with a straight face. If you invest $100k in a startup, it goes well and you walk away with a million ($900k profit), are you really going to cry when the tax man comes and gets his $34,200? I guess you might, but it didn't suddenly make the investment not worth it. Then again, those people aren't likely the ones complaining. It's the people who have a hypothetical model in their head of what "investors" are like and want to use it as a talking point to attack health care reform.
  - pfedor 17y ago
    Let me start by saying that I am not opposed to the proposed healthcare reform, since I don't know enough about it to have any opinion, and I suspect that if I did invest the time and learned the facts I would be in favor of the reform. With this out of the way, your argument seems completely wrong to me. In reality nobody can consistently get 1000% returns, or anywhere near it, from the startups they invest in. (If that was possible, everyone would want to invest in startups and the valuations would go up until the returns got more in line with other investment vehicles with the same risk profile.) In reality, for every startup where you invested $100k and walked away with $1M, there are many where you invested $100k and walked away with zero. On average the returns can't be much different from what you get elsewhere, I'm guessing I won't be off by much if I say 10% before tax and before inflation. And 4% difference in tax burden will also mean about the same it means for other investments, which is to say it's not insignificant. Think of the lenghts people go to in order to put a little more money in a tax sheltered part of their portfolios. Or, think of the risks many people with stock options grants took to convert their short term capital gains into long term (and many of them got burnt very badly when the dot com bubble burst).
    - Xichekolas 17y ago
      I totally agree with you in aggregate. If you take the entirety of the VC/Angel scene and figure out the overall return, it's probably not that much different than other investment vehicles (it's probably a bit higher, since there are barriers to entry, which prevents everyone from getting into the game). But my point was for those upper echelon's of VC/Angels who actually make money. PG has pointed out in the past that there really are only a handful of VC/Angels that actually consistently make money (and more importantly in the case of VCs make money for their investors). You're right that my case was idealized, but investment losses can also be used to offset gains for tax purposes, and this is an industry of lawyers, so I doubt the tax effects are as clear cut as either of us paints them to be. And I still maintain my overall point that 3.8% isn't going to suddenly kill the startup scene. If it was that tax sensitive, it wouldn't be in California to begin with.
  - glifshitz 17y ago
    Good point. However you forget that those who make $1m in profit also know how to raise a stink, how to call their congressman, how to post a letter on the Internet. Just see how much debate there is around the estate tax issue. It affects very few but there is a lot of hoopla around it. That is because it affects lots of rich people.
  - lrm242 17y ago
    Assuming a 15% long term cap gains rate you'd write a check for $135k. You now have 765k--not bad, but how many years did it take? Now, what if the tax rate was 34% (as will be in a few years under this plan in CA): you write a check for $306k and you're left with 594k. If this exist took you three years you just averaged a 200k/year salary--great job. Unfortunately, you'd have been better off working for Cisco because of the amount of risk you likely took to achieve that outcome. Anything that the government does to minimize the reward for taking risk will, undoubtedly, also minimize the amount of innovation. Please save this and come back and read it after you write a check (one or multiple) to the US government for millions of dollars after you struggle for 5+ years and literally risk everything you have to make a business successful.
tptacek 17y ago
A day-long argument between otherwise very intelligent Hacker News denizens on different sides of the political aisle, who would otherwise be arguing about 37signals vs. Mahalo or JSON vs. XML.
- yardie 17y ago
  37signals > Mahalo, JSON >> XML. So what's the debate?
hzlz 17y ago
It may be because I am currently dealing with a tax error that's causing a nightmare from a previous startup, but I feel like the government keeps saying to me through all these complicated tax rules and increases, "Please don't do another startup. Please don't build things for people or create jobs. Yeah, we'll let you, but we'll make your life a huge annoyance if you try." I like to hack and I like building things for customers, but last week I spent most of the week filling out government forms. Another 3.8% on investment income (plus the proposed 5% cap gains increase for a total of 8.8%) won't kill me, but it's starting to feel like the straw the broke the camel's back. I'll probably do the next startup. At the same time, I angel invest in 3-4 companies a year. I like to find kids who were like me at some university labs, invest in their ideas, and what them create cool companies. I may give that up. Since this isn't a political forum, I won't say which side I'm for. But I will say that I'm angry at both sides for the $1T giveaway to the investment bankers and now to the way the CBO numbers have been gamed. (tmp acct, b/c I don't want to discuss my tax issues under the regular acct)
- tptacek 17y ago
  How is the government asking you not to create jobs? I'm unclear on that.
  - hzlz 17y ago
    I build startups. So far, pretty small, but I've created 16 jobs so far in my career (approximately--it's hard to track what happens to your org after acquisition). I'm proud of that. I also angel invest. Thus far, those companies aren't that old, but my marginal contribution is worth at least several jobs. When they make it a hassle to create startups and to invest, I spend less time building startups and more time chilling at home. When they make it more expensive, I do less angel investing. It's hard to quantify--I can't tell you how much impact it has on me personally (though it definitely has some). But when instead of looking at me individually, you look at the expected values across aggregates, economists show real, substantial effects. And, time many, many hours I've wasted on forms, letters, arguments, etc recently are all time that could have been spent coding or with customers.

Less worrying about staying insured if you quit your job to found a company, which is a huge barrier for a lot of people (especially with dependents). More wanking over "oh noes I might not invest in your startup now that my payday would be taxed slightly more", followed by handwringing about a perceived slide into socialism, but nearly no change in investment behavior. Maybe a few people cash out earlier than they would have to avoid the tax increase.

Xichekolas 17y ago
Wanking is a good word for it. I've never understood how people looking for upside measured in the hundreds to thousands of percent can complain about a 3.8% tax with a straight face. If you invest $100k in a startup, it goes well and you walk away with a million ($900k profit), are you really going to cry when the tax man comes and gets his $34,200? I guess you might, but it didn't suddenly make the investment not worth it. Then again, those people aren't likely the ones complaining. It's the people who have a hypothetical model in their head of what "investors" are like and want to use it as a talking point to attack health care reform.
- pfedor 17y ago
  Let me start by saying that I am not opposed to the proposed healthcare reform, since I don't know enough about it to have any opinion, and I suspect that if I did invest the time and learned the facts I would be in favor of the reform. With this out of the way, your argument seems completely wrong to me. In reality nobody can consistently get 1000% returns, or anywhere near it, from the startups they invest in. (If that was possible, everyone would want to invest in startups and the valuations would go up until the returns got more in line with other investment vehicles with the same risk profile.) In reality, for every startup where you invested $100k and walked away with $1M, there are many where you invested $100k and walked away with zero. On average the returns can't be much different from what you get elsewhere, I'm guessing I won't be off by much if I say 10% before tax and before inflation. And 4% difference in tax burden will also mean about the same it means for other investments, which is to say it's not insignificant. Think of the lenghts people go to in order to put a little more money in a tax sheltered part of their portfolios. Or, think of the risks many people with stock options grants took to convert their short term capital gains into long term (and many of them got burnt very badly when the dot com bubble burst).
  - Xichekolas 17y ago
    I totally agree with you in aggregate. If you take the entirety of the VC/Angel scene and figure out the overall return, it's probably not that much different than other investment vehicles (it's probably a bit higher, since there are barriers to entry, which prevents everyone from getting into the game). But my point was for those upper echelon's of VC/Angels who actually make money. PG has pointed out in the past that there really are only a handful of VC/Angels that actually consistently make money (and more importantly in the case of VCs make money for their investors). You're right that my case was idealized, but investment losses can also be used to offset gains for tax purposes, and this is an industry of lawyers, so I doubt the tax effects are as clear cut as either of us paints them to be. And I still maintain my overall point that 3.8% isn't going to suddenly kill the startup scene. If it was that tax sensitive, it wouldn't be in California to begin with.
- glifshitz 17y ago
  Good point. However you forget that those who make $1m in profit also know how to raise a stink, how to call their congressman, how to post a letter on the Internet. Just see how much debate there is around the estate tax issue. It affects very few but there is a lot of hoopla around it. That is because it affects lots of rich people.
- lrm242 17y ago
  Assuming a 15% long term cap gains rate you'd write a check for $135k. You now have 765k--not bad, but how many years did it take? Now, what if the tax rate was 34% (as will be in a few years under this plan in CA): you write a check for $306k and you're left with 594k. If this exist took you three years you just averaged a 200k/year salary--great job. Unfortunately, you'd have been better off working for Cisco because of the amount of risk you likely took to achieve that outcome. Anything that the government does to minimize the reward for taking risk will, undoubtedly, also minimize the amount of innovation. Please save this and come back and read it after you write a check (one or multiple) to the US government for millions of dollars after you struggle for 5+ years and literally risk everything you have to make a business successful.

tptacek 17y ago

A day-long argument between otherwise very intelligent Hacker News denizens on different sides of the political aisle, who would otherwise be arguing about 37signals vs. Mahalo or JSON vs. XML.

yardie 17y ago
37signals > Mahalo, JSON >> XML. So what's the debate?

hzlz 17y ago

It may be because I am currently dealing with a tax error that's causing a nightmare from a previous startup, but I feel like the government keeps saying to me through all these complicated tax rules and increases, "Please don't do another startup. Please don't build things for people or create jobs. Yeah, we'll let you, but we'll make your life a huge annoyance if you try." I like to hack and I like building things for customers, but last week I spent most of the week filling out government forms. Another 3.8% on investment income (plus the proposed 5% cap gains increase for a total of 8.8%) won't kill me, but it's starting to feel like the straw the broke the camel's back. I'll probably do the next startup. At the same time, I angel invest in 3-4 companies a year. I like to find kids who were like me at some university labs, invest in their ideas, and what them create cool companies. I may give that up. Since this isn't a political forum, I won't say which side I'm for. But I will say that I'm angry at both sides for the $1T giveaway to the investment bankers and now to the way the CBO numbers have been gamed. (tmp acct, b/c I don't want to discuss my tax issues under the regular acct)

tptacek 17y ago
How is the government asking you not to create jobs? I'm unclear on that.
- hzlz 17y ago
  I build startups. So far, pretty small, but I've created 16 jobs so far in my career (approximately--it's hard to track what happens to your org after acquisition). I'm proud of that. I also angel invest. Thus far, those companies aren't that old, but my marginal contribution is worth at least several jobs. When they make it a hassle to create startups and to invest, I spend less time building startups and more time chilling at home. When they make it more expensive, I do less angel investing. It's hard to quantify--I can't tell you how much impact it has on me personally (though it definitely has some). But when instead of looking at me individually, you look at the expected values across aggregates, economists show real, substantial effects. And, time many, many hours I've wasted on forms, letters, arguments, etc recently are all time that could have been spent coding or with customers.