4 ms·

Nice to see tax laws for the rich can get passed, but substantive change to do with criminal justice, healthcare etc go nowhere.

breerly 10y ago
This bill simply defers the taxes till actual gains are realized, instead of requiring them when options are exercised. Ideally, this means more employees can actually act on their options, instead of just "the rich" as you imply.
- ones_and_zeros 10y ago
  The argument could be made that this is actually a gift to businesses and executives. Ultimately this bill makes working at a startup more attractive when they are already a pretty poor choice, so we'll just have more people making poor choices and putting themselves at financial risk to the benefit of their employer.
  - gshulegaard 10y ago
    While this is certainly an argument, I think the bill fixes an unintended interaction in tax law where people were getting taxed for "realized gains" that actually weren't realized...or gains at all (yet). So an alternative way of looking at it is that this bill removes an _accidental_ disincentive for innovation.
  - breerly 10y ago
    This makes it so employees can actually participate in the upside of the risk - something that the current tax setup can make impossible for employees of highly valued private companies. --- I'm Bob, I write a check for $50K to exercise my stock options. They might be worth something some day, I'm taking that risk and working my ass off to see that they are. The year I exercise the options, the gov sees that I've made a $1.5M "paper gain", and they want their taxes. Call it $300K. If Bob doesn't have $350K in the bank, he is stuck - he basically needs to wait until said company goes public to make a zero-cash sale, or forfeit his options when leaving (either by quitting or getting fired). Not to mention if Bob exercised the stock and payed the $350K - the company could never IPO, or it could and tank. Bob wouldn't see any of that money back. Bob's upside for working at said risky startup is severally limited. This is a surprise to most employees, who accepted the risk and assumed they would be able to participate in the upside of the startup (kind of the whole point). These employees find out that, in many cases, they can't actually become shareholders, or they do and lose everything. In concept, this bill would have Bob write the $50K check for the options, and then only pay taxes once and if actual liquid gains were realized. How does this only affect the rich or somehow incorrectly incentive people to work for startups? I'm happy for Bob.
    - ones_and_zeros 10y ago
      I understand the intent of the legislation perfectly. How often do you think gains are ever realized by startup employees given stock options?
      - breerly 10y ago
        Not often. But making it costlier to participate only makes the proposition riskier or fiscally unfeisable. That hurts employees. Startups are useful in that they trade off innovation for risk - a handful of startups make huge impacts and grow into successful companies. People know that when they sign up to work for a startup - finding out they can't realize the upside potential is the surprise.
        ones_and_zeros 10y ago
        So do you think this could lead to more people like Bob ponying up $50k to exercise the options considering that he is unlikely to realize a gain?
      - Eridrus 10y ago
        Given most employees at "startups" are actually later employees when the companies are larger and less likely to fail, it may actually be that most of them get some sort of payday, even if it's not huge.
adanto6840 10y ago
The actual bill text certainly comes off to me as looking to help the common-worker -- definitely not "the rich" / executives / owners.
gshulegaard 10y ago
To be perfectly honest, this bill affects mostly middle class near as I can tell. The following is entirely personal understanding of my own stock option agreement and is subject to mistakes and misconceptions...so someone can feel free to correct me. The problem this bill targets is the "exercise tax" interaction. Say you are an employee at a start up. Said start up can't afford your full normal salary so they pay you something less but offer you the OPTION of PURCHASING stock in their privately held corporation at a fixed rate (stock options) and often at a "discount" (more on this below). So a private "board" (of the company) meets and arbitrarily assigns a dollar value to the shares of their company...again this is more or less arbitrary since all stock is privately held so there is no market interaction for price setting. Based on this dollar value, they offer you, the employee, a "discount". So if your board sets a price estimate of $1.50 per share, they might put in your stock option agreement a fixed price of $1.20 per share for X number of shares. But this means, at least according to tax law, that when you purchase the stock at $1.20, you, the employee, have an IMMEDIATE realized gain of $0.30 per share...lucky you! So this is of course taxable. Problem being that the current share "value" and the corresponding discount was arbitrarily assigned and actually...you spent $1.20 on a share of a company that has no resale value. So not only do you "buy" (or "invest") into ownership of your start up...you then get taxed on top of it for a "realized gain" that actually doesn't exist. So it's not like you can turn around and sell some of your new "stock" to be able to pay the tax...
- bluejekyll 10y ago
  This could have been resolved by also removing the 409a rule. Which requires companies to specifiy some arbitrary price that the company is worth.
  - gshulegaard 10y ago
    While I think you are possibly correct...I think removing this is more difficult since it has much deeper implications for private investing. Say some investor wants to invest in your private company, without some sort of 409a company worth...how would you go about negotiation? To be fair, I oversimplified when I said "arbitrary"...company valuation estimates aren't _completely_ random...they just aren't set by free market interactions.
asah 10y ago
Troll. They're independent, eg just because we need to fix roads doesn't mean we should stop funding science.
Radle 10y ago
Taxes are only deferred. This is good for employees NOT for employers. The current/old method coul create severe Problems for the employee: People working for an extreme very successfull Startups like Google, Facebook and the like, could become very rich on paper. Imagine an income of 200 Thousand and quite suddenly 2 Million in Stocks. Now they had to pay taxes on the 2 Million from their normal income, since they couldn't or didn't want to sell their stock Options yet. 200k income 400k taxes? Yes you're fucked.

breerly 10y ago

This bill simply defers the taxes till actual gains are realized, instead of requiring them when options are exercised. Ideally, this means more employees can actually act on their options, instead of just "the rich" as you imply.

ones_and_zeros 10y ago
The argument could be made that this is actually a gift to businesses and executives. Ultimately this bill makes working at a startup more attractive when they are already a pretty poor choice, so we'll just have more people making poor choices and putting themselves at financial risk to the benefit of their employer.
- gshulegaard 10y ago
  While this is certainly an argument, I think the bill fixes an unintended interaction in tax law where people were getting taxed for "realized gains" that actually weren't realized...or gains at all (yet). So an alternative way of looking at it is that this bill removes an _accidental_ disincentive for innovation.
- breerly 10y ago
  This makes it so employees can actually participate in the upside of the risk - something that the current tax setup can make impossible for employees of highly valued private companies. --- I'm Bob, I write a check for $50K to exercise my stock options. They might be worth something some day, I'm taking that risk and working my ass off to see that they are. The year I exercise the options, the gov sees that I've made a $1.5M "paper gain", and they want their taxes. Call it $300K. If Bob doesn't have $350K in the bank, he is stuck - he basically needs to wait until said company goes public to make a zero-cash sale, or forfeit his options when leaving (either by quitting or getting fired). Not to mention if Bob exercised the stock and payed the $350K - the company could never IPO, or it could and tank. Bob wouldn't see any of that money back. Bob's upside for working at said risky startup is severally limited. This is a surprise to most employees, who accepted the risk and assumed they would be able to participate in the upside of the startup (kind of the whole point). These employees find out that, in many cases, they can't actually become shareholders, or they do and lose everything. In concept, this bill would have Bob write the $50K check for the options, and then only pay taxes once and if actual liquid gains were realized. How does this only affect the rich or somehow incorrectly incentive people to work for startups? I'm happy for Bob.
  - ones_and_zeros 10y ago
    I understand the intent of the legislation perfectly. How often do you think gains are ever realized by startup employees given stock options?
    - breerly 10y ago
      Not often. But making it costlier to participate only makes the proposition riskier or fiscally unfeisable. That hurts employees. Startups are useful in that they trade off innovation for risk - a handful of startups make huge impacts and grow into successful companies. People know that when they sign up to work for a startup - finding out they can't realize the upside potential is the surprise.
      - ones_and_zeros 10y ago
        So do you think this could lead to more people like Bob ponying up $50k to exercise the options considering that he is unlikely to realize a gain?
    - Eridrus 10y ago
      Given most employees at "startups" are actually later employees when the companies are larger and less likely to fail, it may actually be that most of them get some sort of payday, even if it's not huge.

adanto6840 10y ago

The actual bill text certainly comes off to me as looking to help the common-worker -- definitely not "the rich" / executives / owners.

gshulegaard 10y ago

To be perfectly honest, this bill affects mostly middle class near as I can tell. The following is entirely personal understanding of my own stock option agreement and is subject to mistakes and misconceptions...so someone can feel free to correct me. The problem this bill targets is the "exercise tax" interaction. Say you are an employee at a start up. Said start up can't afford your full normal salary so they pay you something less but offer you the OPTION of PURCHASING stock in their privately held corporation at a fixed rate (stock options) and often at a "discount" (more on this below). So a private "board" (of the company) meets and arbitrarily assigns a dollar value to the shares of their company...again this is more or less arbitrary since all stock is privately held so there is no market interaction for price setting. Based on this dollar value, they offer you, the employee, a "discount". So if your board sets a price estimate of $1.50 per share, they might put in your stock option agreement a fixed price of $1.20 per share for X number of shares. But this means, at least according to tax law, that when you purchase the stock at $1.20, you, the employee, have an IMMEDIATE realized gain of $0.30 per share...lucky you! So this is of course taxable. Problem being that the current share "value" and the corresponding discount was arbitrarily assigned and actually...you spent $1.20 on a share of a company that has no resale value. So not only do you "buy" (or "invest") into ownership of your start up...you then get taxed on top of it for a "realized gain" that actually doesn't exist. So it's not like you can turn around and sell some of your new "stock" to be able to pay the tax...

bluejekyll 10y ago
This could have been resolved by also removing the 409a rule. Which requires companies to specifiy some arbitrary price that the company is worth.
- gshulegaard 10y ago
  While I think you are possibly correct...I think removing this is more difficult since it has much deeper implications for private investing. Say some investor wants to invest in your private company, without some sort of 409a company worth...how would you go about negotiation? To be fair, I oversimplified when I said "arbitrary"...company valuation estimates aren't _completely_ random...they just aren't set by free market interactions.

asah 10y ago

Troll. They're independent, eg just because we need to fix roads doesn't mean we should stop funding science.

Radle 10y ago

Taxes are only deferred. This is good for employees NOT for employers. The current/old method coul create severe Problems for the employee: People working for an extreme very successfull Startups like Google, Facebook and the like, could become very rich on paper. Imagine an income of 200 Thousand and quite suddenly 2 Million in Stocks. Now they had to pay taxes on the 2 Million from their normal income, since they couldn't or didn't want to sell their stock Options yet. 200k income 400k taxes? Yes you're fucked.