The tax bill your hypothetical company faces will be based on options that are actually exercised. Except for an incredibly fortunate few early employees, I'd w

The tax bill your hypothetical company faces will be based on options that are actually exercised. Except for an incredibly fortunate few early employees, I'd wager the vast majority of options have a strike price something higher than 1.5% current valuation ... and, viola, there's your cash to pay the bill, perfectly timed. Crisis averted! More generally, a company whose valuation shoots up but which is unable to find cash to meet shorter-term needs is Doing It Wrong and doesn't deserve the higher valuation. Musing about this tax in general, without specifically debating: I think payroll taxes of any form are one of the worst kinds of tax, so from that point of view we can agree. (Somehow I don't think you'd agree that significant increases on taxes for the wealthiest are a better alternative, though.) But, if you're going to tax wage and salary compensation, then it's more than fair to tax options and other forms of compensation, too -- otherwise you end up with a regressive payroll tax, which punishes poorer workers & companies at the same time as being far less efficient at raising the needed revenue. (edit: Part of my post was in response to something I hadn't noticed you'd edited out, so I snipped it belatedly.)