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I'm highly skeptical of the claim that such tax would discourage startup founders. Wealth tax proposals I've seen don't kick in until $50 million or $100 milli

I'm highly skeptical of the claim that such tax would discourage startup founders. Wealth tax proposals I've seen don't kick in until $50 million or $100 million. This means that there is a floor on how "poor" the government can make you via a wealth tax. This has two implications: 1. Most "successful" startup founders don't break that threshold of personal wealth. 2. For most startup founders, the startup is the only way to get to $50 million. The practical lifestyle difference between $50 million and $1 million is a lot larger than the difference between $50 million and the unicorn-founder $ billion. Furthermore, as noted by glutamate: money earns money. A conservative drawdown of 3% pay the most commonly proposed wealth tax while still leaving you wealthier at the end of the year.

bulka 6y ago
> I'm highly skeptical of the claim that such tax would discourage startup founders. Discourage starting a company at all? Probably not, but the article does not suggest that. Do you think it might influence where they start it? Looks reasonable to me, at least qualitatively.
- alexpetralia 6y ago
  Yes, but other factors likely influence it more. Are you going to start it in Barcelona or SF, just because of the tax rate? Surely there is something to be said for startup experience, investor networks, founder communities, etc...
  - dannyw 6y ago
    When the tax rate is something like _half of your stock_ over 60 years, that starts to be a bit more... impactful.
- Loughla 6y ago
  >Do you think it might influence where they start it? This has always been the argument, and I've never bought it. Now, more than ever, is the time to start a company remotely, thanks to Mr./Mrs. Covid. Have we seen a massive move away from SV and other tech centers? Have we seen a massive wave of startups in 'flyover' country?
  - SpicyLemonZest 6y ago
    I don't think we'd know yet if there were one.
  - ghiculescu 6y ago
    It’s been 6 months and the whole world is mad. Check in 2 years and you’ll probably see a yes to at least the first question.
  - BurningFrog 6y ago
    Covid identifies as asexual.
deleted 6y ago
[deleted]
another-dave 6y ago
Exactly — I've always thought that what drives multi-millionaires and billionaires isn't really the monetary value of the extra money that they make. To the extent they care about money at all anymore, surely it's only as a relative measure of success? I can't see many people that have already accrued personal wealth of $50M but choose to keep working suddenly being turned off because of a wealth tax.
- bhupy 6y ago
  > I can't see many people that have already accrued personal wealth of $50M but choose to keep working suddenly being turned off because of a wealth tax. That's not the argument. If you accrue a wealth of $50M because you own half of your $100M company (or 100% of your $50M company), then a wealth tax will — over time — force you to give up ownership in your own company. An income tax or a capital gains tax on the other hand, has the effect that you describe: if you already have $50M, then any tax on more money than could possibly have close to 0 negative impact on productivity.
  - clairity 6y ago
    no, that's an intentional misdirection by pg, that you'd lose control of your company over time because you'd have to sell shares to pay the tax. what would more likely happen is that loan products and other financial instruments and techniques would pop up so you could pay the taxes in a whole host of ways without actually losing the underlying shares that are used as collateral. it already happens in a more limited, and sometimes private, context today.
    - bhupy 6y ago
      That's not an "intentional misdirection", it's undeniably true. > what would more likely happen is that loan products and other financial instruments and techniques would pop up so you could pay the taxes in a whole host of ways without actually losing the underlying shares that are used as collateral. In order to pay back a loan, you have to realize some gain somewhere. That money isn't free. Even to simply pay back the interest, you would have to liquidate some of your own stock (which is taxed). Eventually when the principal needs to be paid back, the only way to do it is to liquidate the equivalent value in your own company.
nemo44x 6y ago
> Wealth tax proposals I've seen don't kick in until $50 million or $100 million. This means that there is a floor on how "poor" the government can make you via a wealth tax. That’s just the starting point. Once people begin to figure out how to avoid it or have been tapped then the qualifier will be lowered to 40m. And then eventually 30m and do on until anyone above average is paying it. And then anyone above median. The state will, as always, become reliant on it and find ways to expand it to wield more power and pay debts that were taken on to “collect/spend in advance” as they’ve done countless times. This is why people that will likely never meet today’s threshold are against these schemes. These things always get a wider, and wider net until anyone just starting to get ahead is caught in it.
- dpeterson 6y ago
  I wish you had made this as a top level comment. This should be at the top, not the pro wealth tax comment. Like you said, the net always gets wider and wider.
  - deleted 6y ago
    [deleted]
- logicchains 6y ago
  This is exactly what happened with the US federal income tax. It was originally only a small amount, and only on the wealthy. Now it's gradually been expanded to everyone.
  - andrewtbham 6y ago
    Yep, there was no income tax till 1913. https://en.wikipedia.org/wiki/History_of_taxation_in_the_United_States https://en.wikipedia.org/wiki/History_of_taxation_in_the_Uni...
  - thedufer 6y ago
    > It was originally only a small amount, and only on the wealthy. This is a bit misleading. The first income tax of 1861 was on incomes over $800, which inflation-adjusted is about $23000. The next year the threshold was lowered to $600 or about $17,000 in today's dollars. Currently the standard deduction is $12,200. Certainly some creep, but it doesn't quite fit the described jump from only the wealthy to everyone, except perhaps to the degree that nearly everyone in the US today is wealthy compared to the average citizen in the 1860s. Rates have certainly gone up since then (originally a 3% rate), but top rates today are quite low by modern standards - they were higher than today from the 1930s through the late 80s. Typical average rates have been on a slow downward trend since WWII.
marcinzm 6y ago
> I'm highly skeptical of the claim that such tax would discourage startup founders. It'd discourage the people who pay the bills (VCs, wealthy, etc.) from living in those states. Founders would simply follow the money to other states as they have done in the past.
bhupy 6y ago
> money earns money. A conservative drawdown of 3% pay the most commonly proposed wealth tax while still leaving you wealthier at the end of the year. That is only true if your wealth is in diversified ETFs or funds. That is not where most of the wealth of super-rich founders is. If 90+% of your wealth is in a single company (I.e. the one you founded), then there's no guarantee that this wealth will necessarily appreciate on its own (esp relative to inflation).
- clairity 6y ago
  no, in a similar vein to my other comment, any founder who's reached millions in personal gain from their single, undiversified startup, will begin to employ financial strategies to diversify some of that gain into other instruments to reduce risk. there's a whole industry eager to help the rich and the getting rich do so.
  - bhupy 6y ago
    > any founder who's reached millions in personal gain from their single, undiversified startup, will begin to employ financial strategies to diversify some of that gain into other instruments to reduce risk This is literally not true for the wealthiest founders. The vast majority of billionaires (and even high $100M) only enjoy that net worth because the vast majority of their wealth is in a single stock: their own company. Even if 10% of their wealth is in diversified portfolios, that isn't nearly enough to offset the tax required to pay off the remaining 90% of their wealth. Second of all, even for those that have decided that they no longer care about maintaining a majority of their net worth in their own company, they have to liquidate their existing holdings in order to buy into diversified portfolios, at which point the wealth is taxed. And then any appreciation within their new portfolio is ultimately taxed when any capital gains are realized. In the US, we do not tax wealth, we tax income, dividends, and capital gains, because wealth is not money.
    - clairity 6y ago
      no, only the most obstinate would not diversify their holdings once they reach tens of millions, let alone billions.
goodluckchuck 6y ago
> proposals I've seen don't kick in until $50 million or $100 million. That's how the income tax started in the US.
Certhas 6y ago
The money ears money thing is key. A wealth tax that equals the money you can earn from having money would prevent runaway inequality due to the "rich getting richer" effect. S&P 500 has a long term annualized return of 10%. If you have a 5% wealth tax on stock you have in S&P 500 then you are still earning 5% returns (well above long term average inflation) without actually lifting a finger.
- bhupy 6y ago
  But none of the people you are trying to target with the wealth tax have their holdings in the S&P500. Instead they have close to 100% of their holdings in a single asset represented by the more diversified S&P500. There is no guarantee that the single individual super-wealthy founder whose wealth derives from the ownership of their own company will appreciate at an annualized rate of 10%. The two most pervasive myths about wealth among the super-rich appear to be: 1. They are sitting entirely on liquid cash 2. They are sitting entirely on highly diversified funds that enjoy 5+% annualized appreciation.
  - TheCondor 6y ago
    They aren’t diversified?!
    - bhupy 6y ago
      Super-wealthy founders are not sufficiently diversified, no.
      - mindstreamer 6y ago
        So this wouldn't be helpful as an incentive to get them diversified?
        bhupy 6y ago
        That's an arbitrary incentive that's not particularly useful. And in any case, it forces one to relinquish a significant partial ownership in their own company just to be able to afford to continue owning the rest...all so that we get them to diversify their portfolio?
zeveb 6y ago
> Wealth tax proposals I've seen don't kick in until $50 million or $100 million. The very first U.S. income tax, imposed during the Civil War (the nation's bloodiest conflict), was 3% on income over $12,720, rising all the way to 5% on income over $159,000 (in 2020 dollars). This was unconstitutional at the time, and was eventually repealed. The first income tax imposed after the ratification of the 16th Amendment was 1% on income over $78,510, with an additional 6% on income over $26,170,000 (2020 dollars). The current U.S. income tax ranges from 10% to 37%, with a standard deduction of at least $12,200. There are also payroll taxes under FICA, which are even more. I recount all this riveting history as evidence for my contention that there is absolutely no way that a wealth tax would remain at 1% for anything above $50 million. I guarantee that within a few years to decades most citizens would be required to pay wealth taxes, and that they would amount to a considerable amount even before taking into account their compounding nature. > This means that there is a floor on how "poor" the government can make you via a wealth tax. The only floor is zero: a government can, if it chooses, take everything from its subjects — or just from some of them.
- spencerflem 6y ago
  The fact that the government taxes normal people at a rate much higher than they deserve seems to be an argument for a wealth tax and not against it
  - zeveb 6y ago
    If it taxes the income of normal people at a higher rate than they deserve, why do you think it would refrain from taxing the wealth of normal people higher than they deserve?
    - spencerflem 6y ago
      I guess I was assuming that if they were to put in a wealth tax, the point would be to tax the very rich more (and thus everyone else less / provide healthcare / some sort of ubi). It could certainly be done in a regressive way, but I don't see that as innevitable or any worse than the status quo, since income taxes can be raised just as easily. Either way - I think we fundamtally agree that there needs to be more tax on the rich, be it investments, wealth tax, inheritance, or that sort of thing.
beagle3 6y ago
A) history shows these things eventually apply to everyone. E.g. FATCA was originally relevant to a few hundred people, no it applies to almost all Americans living outside the US (hundreds of thousands). It’s just a reporting requirement, but one that can potentially cost you 3%-50% of your net worth per year if not filed or improperly filed. B) I know people who were bankrupted by existing tax laws - had shares in internet companies during the dot com boom; company IPOd making them paper millionaires, thus owing millions in taxes, but had 6 months lockup. By the time the lockup expired, company went bust, nothing to sell to cover the tax bill. Any law that takes valuations into account (as a wealth tax law is bound to) is likely to wrong some people in a similar way, especially entrepreneurs and early employees.
mathraki 6y ago
I'm shocked people think a wealth tax on startup founders is OK. Let's think of a scenario for instance: ACME startup raises Series C @500M. Founder equity is worth 100M on paper. Founder needs to borrow money every year to pay 'wealth' tax. After 10 years of struggles, company sells for $100M, VCs get money back, founder makes no money. But now founder is millions in debt for past 'wealth' tax payments. Founders will be declaring bankruptcy in those cases. And interest rates for wealth tax loans will skyrocket as a result, making effective wealth tax rate much higher. Problem is startup founder 'millionaires' and 'billionaires' are only that on paper. Any asset that is volatile (like startups) will become impossible to own long term even with a small wealth tax.
- s17n 6y ago
  This is a problem for startup employees, too, and should be solved in both cases by allowing you to defer the taxes on your paper gains until you can actually realize them (yeah, there would be issues here, but the issues are solvable).
  - mathraki 6y ago
    That's exactly what capital gains taxes are tho?
    - metzby 6y ago
      I thought capital gains were when you do realize them, not when you can realize them.
      - deleted 6y ago
        [deleted]
    - s17n 6y ago
      Exercising your options is a taxable event even if the shares you're buying are illiquid.
- solidasparagus 6y ago
garmaine 6y ago
I am a multimillionaire on paper due to restricted founder stock from a previous startup. I have left that job and don’t expect to ever see that money as the guys in charge now are unlikely to ever realize an exit. I’m now back to earning just a regular software dev salary at a big corporation. I never got to see a return on any of my founder shares and not wealthy by any means. Nevertheless, I’m now at risk of having a six figure tax bill every year for paper wealth that is 100% illiquid. If this passes I would be leaving the state and guarantee you I would NEVER found a startup in California again.
vannevar 6y ago
Agreed, I've always thought these sorts of "Atlas Shrugged" arguments were ironic coming from free-market thinkers. In a free market, if one person refuses to work for less than $100 million, there's always someone right behind them willing to work for $99M. It would take a pretty extraordinary tax to have any effect on motivation in the economy at large.
- nickff 6y ago
  It's not quite so black-and-white; wealth taxes change the incentive structure, so that the returns to creating increasingly valuable companies is non-linear. Wealth taxes (especially those with 'floors') discourage risky, high potential ventures, thereby skewing entrepreneurship towards smaller, less risky projects. I personally think there are too few of the big, risky ventures these days, and too many low value-at-risk software-only startups (aiming to be bought up by a FAANG), but that is just an opinion.
  - Analemma_ 6y ago
    > discourage risky, high potential ventures, thereby skewing entrepreneurship towards smaller, less risky projects. That's a good thing, and I disagree completely with your assertion that "there are too few of the big, risky ventures". My impression is just the opposite: there are too many stable companies with modest success that are being killed by VCs who insist they have to adopt go chasing mega-growth that has no chance of actually materializing. Dropbox, Kickstarter, and Patreon are a few prominent examples of this trend: they achieved success in the marketplace and could've been happy with that, but their backers would rather take a 1% shot at meteoric mega-growth, and so now the products increasingly suck while the companies hopelessly go after initiatives way outside their core competency until their loyal customers get sick of it and leave, the company crashes and burns, and the VCs write it off as just another failure.
hammock 6y ago
Startup founder wealth comes from VCs. The reason people found startups in California is because that's where the VCs are. If you drive away the VCs, you will drive away the founders as well.

bulka 6y ago

> I'm highly skeptical of the claim that such tax would discourage startup founders. Discourage starting a company at all? Probably not, but the article does not suggest that. Do you think it might influence where they start it? Looks reasonable to me, at least qualitatively.

alexpetralia 6y ago
Yes, but other factors likely influence it more. Are you going to start it in Barcelona or SF, just because of the tax rate? Surely there is something to be said for startup experience, investor networks, founder communities, etc...
- dannyw 6y ago
  When the tax rate is something like _half of your stock_ over 60 years, that starts to be a bit more... impactful.
Loughla 6y ago
>Do you think it might influence where they start it? This has always been the argument, and I've never bought it. Now, more than ever, is the time to start a company remotely, thanks to Mr./Mrs. Covid. Have we seen a massive move away from SV and other tech centers? Have we seen a massive wave of startups in 'flyover' country?
- SpicyLemonZest 6y ago
  I don't think we'd know yet if there were one.
- ghiculescu 6y ago
  It’s been 6 months and the whole world is mad. Check in 2 years and you’ll probably see a yes to at least the first question.
- BurningFrog 6y ago
  Covid identifies as asexual.

deleted 6y ago

[deleted]

another-dave 6y ago

Exactly — I've always thought that what drives multi-millionaires and billionaires isn't really the monetary value of the extra money that they make. To the extent they care about money at all anymore, surely it's only as a relative measure of success? I can't see many people that have already accrued personal wealth of $50M but choose to keep working suddenly being turned off because of a wealth tax.

bhupy 6y ago
> I can't see many people that have already accrued personal wealth of $50M but choose to keep working suddenly being turned off because of a wealth tax. That's not the argument. If you accrue a wealth of $50M because you own half of your $100M company (or 100% of your $50M company), then a wealth tax will — over time — force you to give up ownership in your own company. An income tax or a capital gains tax on the other hand, has the effect that you describe: if you already have $50M, then any tax on more money than could possibly have close to 0 negative impact on productivity.
- clairity 6y ago
  no, that's an intentional misdirection by pg, that you'd lose control of your company over time because you'd have to sell shares to pay the tax. what would more likely happen is that loan products and other financial instruments and techniques would pop up so you could pay the taxes in a whole host of ways without actually losing the underlying shares that are used as collateral. it already happens in a more limited, and sometimes private, context today.
  - bhupy 6y ago
    That's not an "intentional misdirection", it's undeniably true. > what would more likely happen is that loan products and other financial instruments and techniques would pop up so you could pay the taxes in a whole host of ways without actually losing the underlying shares that are used as collateral. In order to pay back a loan, you have to realize some gain somewhere. That money isn't free. Even to simply pay back the interest, you would have to liquidate some of your own stock (which is taxed). Eventually when the principal needs to be paid back, the only way to do it is to liquidate the equivalent value in your own company.

nemo44x 6y ago

> Wealth tax proposals I've seen don't kick in until $50 million or $100 million. This means that there is a floor on how "poor" the government can make you via a wealth tax. That’s just the starting point. Once people begin to figure out how to avoid it or have been tapped then the qualifier will be lowered to 40m. And then eventually 30m and do on until anyone above average is paying it. And then anyone above median. The state will, as always, become reliant on it and find ways to expand it to wield more power and pay debts that were taken on to “collect/spend in advance” as they’ve done countless times. This is why people that will likely never meet today’s threshold are against these schemes. These things always get a wider, and wider net until anyone just starting to get ahead is caught in it.

dpeterson 6y ago
I wish you had made this as a top level comment. This should be at the top, not the pro wealth tax comment. Like you said, the net always gets wider and wider.
- deleted 6y ago
  [deleted]
logicchains 6y ago
This is exactly what happened with the US federal income tax. It was originally only a small amount, and only on the wealthy. Now it's gradually been expanded to everyone.
- andrewtbham 6y ago
  Yep, there was no income tax till 1913. https://en.wikipedia.org/wiki/History_of_taxation_in_the_United_States https://en.wikipedia.org/wiki/History_of_taxation_in_the_Uni...
- thedufer 6y ago
  > It was originally only a small amount, and only on the wealthy. This is a bit misleading. The first income tax of 1861 was on incomes over $800, which inflation-adjusted is about $23000. The next year the threshold was lowered to $600 or about $17,000 in today's dollars. Currently the standard deduction is $12,200. Certainly some creep, but it doesn't quite fit the described jump from only the wealthy to everyone, except perhaps to the degree that nearly everyone in the US today is wealthy compared to the average citizen in the 1860s. Rates have certainly gone up since then (originally a 3% rate), but top rates today are quite low by modern standards - they were higher than today from the 1930s through the late 80s. Typical average rates have been on a slow downward trend since WWII.

marcinzm 6y ago

> I'm highly skeptical of the claim that such tax would discourage startup founders. It'd discourage the people who pay the bills (VCs, wealthy, etc.) from living in those states. Founders would simply follow the money to other states as they have done in the past.

bhupy 6y ago

> money earns money. A conservative drawdown of 3% pay the most commonly proposed wealth tax while still leaving you wealthier at the end of the year. That is only true if your wealth is in diversified ETFs or funds. That is not where most of the wealth of super-rich founders is. If 90+% of your wealth is in a single company (I.e. the one you founded), then there's no guarantee that this wealth will necessarily appreciate on its own (esp relative to inflation).

clairity 6y ago
no, in a similar vein to my other comment, any founder who's reached millions in personal gain from their single, undiversified startup, will begin to employ financial strategies to diversify some of that gain into other instruments to reduce risk. there's a whole industry eager to help the rich and the getting rich do so.
- bhupy 6y ago
  > any founder who's reached millions in personal gain from their single, undiversified startup, will begin to employ financial strategies to diversify some of that gain into other instruments to reduce risk This is literally not true for the wealthiest founders. The vast majority of billionaires (and even high $100M) only enjoy that net worth because the vast majority of their wealth is in a single stock: their own company. Even if 10% of their wealth is in diversified portfolios, that isn't nearly enough to offset the tax required to pay off the remaining 90% of their wealth. Second of all, even for those that have decided that they no longer care about maintaining a majority of their net worth in their own company, they have to liquidate their existing holdings in order to buy into diversified portfolios, at which point the wealth is taxed. And then any appreciation within their new portfolio is ultimately taxed when any capital gains are realized. In the US, we do not tax wealth, we tax income, dividends, and capital gains, because wealth is not money.
  - clairity 6y ago
    no, only the most obstinate would not diversify their holdings once they reach tens of millions, let alone billions.

goodluckchuck 6y ago

> proposals I've seen don't kick in until $50 million or $100 million. That's how the income tax started in the US.

Certhas 6y ago

The money ears money thing is key. A wealth tax that equals the money you can earn from having money would prevent runaway inequality due to the "rich getting richer" effect. S&P 500 has a long term annualized return of 10%. If you have a 5% wealth tax on stock you have in S&P 500 then you are still earning 5% returns (well above long term average inflation) without actually lifting a finger.

bhupy 6y ago
But none of the people you are trying to target with the wealth tax have their holdings in the S&P500. Instead they have close to 100% of their holdings in a single asset represented by the more diversified S&P500. There is no guarantee that the single individual super-wealthy founder whose wealth derives from the ownership of their own company will appreciate at an annualized rate of 10%. The two most pervasive myths about wealth among the super-rich appear to be: 1. They are sitting entirely on liquid cash 2. They are sitting entirely on highly diversified funds that enjoy 5+% annualized appreciation.
- TheCondor 6y ago
  They aren’t diversified?!
  - bhupy 6y ago
    Super-wealthy founders are not sufficiently diversified, no.
    - mindstreamer 6y ago
      So this wouldn't be helpful as an incentive to get them diversified?
      - bhupy 6y ago
        That's an arbitrary incentive that's not particularly useful. And in any case, it forces one to relinquish a significant partial ownership in their own company just to be able to afford to continue owning the rest...all so that we get them to diversify their portfolio?

zeveb 6y ago

> Wealth tax proposals I've seen don't kick in until $50 million or $100 million. The very first U.S. income tax, imposed during the Civil War (the nation's bloodiest conflict), was 3% on income over $12,720, rising all the way to 5% on income over $159,000 (in 2020 dollars). This was unconstitutional at the time, and was eventually repealed. The first income tax imposed after the ratification of the 16th Amendment was 1% on income over $78,510, with an additional 6% on income over $26,170,000 (2020 dollars). The current U.S. income tax ranges from 10% to 37%, with a standard deduction of at least $12,200. There are also payroll taxes under FICA, which are even more. I recount all this riveting history as evidence for my contention that there is absolutely no way that a wealth tax would remain at 1% for anything above $50 million. I guarantee that within a few years to decades most citizens would be required to pay wealth taxes, and that they would amount to a considerable amount even before taking into account their compounding nature. > This means that there is a floor on how "poor" the government can make you via a wealth tax. The only floor is zero: a government can, if it chooses, take everything from its subjects — or just from some of them.

spencerflem 6y ago
The fact that the government taxes normal people at a rate much higher than they deserve seems to be an argument for a wealth tax and not against it
- zeveb 6y ago
  If it taxes the income of normal people at a higher rate than they deserve, why do you think it would refrain from taxing the wealth of normal people higher than they deserve?
  - spencerflem 6y ago
    I guess I was assuming that if they were to put in a wealth tax, the point would be to tax the very rich more (and thus everyone else less / provide healthcare / some sort of ubi). It could certainly be done in a regressive way, but I don't see that as innevitable or any worse than the status quo, since income taxes can be raised just as easily. Either way - I think we fundamtally agree that there needs to be more tax on the rich, be it investments, wealth tax, inheritance, or that sort of thing.

beagle3 6y ago

A) history shows these things eventually apply to everyone. E.g. FATCA was originally relevant to a few hundred people, no it applies to almost all Americans living outside the US (hundreds of thousands). It’s just a reporting requirement, but one that can potentially cost you 3%-50% of your net worth per year if not filed or improperly filed. B) I know people who were bankrupted by existing tax laws - had shares in internet companies during the dot com boom; company IPOd making them paper millionaires, thus owing millions in taxes, but had 6 months lockup. By the time the lockup expired, company went bust, nothing to sell to cover the tax bill. Any law that takes valuations into account (as a wealth tax law is bound to) is likely to wrong some people in a similar way, especially entrepreneurs and early employees.

mathraki 6y ago

I'm shocked people think a wealth tax on startup founders is OK. Let's think of a scenario for instance: ACME startup raises Series C @500M. Founder equity is worth 100M on paper. Founder needs to borrow money every year to pay 'wealth' tax. After 10 years of struggles, company sells for $100M, VCs get money back, founder makes no money. But now founder is millions in debt for past 'wealth' tax payments. Founders will be declaring bankruptcy in those cases. And interest rates for wealth tax loans will skyrocket as a result, making effective wealth tax rate much higher. Problem is startup founder 'millionaires' and 'billionaires' are only that on paper. Any asset that is volatile (like startups) will become impossible to own long term even with a small wealth tax.

s17n 6y ago
This is a problem for startup employees, too, and should be solved in both cases by allowing you to defer the taxes on your paper gains until you can actually realize them (yeah, there would be issues here, but the issues are solvable).
- mathraki 6y ago
  That's exactly what capital gains taxes are tho?
  - metzby 6y ago
    I thought capital gains were when you do realize them, not when you can realize them.
    - deleted 6y ago
      [deleted]
  - s17n 6y ago
    Exercising your options is a taxable event even if the shares you're buying are illiquid.
solidasparagus 6y ago

garmaine 6y ago

I am a multimillionaire on paper due to restricted founder stock from a previous startup. I have left that job and don’t expect to ever see that money as the guys in charge now are unlikely to ever realize an exit. I’m now back to earning just a regular software dev salary at a big corporation. I never got to see a return on any of my founder shares and not wealthy by any means. Nevertheless, I’m now at risk of having a six figure tax bill every year for paper wealth that is 100% illiquid. If this passes I would be leaving the state and guarantee you I would NEVER found a startup in California again.

vannevar 6y ago

Agreed, I've always thought these sorts of "Atlas Shrugged" arguments were ironic coming from free-market thinkers. In a free market, if one person refuses to work for less than $100 million, there's always someone right behind them willing to work for $99M. It would take a pretty extraordinary tax to have any effect on motivation in the economy at large.

nickff 6y ago
It's not quite so black-and-white; wealth taxes change the incentive structure, so that the returns to creating increasingly valuable companies is non-linear. Wealth taxes (especially those with 'floors') discourage risky, high potential ventures, thereby skewing entrepreneurship towards smaller, less risky projects. I personally think there are too few of the big, risky ventures these days, and too many low value-at-risk software-only startups (aiming to be bought up by a FAANG), but that is just an opinion.
- Analemma_ 6y ago
  > discourage risky, high potential ventures, thereby skewing entrepreneurship towards smaller, less risky projects. That's a good thing, and I disagree completely with your assertion that "there are too few of the big, risky ventures". My impression is just the opposite: there are too many stable companies with modest success that are being killed by VCs who insist they have to adopt go chasing mega-growth that has no chance of actually materializing. Dropbox, Kickstarter, and Patreon are a few prominent examples of this trend: they achieved success in the marketplace and could've been happy with that, but their backers would rather take a 1% shot at meteoric mega-growth, and so now the products increasingly suck while the companies hopelessly go after initiatives way outside their core competency until their loyal customers get sick of it and leave, the company crashes and burns, and the VCs write it off as just another failure.

hammock 6y ago

Startup founder wealth comes from VCs. The reason people found startups in California is because that's where the VCs are. If you drive away the VCs, you will drive away the founders as well.