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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

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
Won't startups just go public sooner? Or maybe private company valuations will become less ridiculous since the value of your shares would actually matter for something besides ego now? I do think that taxing paper wealth is a problem, but if you are creating billions of dollars in economic value, there is usually a solution (e.g. as part of raising that $500M, a portion of that goes towards paying wealth taxes). Anything that incentivizes people to do away with this trend of a decade plus before exiting sounds fine to me.
- mathraki 6y ago
  People want to exit but in most cases can't because the company is not doing well. Everyone who has tried fundraising with bad results knows it's super hard. Despite popular stories in the press, that's the fate of most startups. Having a struggling company is super stressful, adding the government asking you to come up with money to pay personally, because you are 'wealthy' on a paper would take it to a different level.
  - solidasparagus 6y ago
    This is ignoring the fact that wealth taxes don't effect you until you are extremely rich - even the most aggressive proposals don't start until you are at $32M-$50M in net worth - there are definitely some startups that are struggling while the founders have this much in equity, but the vast majority of struggling startups never hit the $100M+ valuation that would be required. Not to be a dick, but I don't see why anyone thinks this is valid justification to block a wealth tax - maybe you could argue that the cap should be higher. Income inequality has gotten ridiculous and is only going to get worse as AI technologies mature. There needs to be a way to reallocate wealth from the super-rich to the 40% of Americans who would be unable to pay for a $400 emergency and I haven't heard a better proposal.
    - mathraki 6y ago
      The point is that it creates direct and indirect obstacles to starting/investing/running/owning a company. Which is one of the big job/wealth creators of our society. IMO you should do the opposite - remove all obstacles to start/invest/run a company and tax the outcome - or, even better, consumption. If you feel those taxes are too low, then raise them.
metzby 6y ago
Why do you assume the wealth tax has to be paid each year in dollars? Maybe you could pay it in shares, so no borrowing required. Or maybe for illiquid assets including non-public stock it could be warrants that you only have to settle at a liquidity event. It's a strawman to assume a wealth tax will be set up in a broken way when non-broken ways are possible.
- mathraki 6y ago
  So the government takes a board seat (or two or three) eventually in the company? There are a lot of rights and some obligations that come with equity ownership in a company beyond financial return.
  - jtsiskin 6y ago
    This makes me think of China, where the government forces board seats in many companies.
  - metzby 6y ago
    That seems like another strawman; e.g. I said it could be warrants for this reason. There's lots of examples of financial ownership without the holder of the return running the business. Whether it's a state or an ex-spouse.
  - Daishiman 6y ago
    In Germany unions have board seats by law. Doesn't seem to be stopping the executives at Siemens and Krupp from their corporate aspirations.
- deleted 6y ago
  [deleted]
- giantg2 6y ago
  I would think it's valid to make that assumption given taxes must currently be paid in dollars and I don't know of any places that allow it to be paid in equity. I would also think out debt obligations to the world bank must be paid in currency.
macrolime 6y ago
It's like this in some European countries and the situation you describe with founders having to declare bankruptcy has happened some times. It doesn't make it impossible to own volatile assets, but it increases the risk. Some places the rules have changed a bit to avoid some of these cases where people owe more tax that they can pay, but it can still happen.

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

Won't startups just go public sooner? Or maybe private company valuations will become less ridiculous since the value of your shares would actually matter for something besides ego now? I do think that taxing paper wealth is a problem, but if you are creating billions of dollars in economic value, there is usually a solution (e.g. as part of raising that $500M, a portion of that goes towards paying wealth taxes). Anything that incentivizes people to do away with this trend of a decade plus before exiting sounds fine to me.

mathraki 6y ago
People want to exit but in most cases can't because the company is not doing well. Everyone who has tried fundraising with bad results knows it's super hard. Despite popular stories in the press, that's the fate of most startups. Having a struggling company is super stressful, adding the government asking you to come up with money to pay personally, because you are 'wealthy' on a paper would take it to a different level.
- solidasparagus 6y ago
  This is ignoring the fact that wealth taxes don't effect you until you are extremely rich - even the most aggressive proposals don't start until you are at $32M-$50M in net worth - there are definitely some startups that are struggling while the founders have this much in equity, but the vast majority of struggling startups never hit the $100M+ valuation that would be required. Not to be a dick, but I don't see why anyone thinks this is valid justification to block a wealth tax - maybe you could argue that the cap should be higher. Income inequality has gotten ridiculous and is only going to get worse as AI technologies mature. There needs to be a way to reallocate wealth from the super-rich to the 40% of Americans who would be unable to pay for a $400 emergency and I haven't heard a better proposal.
  - mathraki 6y ago
    The point is that it creates direct and indirect obstacles to starting/investing/running/owning a company. Which is one of the big job/wealth creators of our society. IMO you should do the opposite - remove all obstacles to start/invest/run a company and tax the outcome - or, even better, consumption. If you feel those taxes are too low, then raise them.

metzby 6y ago

Why do you assume the wealth tax has to be paid each year in dollars? Maybe you could pay it in shares, so no borrowing required. Or maybe for illiquid assets including non-public stock it could be warrants that you only have to settle at a liquidity event. It's a strawman to assume a wealth tax will be set up in a broken way when non-broken ways are possible.

mathraki 6y ago
So the government takes a board seat (or two or three) eventually in the company? There are a lot of rights and some obligations that come with equity ownership in a company beyond financial return.
- jtsiskin 6y ago
  This makes me think of China, where the government forces board seats in many companies.
- metzby 6y ago
  That seems like another strawman; e.g. I said it could be warrants for this reason. There's lots of examples of financial ownership without the holder of the return running the business. Whether it's a state or an ex-spouse.
- Daishiman 6y ago
  In Germany unions have board seats by law. Doesn't seem to be stopping the executives at Siemens and Krupp from their corporate aspirations.
deleted 6y ago
[deleted]
giantg2 6y ago
I would think it's valid to make that assumption given taxes must currently be paid in dollars and I don't know of any places that allow it to be paid in equity. I would also think out debt obligations to the world bank must be paid in currency.

macrolime 6y ago

It's like this in some European countries and the situation you describe with founders having to declare bankruptcy has happened some times. It doesn't make it impossible to own volatile assets, but it increases the risk. Some places the rules have changed a bit to avoid some of these cases where people owe more tax that they can pay, but it can still happen.