24 ms·

Silicon Valley stirs over proposal to end popular QSBS tax break

115 points by sinak 5y ago

seibelj 5y ago
Well this is what “tax the rich” means. If you don’t like it don’t vote for people who advocate tax increases. This is exactly what was promised.
- robocat 5y ago
  A trite thoughtless trolling clichéd dismissal. When you vote for a party, you compromise based on the whole package, regardless of how much you disagree with individual policies. If we got to vote for what we wanted, government would look very very different!
  - seibelj 5y ago
    Why is raising taxes on the QSBS not what “tax the rich” means? It’s literally a 100% tax-free benefit to the owners of businesses, up to $10 million per year. I support and like the QSBS, but it is exactly the sort of thing the average voter would say is a “tax loophole for the rich”.
    - romanhn 5y ago
      Whom do you lump under "owners of businesses"? Because early employees are impacted as well, seeing how they own company stock. And there are a lot more of those, than just the founders.
      - seibelj 5y ago
        Why does anyone deserve to pay 0% tax on gains, even for early stage companies? Why not the guy who works in the sewer or digs ditches for a living? It reeks of plutocracy. And again, I support the QSBS. I'm trying to put things into perspective for the HN crowd that somehow sees 6 to 8 figure payouts as something that deserves 0% tax, yet also votes for liberal politicians. These things do not square, at least for the average non-techie voter.
        romanhn 5y ago
        It has nothing to do with "deserving" it. Tax breaks exist, generally, to create specific incentives. In this case, the incentive is to promote small businesses by parking cash with them at an early stage, despite the added risk. Removing this break will disincentize early investment and/or make it harder for businesses to stay capitalized in their formative years.
        seibelj 5y ago
        Totally in agreement. But I’m a libertarian. The larger point I was making was that people vote for liberal politicians and act surprised when they get what was promised. Don’t pretend you are a special snowflake and deserve 0% taxes while the working person does not.
      - refurb 5y ago
        This is exactly what people call out - "Yes we should raise taxes on the other guy, not me!".
    - hamandcheese 5y ago
      The average voter likely doesn’t know or doesn’t care about the difference between high income and high wealth. I think “tax the rich” the way most people think of it would have to be some form of wealth tax.
      - seibelj 5y ago
        I think if you presented the facts - that even early employees of tech companies, who already earn some of the highest salaries in the world, can make up to $10 million per year tax free - the average voter would say that's criminally unfair. Sure sure, you can explain that the latest SaaS bullshit is just an absolutely crucial achievement in human history that needs this, but I think it won't be convincing.
        hamandcheese 5y ago
        The key “argument” in my mind is this: why are we trying so hard to tax those who might become wealthy but seemingly make no effort to tax those who already are wealthy? I agree, that probably isn’t compelling to many, but I suspect it is a view found commonly here on HN.
  - jsiepkes 5y ago
    People didn't get this 100% tax exemption because the government felt "they deserved it". They got it because it's a means for governments to bootstrap things. Like EV car adaption or tech startups. Once that goal is reached the tax benefit will go away. And in this case I can't see how on earth a 100% tax exemption on capital gain can ever be considered fair towards other people like "normal" working people. If you advocate things like tax the rich and justice then rejoice because this is a step in the right direction. Like with so many things people want change but don't want to change themselves. They want other people to change. So no this isn't trolling.
    - imtringued 5y ago
      People complain that taxes are already too high and shouldn't be raised. Others will then justify this statement by saying that the government can simply collect more tax revenue of industries that it is already taxing. Well, this is exactly that. The government is simply collecting the taxes that you are supposed to pay in normal circumstances. It's rolling back tax concessions rather than raising taxes.
- mensetmanusman 5y ago
  Not sure why this was down voted. These types of tax plans were laid out as part of the debates.
modeless 5y ago
Not end, but cut in half, right?
krasin 5y ago
The cruel part here is retroactiveness of the change. Pioneered by California's Proposition 30 in 2012 ([1]). Retroactive changes of the (tax) law reduce the planning horizon and ultimately the efficiency of the economy. 1. https://gscpa.com/prop-30-retroactive-tax-increases-approved-by-voters/ https://gscpa.com/prop-30-retroactive-tax-increases-approved...
- avmich 5y ago
  I would argue that laws are imprecise, and taking advantage of the law, as opposed to intent, is questionable. So they probably reduce planning horizon for some and expand that for others, so I'm not sure the efficiency ultimately suffers.
  - vlovich123 5y ago
    How about as a matter of fairness? When I made my small angel investments, I thought the QSBS would apply to me. Revoking that for investments already made seems a bit unfair as the tax advantage was locked in by competitors who saw payoffs sooner.
    - avmich 5y ago
      Maybe you thought that QSBS would keep being the way it was set. But there was a chance people would find QSBS written bad enough to change; I don't think analysis of that would show that no, QSBS is pretty close to being ideal from a point of view which well reflects opinions of people. In a sense it's like an investment into an autocratic country - profits are high, but so also is uncertainty. In more developed countries uncertainty is lower - but it doesn't mean that laws are perfect.
      - vlovich123 5y ago
        From a general perspective, retroactive changes to the law aren’t a great idea. It’s one of many foundational philosophical realizations of the American criminal system that modernized it. So why do we accept it in the civil realm? There are variations here that are better. I would say this change is more likely to actually entrench existing wealth. It would be better if adjustments to it were made: * Disallow tax games with the QSBS. Currently if you carefully structure your allocation, you can get 30 mil or more tax free even though the limit is 10 (give shares to your spouse and a family trust - each gets an independent 10 mil). Tax games are an economic inefficiency that serve to entrench existing wealth holders and are parasitic on the overall economy (my tax attorney is not an important part of my investments or helping innovation in tech yet I have to pay him fees to figure out things that should be simple) * Make the tax progressive like with income tax. 100% up to 10 million in net worth or 500k in salary all the way down to 0 at 20 million net worth or 1 million in income. At some point the government helping you become an elite investor isn’t necessary. * Start the clock on when changes will be made impacting investments made today while changes are being debated. Then when/if it changes, make it retroactive. That way it’s done transparently with general knowledge in the market.
cma 5y ago
50% exempt is still high. It is hard to believe it is currently 100%.
- deleted 5y ago
  [deleted]
- TheTester 5y ago
  considering that this doesnt work for more than start ups and small businesses it makes sense, specially considering a lot of those start ups just vanish before anyone can cash in.
deleted 5y ago
[deleted]
avmich 5y ago
> The bottom line: The only thing that's certain when it comes to federal tax policy is uncertainty. People compete, it's deep in their nature, so rules of the game get adjusted. Within boundaries, which overall beneficial for everybody, but still - the details of such thing as taxes, usually being imprecise, allow for gaming, so they don't survive long. So - it looks like uncertainty here is by design.
- locacorten 5y ago
  No. It's not deep in their nature. People do not compete in a system offering no incentive to compete.
  - avmich 5y ago
    You can't put precise laws for eons to come; Hammurabi couldn't either. You have to adjust them - in some degree because people get advantage of imprecision in laws. So everyone should - to some extent - assume that rules of the game aren't cast in granite.
ztratar 5y ago
100% exempt does feel high to me. I think my main problem w/ the tax proposals is that they are big, bold changes. If anyone wants to increases taxes even 1%, I want there to be a big fight about it. Serious demands in to budget efficiency and transparency. If it passes, I want to know there is scrutiny over the taking of my dollars. Passing a 10% increase swiftly and suddenly is like a punch to the gut, and we all know the tax code and laws around equity are totally moronic. "We only tax if you make over $x!" doesn't account for the fact that many folks get all of their many years of equity... at once, in one tax year. Why is that counted as income for 1 year, and then boom, up to 65% tax? Overall, taxes over 50% feel unethical too -- imagine if a mob boss goes to a retail store and demands half the profits. Why does anyone -- mob or Government -- deserve more than half of what you make? To hit 55% tax rate in California after this, you only need to make like $250k total. It's a good amount, sure, but if you compare cost of living... it's still hard to live on. You can still barely afford a crappy house. So you get this situation where "life is hard" AND the government is taking home more of your money than you do.
- VictorPath 5y ago
  > imagine if a mob boss goes to a retail store and demands half the profits. Why does anyone -- mob or Government -- deserve more than half of what you make? I work and create wealth, and some heirs swoop in and grab that created wealth for themselves in the form of quarterly dividends. Sounds like exactly what you are describing. The parasitic expropriation of my surplus labor time by an aristocracy of heirs.
  - imgabe 5y ago
    This isn’t about estate tax. Your heirs don’t take anything away from you, neither does the government with estate tax. At the time they take whatever they’re taking, you are dead. Dead people have no use for property. Besides that, if you don’t want your heirs to have your estate, you can create a will while you’re alive and leave all your property to charity, your cat, whatever. In any event, whatever happens to your wealth it won’t really matter to you, since you’ll be dead. Edit: seems I misread this. Anyway, nobody “expropriated“ your labor, you sold it at an agreed upon price. If you aren’t happy with the price you got, demand more or make your labor more valuable.
mikeryan 5y ago
Note there’s some subtlety to this example. That employee would have had to have exercised the options aand held the stock for five years at least. Which they have apparently but I don’t know how common that is. This is mostly going to affect not employees, but individual angels.
- toomuchtodo 5y ago
  I have illiquid equity this would apply to, from time at a startup as an early employee.
  - mikeryan 5y ago
    I’ve been researching this a bit but still a bit new. Can you explain how your illiquid affected assets work? My understanding was that this affected only stock in hand. Which can be difficult to turn but should in theory be sellable?
    - toomuchtodo 5y ago
      Exercised options convert into shares, but there has to be a market for those shares, management approval can be required for a transfer, etc. If the growth rate of the shares value is greater than other investments, you might choose to hold the shares until sometime in the future, which can make an unplanned or premature liquidation suboptimal.
- rkk3 5y ago
  > This is mostly going to affect not employees, but individual angels. Not sure why you would think this, early stage employee's (ignoring co-founders) are going to have a much larger stake in the business than most angels.
  - mrkurt 5y ago
    Because employees probably haven't exercised their options.
vmception 5y ago
Eh I know how to make this not affect my clients I just cant see any point in talking about it anymore, as opposed to letting ICIJ or ProPublica figure it out three decades from now in an irrelevant leak, at least irrelevant in 2060.
- vlovich123 5y ago
  Can you elaborate? Are you talking about splitting it up among spouse & trusts or something else? Seems like clients would still be impacted since the tax exemption is still being dropped from 100% to 50%.
  - vmception 5y ago
    Literally the opposite of not talking about it. Sorry. No utility anymore. People are looking to change things they werent even previously aware of, compared to the prior outcomes of just raising income taxes on 6-figure wage workers and pretending that was taxing the rich. I would rather people just assume I’m full of shit than give any clue, there are enough examples of compliant strategies being “leaked” after decades of use for people to assume there are still strategies unaffected.
w-j-w 5y ago
Question I still have after reading the article: what's the rationale for the tax break in the first place? Why does it exist and why was it 100%? This seems to be very important information when discussing changes to a tax law, but is not in the article or any of the comments I've read so far.
nostromo 5y ago
Meh… you still get to exempt 50% of your gains, the capital gains tax isn’t that high anyway, and it only kicks in if you’re making over $400k. Good luck trying to get the general public to feel sorry for you.
snicker7 5y ago
I see a literal zero percent chance that the Dems will pass a tax bill this Congress.
- refurb 5y ago
  Disagree. The Democrats have some serious spending to do and need to pay for (some) of it. And they have ~1 yr to mid-term elections where passing a bill might get a lot harder.
deleted 5y ago
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drinkzima 5y ago
In all of this fever people seem to be ignoring this is a diff of $2m of tax incentive down to $1m of tax incentive on someone taking home $6m dollars (the diff between long term cap gains and the 0% with and without the 50% exclusion on $10m). It’s sad for that person, but the most meaningful impact is to VCs and angels that receive this exception multiple times. Less than the diff of leaving California for a single exit.
- Traster 5y ago
  Surely most VCs are running their investments through their business which isn't going to be subject to this anyway?
dexter89_kp3 5y ago
I wonder why there is so much thought and work on raising taxes but not on efficient spending by the government. There are several examples around where government spending is inefficients and sometimes corrupt. Any way to stir to conversation and political thinking on efficient spending?
- xiphias2 5y ago
  For a corrupt government the more corrupt it becomes, the more efficient they see themselves. And of course they care a lot about this kind of efficiency (capturing even more money for themselves).
- pmyteh 5y ago
  These are the major concerns of the academic field known as 'public administration'. Running government services is easier than a private sector business in some senses (e.g. not subject to market fluctuations) and harder in others (e.g. no single 'bottom line' to optimise). We know how to minimise corruption quite well, but that comes with costs (e.g. rigid procurement rules) that also have downsides. Like everything else, public admin is hard and comes with unwelcome tradeoffs and decisions. As for why it doesn't get that much political attention, I believe it's mostly because it's normally not that controversial in a partisan sense. Most political parties don't run on a 'corruption is good' ticket, and both left and right parties would normally like more efficient public services: the left so they can deliver more public goods for a given amount of money, and the right to allow them to reduce taxes. Which is not to say it doesn't ever become salient: the efficiency of public services was a big thing in US politics in the 90s, for example.
- ploika 5y ago
  That's the function of the Comptroller and Auditor General where I live. I'd be surprised if there was no equivalent in the USA.
- deleted 5y ago
  [deleted]
- germandiago 5y ago
  I am with you and quite pissed withthis topic. But at the root of all of this there is something many do not notice: spending efficiently is done way better by way more pure market dynamics. This means politicians do not have a place there. Yet they want to control a bigger and bigger piece of the cake to justify their positions. Even a well-intentioned politician would not be able to manage more efficiently than a free market. But when they know this and still insist is when their masks drop: they are not there to help anyone, just to justify their positions. They really act increasingly more like a mafia in my opinion. I stay in Spain but I see the same trend in all the westerner world, including USA.
Traster 5y ago
Honestly I find this article's framing is quite funny. Ok, so first off, let's imagine your an early employee of an enormously successful company and you have stock options. Tough life right you're really the one feeling the squeeze. Let's also assume you're earning over $400k in salary. So you don't just have valuable options, you're also earning a great salary. Now under this proposal you'd only get a 50% exemption for your capital gains - so you're going to pay 10% capital gains tax when you sell. If you choose to sell. If you don't sell until a year where you don't earn $400k (god forbid) you'll still pay nothing. Oh but it's a disaster because in this hypothetical, you've already bought a mansion based on what you thought you were going to make selling your options and the 10% tax rate is going to ruin you. And you bought this mansion because you thought you were going to make a tonne of money from your options in a company that hasn't even IPO'd yet so you don't even have a clue what those options would be worth anyway, but somehow a 10% drop in the proceeds of your sale is going to be a disaster. Here's my take on it - if you were banking on having a 0% tax rate despite being in the top 1% of earners in the US maybe you have unreasonable expectations of how the tax system should work.
- bojangleslover 5y ago
  400k seems a bit hyperbolic for early stage startups
  - Traster 5y ago
    The proposal is that the exemption will only drop to 50% if you're earning over 400k.
    - germandiago 5y ago
      Exemption? I would call it "ability to not be stolen".The vocabulary of states is very evil. By exemption it lookslike they are saying "we forgive you and do not make you pay what belongs to us" when in fact it is just the opposite, they take what does not belong to them. I am quite pissed with the political mafia. Not only there. Everywhere.
philjohn 5y ago
Making large financial decisions based on a tax break not even able to legally drink sounds ... foolhardy.
sentinel 5y ago
There’s something to be said about losing an incentive here. Likely they should pay _something_. But they should also be grandfathered in. But at the same time, over the past year, it’s ridiculous how easily this government decides to change the rules of the game overnight and expect us to catch up without a problem. It was the money printing first, then talk about raising capital gains, now this. What the hell. People had made plans (to buy a house, or to retire for example) based on numbers that we thought were sacrosanct.
germandiago 5y ago
Unpopular opinion: politicians always stealing what they do not produce in the name of whatever. Leave people alone. Let people live. Do not control what people should earn or not. Just grant the right to not be damaged to others, that is your job politicians. Not trying to coactively spoil people their effort. Good afternoon. Written from Spain, where things and mindsets are way worse than there in this regard. You are starting to mess up what took you to being developed.
- bantunes 5y ago
  Even more unpopular opinion: getting rid of a 100% tax exemption for people earning over 400k is just how things should be in a functioning society. Maybe with more of these measures, we can stop seeing stories of people working two jobs in the US not being able to make ends meet. And "Do not control what people should earn or not" is incredibly naive and dangerous, if ever taken seriously. Written from Portugal, with hope that the balance of power starts to shift away from high income earners, and back to somewhere closer to the median. Because it's kinda ridiculous right now in the US.
  - germandiago 5y ago
    Did you ever think if people stopped working on the basis of I do not give a fuck because they spoil me? I see your reasoning as very ungrateful. Every single consumption good you have was born in capitalism. Your phone, your computer, your cars, your much cheaper than before clothes. Everything my friend. Open your eyes. Because the day people that provide things to the rest get pissed off some would have a very bad time. The worst part of the story is that those who want everything for nothing are the most loudy. I do not see a problem in anyone earning what others give them voluntarily. Another topic is evil regulations that are artificial. Those will deviate the money to the wrong hands. Naive is to think that regulators can do better thsn the market, which is pure will of people and think that those people do not have incentives to regulate on their own interests things of others. Yes, very naive indeed.
- thehappypm 5y ago
  Everyone loves high taxes until it's them being taxed.
alistairSH 5y ago
Wouldn't it just be easier to tax capital gains like ordinary income? It's ridiculous that Mitt Romney pays a lower overall tax rate (~14.2% on ~$15 million income in 2011, IIRC) than I do on my non-FAANG software salary.
- JumpCrisscross 5y ago
  > Wouldn't it just be easier to tax capital gains like ordinary income? Eliminating the carried interest loophole would cure the problem you observe without the distorting effects of capital appreciation taxes.
darthvoldemort 5y ago
This is why we need a flat tax system. There are far too many tax loopholes. Everyone pays 25% tax on everything and leave it at that. I find it pretty eye-opening that Biden would rip the military out of Afghanistan and deal with those consequences including loss of human life, and yet be too afraid to get rid of the carried interest loophole.
varelse 5y ago
Wow... the same sorts who rahrahed ending the SALT deduction ASAP are having a sad now? I can't think of a better argument for ending this nonsense stat.
aerosmile 5y ago
I couldn't care less about the outcome here. But what's clear once again is that you can't trust anyone's election campaign. From now on, I will just simply assume that whenever we vote for Democrats, they will tax the shit out the rich, regardless of what they say. You might think that's a good thing, except for the whole lying thing and the associated risk for everyone else.

115 points by sinak 5y ago

Well this is what “tax the rich” means. If you don’t like it don’t vote for people who advocate tax increases. This is exactly what was promised.

robocat 5y ago
A trite thoughtless trolling clichéd dismissal. When you vote for a party, you compromise based on the whole package, regardless of how much you disagree with individual policies. If we got to vote for what we wanted, government would look very very different!
- seibelj 5y ago
  Why is raising taxes on the QSBS not what “tax the rich” means? It’s literally a 100% tax-free benefit to the owners of businesses, up to $10 million per year. I support and like the QSBS, but it is exactly the sort of thing the average voter would say is a “tax loophole for the rich”.
  - romanhn 5y ago
    Whom do you lump under "owners of businesses"? Because early employees are impacted as well, seeing how they own company stock. And there are a lot more of those, than just the founders.
    - seibelj 5y ago
      Why does anyone deserve to pay 0% tax on gains, even for early stage companies? Why not the guy who works in the sewer or digs ditches for a living? It reeks of plutocracy. And again, I support the QSBS. I'm trying to put things into perspective for the HN crowd that somehow sees 6 to 8 figure payouts as something that deserves 0% tax, yet also votes for liberal politicians. These things do not square, at least for the average non-techie voter.
      - romanhn 5y ago
        It has nothing to do with "deserving" it. Tax breaks exist, generally, to create specific incentives. In this case, the incentive is to promote small businesses by parking cash with them at an early stage, despite the added risk. Removing this break will disincentize early investment and/or make it harder for businesses to stay capitalized in their formative years.
        seibelj 5y ago
        Totally in agreement. But I’m a libertarian. The larger point I was making was that people vote for liberal politicians and act surprised when they get what was promised. Don’t pretend you are a special snowflake and deserve 0% taxes while the working person does not.
    - refurb 5y ago
      This is exactly what people call out - "Yes we should raise taxes on the other guy, not me!".
  - hamandcheese 5y ago
    The average voter likely doesn’t know or doesn’t care about the difference between high income and high wealth. I think “tax the rich” the way most people think of it would have to be some form of wealth tax.
    - seibelj 5y ago
      I think if you presented the facts - that even early employees of tech companies, who already earn some of the highest salaries in the world, can make up to $10 million per year tax free - the average voter would say that's criminally unfair. Sure sure, you can explain that the latest SaaS bullshit is just an absolutely crucial achievement in human history that needs this, but I think it won't be convincing.
      - hamandcheese 5y ago
        The key “argument” in my mind is this: why are we trying so hard to tax those who might become wealthy but seemingly make no effort to tax those who already are wealthy? I agree, that probably isn’t compelling to many, but I suspect it is a view found commonly here on HN.
- jsiepkes 5y ago
  People didn't get this 100% tax exemption because the government felt "they deserved it". They got it because it's a means for governments to bootstrap things. Like EV car adaption or tech startups. Once that goal is reached the tax benefit will go away. And in this case I can't see how on earth a 100% tax exemption on capital gain can ever be considered fair towards other people like "normal" working people. If you advocate things like tax the rich and justice then rejoice because this is a step in the right direction. Like with so many things people want change but don't want to change themselves. They want other people to change. So no this isn't trolling.
  - imtringued 5y ago
    People complain that taxes are already too high and shouldn't be raised. Others will then justify this statement by saying that the government can simply collect more tax revenue of industries that it is already taxing. Well, this is exactly that. The government is simply collecting the taxes that you are supposed to pay in normal circumstances. It's rolling back tax concessions rather than raising taxes.
mensetmanusman 5y ago
Not sure why this was down voted. These types of tax plans were laid out as part of the debates.

modeless 5y ago

Not end, but cut in half, right?

krasin 5y ago

The cruel part here is retroactiveness of the change. Pioneered by California's Proposition 30 in 2012 ([1]). Retroactive changes of the (tax) law reduce the planning horizon and ultimately the efficiency of the economy. 1. https://gscpa.com/prop-30-retroactive-tax-increases-approved-by-voters/ https://gscpa.com/prop-30-retroactive-tax-increases-approved...

avmich 5y ago
I would argue that laws are imprecise, and taking advantage of the law, as opposed to intent, is questionable. So they probably reduce planning horizon for some and expand that for others, so I'm not sure the efficiency ultimately suffers.
- vlovich123 5y ago
  How about as a matter of fairness? When I made my small angel investments, I thought the QSBS would apply to me. Revoking that for investments already made seems a bit unfair as the tax advantage was locked in by competitors who saw payoffs sooner.
  - avmich 5y ago
    Maybe you thought that QSBS would keep being the way it was set. But there was a chance people would find QSBS written bad enough to change; I don't think analysis of that would show that no, QSBS is pretty close to being ideal from a point of view which well reflects opinions of people. In a sense it's like an investment into an autocratic country - profits are high, but so also is uncertainty. In more developed countries uncertainty is lower - but it doesn't mean that laws are perfect.
    - vlovich123 5y ago
      From a general perspective, retroactive changes to the law aren’t a great idea. It’s one of many foundational philosophical realizations of the American criminal system that modernized it. So why do we accept it in the civil realm? There are variations here that are better. I would say this change is more likely to actually entrench existing wealth. It would be better if adjustments to it were made: * Disallow tax games with the QSBS. Currently if you carefully structure your allocation, you can get 30 mil or more tax free even though the limit is 10 (give shares to your spouse and a family trust - each gets an independent 10 mil). Tax games are an economic inefficiency that serve to entrench existing wealth holders and are parasitic on the overall economy (my tax attorney is not an important part of my investments or helping innovation in tech yet I have to pay him fees to figure out things that should be simple) * Make the tax progressive like with income tax. 100% up to 10 million in net worth or 500k in salary all the way down to 0 at 20 million net worth or 1 million in income. At some point the government helping you become an elite investor isn’t necessary. * Start the clock on when changes will be made impacting investments made today while changes are being debated. Then when/if it changes, make it retroactive. That way it’s done transparently with general knowledge in the market.

cma 5y ago

50% exempt is still high. It is hard to believe it is currently 100%.

deleted 5y ago
[deleted]
TheTester 5y ago
considering that this doesnt work for more than start ups and small businesses it makes sense, specially considering a lot of those start ups just vanish before anyone can cash in.

deleted 5y ago

[deleted]

avmich 5y ago

> The bottom line: The only thing that's certain when it comes to federal tax policy is uncertainty. People compete, it's deep in their nature, so rules of the game get adjusted. Within boundaries, which overall beneficial for everybody, but still - the details of such thing as taxes, usually being imprecise, allow for gaming, so they don't survive long. So - it looks like uncertainty here is by design.

locacorten 5y ago
No. It's not deep in their nature. People do not compete in a system offering no incentive to compete.
- avmich 5y ago
  You can't put precise laws for eons to come; Hammurabi couldn't either. You have to adjust them - in some degree because people get advantage of imprecision in laws. So everyone should - to some extent - assume that rules of the game aren't cast in granite.

ztratar 5y ago

100% exempt does feel high to me. I think my main problem w/ the tax proposals is that they are big, bold changes. If anyone wants to increases taxes even 1%, I want there to be a big fight about it. Serious demands in to budget efficiency and transparency. If it passes, I want to know there is scrutiny over the taking of my dollars. Passing a 10% increase swiftly and suddenly is like a punch to the gut, and we all know the tax code and laws around equity are totally moronic. "We only tax if you make over $x!" doesn't account for the fact that many folks get all of their many years of equity... at once, in one tax year. Why is that counted as income for 1 year, and then boom, up to 65% tax? Overall, taxes over 50% feel unethical too -- imagine if a mob boss goes to a retail store and demands half the profits. Why does anyone -- mob or Government -- deserve more than half of what you make? To hit 55% tax rate in California after this, you only need to make like $250k total. It's a good amount, sure, but if you compare cost of living... it's still hard to live on. You can still barely afford a crappy house. So you get this situation where "life is hard" AND the government is taking home more of your money than you do.

VictorPath 5y ago
> imagine if a mob boss goes to a retail store and demands half the profits. Why does anyone -- mob or Government -- deserve more than half of what you make? I work and create wealth, and some heirs swoop in and grab that created wealth for themselves in the form of quarterly dividends. Sounds like exactly what you are describing. The parasitic expropriation of my surplus labor time by an aristocracy of heirs.
- imgabe 5y ago
  This isn’t about estate tax. Your heirs don’t take anything away from you, neither does the government with estate tax. At the time they take whatever they’re taking, you are dead. Dead people have no use for property. Besides that, if you don’t want your heirs to have your estate, you can create a will while you’re alive and leave all your property to charity, your cat, whatever. In any event, whatever happens to your wealth it won’t really matter to you, since you’ll be dead. Edit: seems I misread this. Anyway, nobody “expropriated“ your labor, you sold it at an agreed upon price. If you aren’t happy with the price you got, demand more or make your labor more valuable.

mikeryan 5y ago

Note there’s some subtlety to this example. That employee would have had to have exercised the options aand held the stock for five years at least. Which they have apparently but I don’t know how common that is. This is mostly going to affect not employees, but individual angels.

toomuchtodo 5y ago
I have illiquid equity this would apply to, from time at a startup as an early employee.
- mikeryan 5y ago
  I’ve been researching this a bit but still a bit new. Can you explain how your illiquid affected assets work? My understanding was that this affected only stock in hand. Which can be difficult to turn but should in theory be sellable?
  - toomuchtodo 5y ago
    Exercised options convert into shares, but there has to be a market for those shares, management approval can be required for a transfer, etc. If the growth rate of the shares value is greater than other investments, you might choose to hold the shares until sometime in the future, which can make an unplanned or premature liquidation suboptimal.
rkk3 5y ago
> This is mostly going to affect not employees, but individual angels. Not sure why you would think this, early stage employee's (ignoring co-founders) are going to have a much larger stake in the business than most angels.
- mrkurt 5y ago
  Because employees probably haven't exercised their options.

vmception 5y ago

Eh I know how to make this not affect my clients I just cant see any point in talking about it anymore, as opposed to letting ICIJ or ProPublica figure it out three decades from now in an irrelevant leak, at least irrelevant in 2060.

vlovich123 5y ago
Can you elaborate? Are you talking about splitting it up among spouse & trusts or something else? Seems like clients would still be impacted since the tax exemption is still being dropped from 100% to 50%.
- vmception 5y ago
  Literally the opposite of not talking about it. Sorry. No utility anymore. People are looking to change things they werent even previously aware of, compared to the prior outcomes of just raising income taxes on 6-figure wage workers and pretending that was taxing the rich. I would rather people just assume I’m full of shit than give any clue, there are enough examples of compliant strategies being “leaked” after decades of use for people to assume there are still strategies unaffected.

w-j-w 5y ago

Question I still have after reading the article: what's the rationale for the tax break in the first place? Why does it exist and why was it 100%? This seems to be very important information when discussing changes to a tax law, but is not in the article or any of the comments I've read so far.

nostromo 5y ago

Meh… you still get to exempt 50% of your gains, the capital gains tax isn’t that high anyway, and it only kicks in if you’re making over $400k. Good luck trying to get the general public to feel sorry for you.

snicker7 5y ago

I see a literal zero percent chance that the Dems will pass a tax bill this Congress.

refurb 5y ago
Disagree. The Democrats have some serious spending to do and need to pay for (some) of it. And they have ~1 yr to mid-term elections where passing a bill might get a lot harder.

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drinkzima 5y ago

In all of this fever people seem to be ignoring this is a diff of $2m of tax incentive down to $1m of tax incentive on someone taking home $6m dollars (the diff between long term cap gains and the 0% with and without the 50% exclusion on $10m). It’s sad for that person, but the most meaningful impact is to VCs and angels that receive this exception multiple times. Less than the diff of leaving California for a single exit.

Traster 5y ago
Surely most VCs are running their investments through their business which isn't going to be subject to this anyway?

dexter89_kp3 5y ago

I wonder why there is so much thought and work on raising taxes but not on efficient spending by the government. There are several examples around where government spending is inefficients and sometimes corrupt. Any way to stir to conversation and political thinking on efficient spending?

xiphias2 5y ago
For a corrupt government the more corrupt it becomes, the more efficient they see themselves. And of course they care a lot about this kind of efficiency (capturing even more money for themselves).
pmyteh 5y ago
These are the major concerns of the academic field known as 'public administration'. Running government services is easier than a private sector business in some senses (e.g. not subject to market fluctuations) and harder in others (e.g. no single 'bottom line' to optimise). We know how to minimise corruption quite well, but that comes with costs (e.g. rigid procurement rules) that also have downsides. Like everything else, public admin is hard and comes with unwelcome tradeoffs and decisions. As for why it doesn't get that much political attention, I believe it's mostly because it's normally not that controversial in a partisan sense. Most political parties don't run on a 'corruption is good' ticket, and both left and right parties would normally like more efficient public services: the left so they can deliver more public goods for a given amount of money, and the right to allow them to reduce taxes. Which is not to say it doesn't ever become salient: the efficiency of public services was a big thing in US politics in the 90s, for example.
ploika 5y ago
That's the function of the Comptroller and Auditor General where I live. I'd be surprised if there was no equivalent in the USA.
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germandiago 5y ago
I am with you and quite pissed withthis topic. But at the root of all of this there is something many do not notice: spending efficiently is done way better by way more pure market dynamics. This means politicians do not have a place there. Yet they want to control a bigger and bigger piece of the cake to justify their positions. Even a well-intentioned politician would not be able to manage more efficiently than a free market. But when they know this and still insist is when their masks drop: they are not there to help anyone, just to justify their positions. They really act increasingly more like a mafia in my opinion. I stay in Spain but I see the same trend in all the westerner world, including USA.

Traster 5y ago

Honestly I find this article's framing is quite funny. Ok, so first off, let's imagine your an early employee of an enormously successful company and you have stock options. Tough life right you're really the one feeling the squeeze. Let's also assume you're earning over $400k in salary. So you don't just have valuable options, you're also earning a great salary. Now under this proposal you'd only get a 50% exemption for your capital gains - so you're going to pay 10% capital gains tax when you sell. If you choose to sell. If you don't sell until a year where you don't earn $400k (god forbid) you'll still pay nothing. Oh but it's a disaster because in this hypothetical, you've already bought a mansion based on what you thought you were going to make selling your options and the 10% tax rate is going to ruin you. And you bought this mansion because you thought you were going to make a tonne of money from your options in a company that hasn't even IPO'd yet so you don't even have a clue what those options would be worth anyway, but somehow a 10% drop in the proceeds of your sale is going to be a disaster. Here's my take on it - if you were banking on having a 0% tax rate despite being in the top 1% of earners in the US maybe you have unreasonable expectations of how the tax system should work.

bojangleslover 5y ago
400k seems a bit hyperbolic for early stage startups
- Traster 5y ago
  The proposal is that the exemption will only drop to 50% if you're earning over 400k.
  - germandiago 5y ago
    Exemption? I would call it "ability to not be stolen".The vocabulary of states is very evil. By exemption it lookslike they are saying "we forgive you and do not make you pay what belongs to us" when in fact it is just the opposite, they take what does not belong to them. I am quite pissed with the political mafia. Not only there. Everywhere.

philjohn 5y ago

Making large financial decisions based on a tax break not even able to legally drink sounds ... foolhardy.

sentinel 5y ago

There’s something to be said about losing an incentive here. Likely they should pay _something_. But they should also be grandfathered in. But at the same time, over the past year, it’s ridiculous how easily this government decides to change the rules of the game overnight and expect us to catch up without a problem. It was the money printing first, then talk about raising capital gains, now this. What the hell. People had made plans (to buy a house, or to retire for example) based on numbers that we thought were sacrosanct.

germandiago 5y ago

Unpopular opinion: politicians always stealing what they do not produce in the name of whatever. Leave people alone. Let people live. Do not control what people should earn or not. Just grant the right to not be damaged to others, that is your job politicians. Not trying to coactively spoil people their effort. Good afternoon. Written from Spain, where things and mindsets are way worse than there in this regard. You are starting to mess up what took you to being developed.

bantunes 5y ago
Even more unpopular opinion: getting rid of a 100% tax exemption for people earning over 400k is just how things should be in a functioning society. Maybe with more of these measures, we can stop seeing stories of people working two jobs in the US not being able to make ends meet. And "Do not control what people should earn or not" is incredibly naive and dangerous, if ever taken seriously. Written from Portugal, with hope that the balance of power starts to shift away from high income earners, and back to somewhere closer to the median. Because it's kinda ridiculous right now in the US.
- germandiago 5y ago
  Did you ever think if people stopped working on the basis of I do not give a fuck because they spoil me? I see your reasoning as very ungrateful. Every single consumption good you have was born in capitalism. Your phone, your computer, your cars, your much cheaper than before clothes. Everything my friend. Open your eyes. Because the day people that provide things to the rest get pissed off some would have a very bad time. The worst part of the story is that those who want everything for nothing are the most loudy. I do not see a problem in anyone earning what others give them voluntarily. Another topic is evil regulations that are artificial. Those will deviate the money to the wrong hands. Naive is to think that regulators can do better thsn the market, which is pure will of people and think that those people do not have incentives to regulate on their own interests things of others. Yes, very naive indeed.
thehappypm 5y ago
Everyone loves high taxes until it's them being taxed.

alistairSH 5y ago

Wouldn't it just be easier to tax capital gains like ordinary income? It's ridiculous that Mitt Romney pays a lower overall tax rate (~14.2% on ~$15 million income in 2011, IIRC) than I do on my non-FAANG software salary.

JumpCrisscross 5y ago
> Wouldn't it just be easier to tax capital gains like ordinary income? Eliminating the carried interest loophole would cure the problem you observe without the distorting effects of capital appreciation taxes.

darthvoldemort 5y ago

This is why we need a flat tax system. There are far too many tax loopholes. Everyone pays 25% tax on everything and leave it at that. I find it pretty eye-opening that Biden would rip the military out of Afghanistan and deal with those consequences including loss of human life, and yet be too afraid to get rid of the carried interest loophole.

varelse 5y ago

Wow... the same sorts who rahrahed ending the SALT deduction ASAP are having a sad now? I can't think of a better argument for ending this nonsense stat.

aerosmile 5y ago

I couldn't care less about the outcome here. But what's clear once again is that you can't trust anyone's election campaign. From now on, I will just simply assume that whenever we vote for Democrats, they will tax the shit out the rich, regardless of what they say. You might think that's a good thing, except for the whole lying thing and the associated risk for everyone else.