28 ms·
Tim Sweeney: Tax bill would likely end founder control of independent companies
- dzonga 5y agothe reasonable thing, would be to tax loans underwritten by securities as income. that loophole, of borrowing on stocks you own is pretty much giving a bazooka to sycophants or crooks who are prone to abusing it. look at adam neuman for example. otherwise, this so called bill is gonna punish the people it didn't intend to punish, while leaving the current beneficiaries of low wealth tax unharmed.
- kinghajj 5y agoIt looks like Epic Games is a private company, so from what I understand in the proposal, this wouldn't affect him, since his shares are not publicly tradable. The proposal might affect him when/if he were to sell any shares, though, since it has a provision to accrue tax liability on illiquid assets like art/etc, to be owed at time of sale.
- DLTADragonHawk 5y agoFrom what seems to be the intention of the tax plan it would be regardless of if the asset was available in a stock exchange so if the value of Tim's shares put him above the threshold he would still have to pay the tax. His wealth through epic would likely be less then if it were a publicly traded company though. The effect of paying tax on shares was always true as it becomes a realized capital gain and is already covered under the current tax system.
- randyrand 5y agoHe could also attempt to sabotage the company's valuation in an attempt to maintain control. As long as he has no legal fiduciary duty, it seems like an obvious thing to do. It's definitely what I would do. And in 4 more years the new tax laws could be anything.
- dsizzle 5y agoThe stories I see, like https://www.cnbc.com/2021/10/25/senate-democrats-push-for-billionaire-tax-to-help-fund-spending-plan.html https://www.cnbc.com/2021/10/25/senate-democrats-push-for-bi..., says the tax on unrealized gains only applies to "tradeable assets." It doesn't seem like that would cover private companies. From what that article says, it would invoke an increased tax due to the deferral of taxes though.
- IG_Semmelweiss 5y agothere are liquid secondary markets.
- dsizzle 5y agoYeah, maybe they would count that. Are those markets liquid enough to support large sales by the owners though?
- d23 5y agoIt still seems problematic. Even if my company goes public, if I haven't actually sold the shares and made any money, why should this be taxed? If there are loopholes that let the founder avoid those taxes at sale time, fix those, but otherwise why should we effectively take away ownership of a company just because someone has built it up successfully.
- dsizzle 5y agoOne loophole is the step-up basis that applies when the owner dies. Not sure why that wasn't targeted instead (maybe because the current plan produces revenue more quickly?).
- tedunangst 5y ago"Billionaire tax" plays better than "death tax" so we get tax policies that fit into 30 second commercials, not those that make economic sense.
- abeyer 5y agoSo why not a "dead billionaire tax"? The heirs to fortunes seem likely to get even less sympathy than the ones who actually built them.
- Msw242 5y agoReads like a cash grab to me.
- lugged 5y agoWatch progressives double down and spin this tweet as alt right.
- maerF0x0 5y agoI'm actually in favor of this. I've long held that there should be public liquidity in all companies over a certain valuation and the company should not be allowed to bar you from selling the stock (though it could retain right to beat any pending offers) It's asinine that companies are allowed to treat equity pay as pay, and IRS can tax it as realized (AMT), but the worker does not in fact have any instrument with which to pay the bill. Edit: Also this is a really smart tweet IMO Give yourself a salary that pays for your wealth tax obligations. You don't have to sell anything. https://twitter.com/macrofacet/status/1453487461989076997 https://twitter.com/macrofacet/status/1453487461989076997 The valuation would grow slower due to burn rate, but the ownership % would not change.
- DLTADragonHawk 5y agoI think it is a smart way to handle it and it would work for some CEO/founders however, some founders operate as board members that still influence much of the direction and operation without the same possibilities for pay rate increases to cover the gains. I think this could work under specific ownership scenarios but, for high p/e ratio companies this will likely requires ownership sales.
- grayfaced 5y agoIt would likely increase pressure for stocks to pay dividends at a rate that covers taxes on the gains. Which would probably be a good thing.
- dsizzle 5y agoHe could also himself shares with super-voting power, like what Facebook and Google have done.
- DennisP 5y agoIs it possible to do that after taking outside investment? I always assumed share classes like that had to be set up at the beginning.
- brnt 5y agoAn altogether _very_ reasonable price for what we're getting in return.
- Factorium 5y ago[flagged]
- emptyparadise 5y agoWhat's Communism anyway?
- deleted 5y ago[deleted]
- gonehome 5y agoI think the law is bad, but if we had a sane center-right party we wouldn't be in this situation. We're missing a liberal center and it's not found in either party, many (myself included) think the stuff like denying the election results are higher risk so I'm forced to vote against them on that alone. I mostly agree otherwise re: innovation (though think the southern border is not that relevant).
- mindslight 5y agoWhat we're actually missing is any party that hasn't been completely pwnt by corporations. If you take a look at this proposed law, it explicitly excepts hedge funds and the like. Yet again the authoritarian ratchet will click for individuals while corporations escape regulation, leaving them even more powerful. The hypocrisy is blinding when you really dig into the mechanics of tax law - individuals have to pay taxes on their expenses of shelter, transportation, food, whereas if the same situation were interpreted as a business those would all be deductible as expenses necessary to earn income. What if instead we flipped the paradigm such that if you want a government granted charter to create a liability limiting entity, that is what gets heavily taxed while individuals would get left alone for the most part. Require bookkeeping only from the entities that live on it, rather than forcing the yoke onto human beings. Applying this to income-distributing trusts as well would go a long way towards fixing dynastic wealth, without even touching the estate tax. And tangentially the right thing to do about the massive paper gains of the stonk market over the past nineteen months months is to call in all those loans made by the Fed by raising interest rates back to a reasonable level. But that would stop the fake riches gravy train and hamper trickle-up wealth redistribution, so corporatist policy will continue to carry the day while individuals get squeezed by the resulting increased financialization.
- new_realist 5y agoThe current tax situation is like property taxes in California before Prop 19: nobody sells, so ownership and control never changes. This facilitates wealth transfer from generation to generation (in the equity case, though the use of trusts) and perpetuates wealth inequality.
- xbar 5y agoThis is the kind of myopic reading of the law that will curtail entrepreneurial endeavors and lead to corporate-only wealth.
- threeseed 5y agoI fail to see how. Entrepeneurs aren't going to not build a company because of some specific tax treatment that only applies whilst they are wildly successful.
- WalterBright 5y agoTaking away the money, though, will cripple their ability to grow the companies. No SpaceX, no Tesla, no iPhone, etc.
- chollida1 5y agoWe’ll when musk started both those companies he wouldn’t be affected by this tax. In fact it wouldn’t have hit him until a few years ago and he hasn’t given either company money in longer than that. And Steve jobs did t inject money into apple when they were creating the iPhone. So you’re entire point has been pretty much invalidated
- WalterBright 5y agoJobs put most of his fortune from Apple into developing Pixar, transforming it from a failure into a powerhouse. The rest went into Next, which formed the core(!) of Apple's resurgence when Apple merged with it. No Jobs money => no Pixar => no Next => no iPhone Neener neener!
- AdamN 5y agoThere's some truth to it ... but why is that a bad thing exactly?
- wod3m 5y agoif you start a company you should be able to continue to own that company until you decide you're ready to sell it
- RNCTX 5y agoThere are no mom and pop store billionaires.
- wod3m 5y agoIt's a principle that we should apply evenly. I also find it hard to believe that this won't grow in scope once implemented.
- jonas21 5y agoI'm not sure what you mean by this, but Walmart started as a mom and pop store, and the Walton family maintains majority ownership to this day.
- nicoburns 5y agoYes, but Walmart is no longer a mom and pop shop.
- RNCTX 5y agoWalmart didn't go from mom and pop store to national corporation without an IPO. I'm going by wiki data here, which says they had 18 stores and annual revenue of 9 million in 1968. If they had stayed private they were probably clearing a million dollars a year, give or take. To get from there to billions they had to raise outside money, specifically by selling stock and debt to someone else. That is by definition "not owning it anymore" because they're selling (some of) it to raise funding. Like I said, there are no mom and pop billionaires. To get from millionaire to billionaire requires outside money. And yes, that includes tech companies. I know tech founders like to write false hagiographies for themselves after the fact about starting XYZ in a garage, but dig far enough and you usually find it was more like "garage + 25 million from Sequoia Capital," like Google.
- anigbrowl 5y agoWell, one workaround would be to treat securitization of shares (eg for a loan) as a taxable event. This is a common (and currently legal) tax avoidance strategy. Another consideration is that maybe having sole control of a massive pot of cash or financial instruments by an individual is just a Bad Thing. Consider how Zuckerberg structured FB so that while he it's a public company, the bulk of the stock is non-voting so he has de facto sole control of the firm. No matter how destructive of shareholder value or public goods his executive decisions, it's virtually impossible for anyone else to overturn them barring some novel legal line of attack. I have no particular feelings about Tim Sweeney/Epic, but would the economy or the gaming world be worse off if he no longer had founder control? If he's great at his job I presume shareholders would want to keep him on as CEO and would compensate him handsomely in cash money.
- dsizzle 5y agoActually, why wouldn't the Epic's of the world just issue themselves shares with super voting power, like what Facebook and Google did. That would address the concern in his tweet.
- yodon 5y agoYou only get to do that if you're printing money at such an astounding rate that investors will do anything to get you to let them invest in you. FB and Google, yes, most other companies, not so much.
- dsizzle 5y agoLots of companies do it, most of which are not as dominant as FB and Google https://www.cii.org/files/3_17_17_List_of_DC_for_Website(1).pdf https://www.cii.org/files/3_17_17_List_of_DC_for_Website(1).... It only really requires that shareholders trust the owners of the special class shares.
- fernandotakai 5y ago> Well, one workaround would be to treat securitization of shares (eg for a loan) as a taxable event. This is a common (and currently legal) tax avoidance strategy. agreed. that should 100% be a taxable event and it's totally absurd that it's not. and i'm sure there's a lot of... lobbying that will never allow that kind of law to pass.
- randyrand 5y agoIt will also add very odd incentive to not grow your company after you reach the billionaire tax-level. A. you'll maintain ownership B. you wont have to pay taxes on the gains Tons lot of founders care about 'A' a lot more than is "rational". It sounds okay, but the USA will miss out on a lot of potential wealth and tax revenue from people who choose not to grow their companies into huge multinational corporations.
- xbar 5y agoIt is hard to overstate the harm this will do to entrepreneurial enterprise as a result of these anti-growth incentives.
- nicoburns 5y agoSmaller companies may be a net benefit over the long term. These super large companies tend to become over dominant in their markets and and start engaging in anti-competetive behaviours.
- randyrand 5y agoI'd expect that we'd just see more large companies overseas, and fewer in America.
- WalterBright 5y agoIf the government succeeds in breaking up America's huge companies, the US's economic advantage will be ceded to other countries. All the FAANG companies are American. What country wouldn't like to have just one of them?
- dcolkitt 5y agoDecades of economic research has consistently confirmed that large corporations have substantially higher productivity and efficiency.
- WalterBright 5y ago
- amelius 5y agoIf the gains are theoretical, wouldn't it make sense to make the tax theoretical too?
- fhrow4484 5y ago> It doesn’t apply to shares held by hedge funds like KKR, nor to corporate investors like Tencent and Sony. If that's the case, then what prevents billionaires like him from creating "Tim Sweeney angel fund LLC" and have that entity retain control of Epic? Then since this entity is private, couldn't it defer that tax at the time it sells the entity? With the whole deferred tax scheme that applies to assets not traded on an exchange, i.e. a "deferral charge meant to replicate interest payments on taxes that went unpaid each year, together totalling a tax capped at 49%" as described in https://www.rollcall.com/2021/10/27/wyden-details-proposed-tax-on-billionaires-unrealized-gains/ https://www.rollcall.com/2021/10/27/wyden-details-proposed-t...
- ploxiln 5y agoIndeed, whatever conditions there are on this tax, will become the new standard conditions all sufficiently wealthy people will have their accountants arrange their finances to satisfy in order to be excluded.
- twoodfin 5y agoSurprisingly, tax schemes invented at the last minute to thread the needle with a couple of moderate senators and a Byzantine reconciliation process are not typically well thought-out!
- kyleee 5y agoNice short description of the US legislative branch governance model!
- throwthere 5y agoLLC are discarded entities for tax purposes so no change there. The reason it’s not an issue for hedge funds is ownership is split among many non billionaire owners. As opposed to llcs, setting up a shell corporation for stock holdings would lead to accumulated earnings tax. I think you will see some asset hiding as always but the obvious solution is the Peter Thiel billion dollar Roth IRA trick. Assuming roths are excluded I mean.
- deleted 5y ago
- ikiris 5y ago[flagged]
- deleted 5y ago[deleted]
- thedz 5y agoTalk about property taxes next tim
- madrox 5y agoI'm curious how new tax schemes like the proposal Sweeney is criticizing get vetted. It's probably impossible to determine actual economic effects of radical tax reform in advance. Further, from a rational perspective there's no incentive for the best minds to advocate loophole closure in tax schemes as there's more value in exploiting them. I wonder if this is the kind of thing CNNs might be good at simulating some day.
- coenhyde 5y agoBad idea to tax unrealized capital gains. Proposal; How about we gut our entire tax code and replace it with a single tax that taxes when money moves from one entity to another. Let's call it a Transaction Tax. It would replace Sales Tax, Income Tax, Capital Gains Tax, Inheritance Tax, etc and introduce tax on debt creation (when the bank gives you the money). This would close all loop holes and put the entire tax industry out of business. Given it would be taking a slice of every transaction, the rate could probably be super low. 1-2% would be my guess. What can you see wrong with this proposal?
- jasonwatkinspdx 5y agoIt'd net out to a consumption tax which is strongly negative economically to nearly everyone.
- UncleOxidant 5y agoIf it leads to lower consumption that would be better for the environment and would probably lead to a more sustainable economy with less incentive to go into debt.
- sbuttgereit 5y agoBecause it fails to sate the emotional rationalization that sits behind so much of the rhetoric that has been used to justify such measures. The wealthy are evil, duplicitous, exploitative, and in the best cases, merely lucky... regardless of what a wealthy person actually did or didn't do to come to their wealth... and the not wealthy are blameless, innocent, unlucky victims that are unable to change their lot in life in part because of the oppression of the wealthy and in part because their betters in government aren't yet empowered enough to protect their best interests.... again all without regard to how they came to their unfortunate lot in life. Now, of course, I'm exaggerating, but only a little I think. And, of course, this happens on both sides of the debate... but the side in power right now is the one making taxation proposals. Personally, I support your idea by and large. An amount that scales to the degree of the transaction ensures that big transactions pay larger amounts and that everyone has a stake.
- phonon 5y agoSeems to me stock asset taxes should be on the same order as real estate taxes...1% per year or so of total assets (with a very healthy carve-out/minimum). If it's truly 25% per increase that seems counter-productive.
- 015a 5y agoThis is legitimately one of the dumbest, most boneheaded tax schemes I've ever seen the left devise. I'm all for taxing the rich, but not like this. First, this creates a perverse incentive for founders to stifle the growth (or more specifically, in private companies: valuation) of their companies in order to avoid a high-tax event. This may actually be something the Board would approve, in some companies, because this high-tax event would involve the dilution of founder control; companies grant founders tons of shares for a reason, its because they're assumedly doing something to deserve it, and if the Board wanted those shares in someone else's hands they would have done that in the first place. Second, this is again especially true for private companies but also applies to public ones: it adversely impacts American companies and American founders. We are a global society. If a strong, American company is forced to sell a significant portion of their shares, either on the public market or through private investors, in order to pay a large tax bill, who is going to buy those shares? Investors, generally, which includes entities both domestic AND FOREIGN. These taxable events will move significant wealth out of American hands and into foreign investment entities who are not subject to the same laws. Third, many people don't realize that the total valuation of the stock market outweighs the total value of all US Dollars in circulation by ~30x (~$50T vs ~$1.5T). Tim could not be more right when he says that he's not really a billionaire, and Musk is not an almost-trillionaire. Stock wealth ISN'T REAL, and I don't just mean that in nebulous, floaty terms, I mean it in very physical, real, "If Democrats try to make stock market wealth real, they will destroy the economy, full stop, there are literally not enough US Dollars to represent the wealth of the US Stock market in real terms." Because taxes are paid in US Dollars, not in TSLA shares, these taxable events will reify a MASSIVE portion of fake-wealth currently tied up in the stock market, which is already significantly inflated due to the Fed's QE over the past decade. Fourth, this is basically a "Delaware C-Corp" situation; the only reason this tax bill would generate so much income for the US Government is because it is new; billionaires haven't prepared for it. So, it'll make a ton of money, ONE TIME. Looking into the future, its unsustainable; it creates a massive incentive to offshore personal founder wealth, and possibly even citizenship and corporate headquartering. With COVID accelerating remote work, there's a ridiculously real possibility of companies, in the near near future, being founded outside the US, but still accessing as much US talent as they need. The USG can tax the middle class people who work for the company within their borders, but the rich founders? They're on an island. Ayn Rand was an idiot, but she wasn't wrong about everything; rich people will do anything to escape a tax bill. But the dumbest thing, above all else, is how fucking self-servingly idiotic this bill is. I know our policymakers all share one brain cell, and Biden has been using it a lot recently, but this is beyond reproach. The democrats need money to pay for social programs. That isn't wealth redistribution; its a handout. That money will come from taxing American businesspeople, forcing them to sell shares, which will then be bought by other corporations and investment entities, and the wealth gap will just keep getting bigger and bigger; on the one side are average Americans who can't breach into the INSANE wealth inside corporate America, but are at least kept going on food stamps and free childcare. On the other side, people still insanely rich, just a little bit less so, and their companies are now owned by Tencent and the CCP. The better path forward for some kind of wealth redistribution bill is something which creates incentives for companies to distribute significantly more corporate shares to more employees. I don't know what that looks like, specifically, but: Every single employee of every single company should see a portion of their compensation be represented as shares in the company, even if its just a handful, from the Waitresses serving tables at the Cheesecake Factory to the CEO who plans strategy. Ultimately this benefits the company, at least in some way, because it aligns financial success at every level, it benefits employees because its an additional vector for compensation which is anti-inflationary at a macroeconomic level (unlike a minimum wage increase, which is absolutely still necessary, but I don't feel is enough), it benefits tax revenue because many lower-wage roles will liquidate these shares very quickly (if possible) (a taxable event), and it benefits US political policy because it keeps ownership of many American corporations in the hands of Americans, rather than foreign investment entities.
- rsj_hn 5y agoSome observations: 1. Whatever happened to increasing tax rates, like pretty much every other country? Why these weird gimmicks? 2. A much greater cause of elite wealth accumulation is running deficits. Deficits are when you want to spend on social welfare but don't have the courage to pay for it with taxes. So you make both sides happy and increase spending while running up deficits. The reason we've seen this astronomical increase in top incomes is because of massive deficit spending. 3. Any tax bill targeting billionaires is going to fail since they can give up US citizenship and offshore whatever they want. If you are serious about soaking the rich, you need controls on capital flight. But that goes against the neoliberal project of globalization. Commitment to that project is going to make any soak-the-rich effort not work. It will end up hitting the upper middle class that can't offshore -- they are the real targets. 4. Envy-based politics don't work. There is a dangerous game being played here. You want to inculcate solidarity and national purpose, but again that goes against the liberal project that only tells us who we are supposed to hate based on their race and/or class. 5. If you have a low interest rate policy, then you are going to make a lot of billionaires much richer via capital appreciation. That's not the fault of the billionaires. If you want to reduce that, then raise interest rates. All these billionaires will become much poorer. Because this is all just paper wealth. 6. The Original Sin of the left is trying to mess with prices instead of incomes. Tax incomes, not repricing of wealth.
- nmfisher 5y ago> Any tax bill targeting billionaires is going to fail since they can give up US citizenship and offshore whatever they want. But they'll also get taxed out the wazoo when they do so, so it won't really avoid the problem causing them to leave in the first place.
- DennisP 5y agoI agree with a lot of that but regarding (3), there's already an exit tax, which is the same as the capital gains tax if you sold everything. This is less of an issue for those who inherited wealth, since a lot of it might already be in offshore trusts. Company founders don't have an easy out.
- 5y ago
- web2sucks 5y agoEveryone in this thread is talking about how to properly tax. How about we remove taxes all together. Everything should be private other than roads.
- missedthecue 5y agoWait a minute, what's special about roads?
- TameAntelope 5y agoOkay, doesn't it feel crazy that we're just throwing ideas out there and if it seems to justify the spending for something totally unrelated, it'll have a reasonable chance of becoming literally the highest law of the land? Maybe it's because I'm not in the room, but this feels incredibly slapdash for something so incredibly important.
- sneak 5y agoI expect to see a lot of crazy selfdestructive, self-sabotaging schemes from the USA during the remainder of the attempt at empire, which I expect to last the entirety of the rest of my life. Most of the up and coming interesting industries that have been happening in the last ten years are mostly happening outside of the USA, and this trend will only continue as it becomes harder and harder to operate there.
- losvedir 5y agoCurious to know what up and coming industries you mean?
- sneak 5y agoCryptocurrencies, advanced semiconductors, and cheap per-passenger rail/aircraft. USA is winning on rockets and EVs but that is 100% because of one person and not wider US policy (and I assume most of his production of the latter will be non-US within 5 years).
- posguy 5y agoSamsung (South Korea), TSMC (Taiwan) and Intel (US, Israel) locate their fabs in small countries that are heavily dependent on the US for ensuring their neighbors do not attack. Two of those three (TSMC & Intel) are building fabs in Arizona due to political pressure, hefty subsidies and geological stability of the area (reducing the number of defects in chips).
- 5y ago
- varelse 5y agoIf the rate is too high, I suspect wealth will be transferred to assets like real estate with lower annual taxations. And this will lead to a new class of speculation. Or rearranging deck chairs on the Titanic because we haven't solved the fundamental problem that there are just too many bespoke deductions for the rich.
- hn_throwaway_99 5y agoThis proposal seemed utterly reasonable to me, especially this: > US budget deficits don’t require a radical confiscation scheme like this. We already have a very effective progressive tax system which applies the same rules - but different rates - to everyone. If tax revenue is too low, just raise the top tax brackets That, together with closing the step-up-in-basis loophole, are the simplest ways to more equitably raise revenue.
- sailingparrot 5y agoThe issue is that many billionaires effectively have zero revenue. For example, Elon's salary at Tesla is 0$ per year. So you can increase the top bracket all you want, they won't pay more. Instead they get liquidity through loans backed by their shares, on which they of course have no tax. I agree that taxing based on unrealised gains is not a good solution, but I don't see how raising the top bracket solves that either.
- hedora 5y agoThen tax the loans?
- hn_throwaway_99 5y agoPeople keep using this example, but it doesn't really make sense. If you take out a loan against the value of your increased shares, then you still have to pay that loan back eventually, and when you do, you have to pay tax on whatever you liquidate to get the funds to pay back the loan (in addition to paying interest on the loans). This is literally how all loans work. The one loophole here is that if you don't pay your loans back until you die, then your heirs have to pay back the loan. But there is a special "step up in basis" provision where your heirs wouldn't have to pay capital gains tax on the rise in the value of your shares (but you would). Close that loophole and then you'd have a fair system.
- nmfisher 5y agoAs I understand, though, the USA CGT rate is basically half the income tax rate, so even if they eventually pay tax on disposal to meet the loan repayments (which they don't, at least not on a 100% basis), they still pay only half the effective tax rate.
- summerlight 5y agoBeside of whether this particular tax reform bill is good or not, does it have any chance to survive in the current Supreme Court setup? If it's definitely not, I don't think it's a good idea to pursue it's going to shrink the future political possibility of taxing multi-billionaires.
- ameen 5y agoWould this also not affect angel investing/seed investing by individuals? If there's no huge incentive for an investor once a company makes it to hold their stock, every successful company will be led by corporate hedge funds/investment firms.
- emodendroket 5y agoCan't really say I'm shocked to learn a guy who would have to pay more taxes under the new tax plan opposes it.
- kragen 5y agoYou know, one of the worst things about Atlas Shrugged is the degree to which its villains are cartoonish strawmen, doing things like... passing tax bills that end founder control of independent companies.
- belltaco 5y agoA twitter reply says this: > I think everyone needs to read the bill and calm down. "Gains on private assets -- including harder-to-value assets like real estate, art and private companies -- would escape the annual levy, and only be taxable when sold. " So this wouldn't have even applied to Epic Games?
- missedthecue 5y agoThat's really just another reason not to like it. It's a massive disincentivize to go public, because as described, everyone's stake will get whittled down to zero by this tax over time.
- IG_Semmelweiss 5y agoCurious. Doesn't this open up the possibility of debt slavery of the entrepreneur, to the government ? If my stock in my biotech startup goes thru the roof and i get taxed X, i could perhaps sell some stock to cover. More likely, though, I will get into an installment plan with the IRS since the gains are so massive its going to be tough to sell so much stock without a discount, to pay the IRS off. Next year, FDA does not approve my device, and my stock tanks to near $0. Now even if i sold all my stock, I can't even pay back the IRS for my tax debt. I now have lost my company, but I have also incurred massive debt in the process. And if I am not mistaken, IRS debt is not dis-chargeable in bankruptcy. Am I reading this wrong ?
- missedthecue 5y agoYou're not. There are a lot of good reasons why governments don't implement or keep unrealized capital gains taxes for long.
- whakim 5y agoThis isn't true. There are lots of recorded instances of wealth taxes (e.g. France prior to the abolition of the ISF several years ago; many countries which levied temporary wealth taxes after WWII, etc.)
- lokedhs 5y agoSweden did the same. A lot of people suffered during the dot com bust because they were taxed on enormous unrealised profits that had completely disappeared by the time they had to pay them (because the stock had tanked)
- WalterBright 5y agoThat happened to a friend of mine in the US. He had a "taxable event" when his stock options vested. By the time the tax bill was due, his stock was worthless, and he went bankrupt. He lost his home and last I saw was living in an RV.
- vburg 5y agoBuffet/Gates/Bloomberg/Soros/Cuban have been saying for years the rich need to pay more taxes. Propose a tax increase that actually hits the super-rich and the screaming begins. Guess all along they meant the "other rich", anyone making 200k.
- hedora 5y agoIn the Twitter thread, Sweeney proposes a progressive capital gains tax maxing out at 75%. It would hit him personally, but still allow him to run his company. He’s not complaining about the magnitude of the tax. He’s complaining about the mechanism.
- wolverine876 5y agoHe's 'proposing' something he knows is politically impossible. I predict he will find a way to run the company and make billions of dollars.
- gok 5y agoNo, it would never hit him in a meaningful way. He has no intention of ever realizing most of his capital gains.
- souplesse 5y agoI found quotes from Mark Cuban, but I’m not seeing any comments on this proposal from Buffett/Gates/Bloomberg/Soros. Can you share your sources?
- adam_arthur 5y agoIt'd be pretty easy to levy completely fair and progressive tax structure that only directly impacts the wealthy, and is sufficient to cover the spending. - Tax capital gains >1m a year as regular income. - Fix loopholes that allow for equity as collateral for perpetual loans without ever selling the underlying. - Remove step up in cost basis on inheriting assets. - Tax stock buybacks at same level as dividends. - Don't bring back SALT deduction. Pretty easy to justify. Why should capital gains get favorable tax treatment over income, especially for wealthy who have this as a primary income source? Overall, proportion of assets allocated to investment capital would not dip due to change in tax, where else would they put the money? Buybacks are effectively a technique to consolidate wealth primarily for the CEO and board of a company, who are paid primarily in equity comp. Very few companies do buybacks for legitimate operational reasons, like purchasing stock when it's undervalued to reduce operational expenses re dividends. It's mostly a buy at any price to juice valuations. I'm not against companies returning money to shareholders, but buybacks shouldn't be tax advantaged vs dividends. SALT is a direct handout to wealthy homeowners. The fact that this is even in the spending bill shows how far the narrative of fixing wealth inequality has deviated from the actual legislation. I suspect Congress doesn't do these things because it would actually impact their own finances. And of course they need unilateral agreement on any approach.
- refurb 5y agoThis won't cover the spending at all. Not even close.
- adam_arthur 5y agoThere are ~1T in capital gains realized every year, roughly. If you increase long term rate from 20%, to roughly 40% (top income rate), you'll generate roughly 200B a year in additional revenue. Of course changes in tax law will alter behavior, but we can say likely 100-150B+ per year. We can assume the large majority of these gains are from those above the 1m threshold. Facebook is doing ~60B in buybacks this year. Taxing that at 20% nets 12B a year in revenue from Facebook alone. Dollar amount of total market buybacks is much higher, obviously. So we can say this likely generates 100B+ per year. SALT deduction alone costs 100B/year to reinstate So how does 300-450B a year not cover a 1.5T spending bill over 10 years? What logic are you using to assert this isn't sufficient? Or are you just writing it off without any research?
- anonporridge 5y agoQuestion I've had for a while. Assuming a wealth tax gets through, couldn't the wealthy just take out a loan at near 0% against their stocks to pay the bill? Could they get away without selling any stock at all? Especially in an inflationary environment that many people think will get even more inflationary and a Fed that seemingly won't let the stock market crash.
- Rebelgecko 5y agoIn today's environment, yeah. But a few decades ago those loans would have interest rates more like 20%
- anonporridge 5y agoWouldn't the loans be fixed interest rates?
- Rebelgecko 5y agoAs far as I know, every sort of margin loan or pledged asset line of credit is indexed against the daily SOFR, LIBOR, or a similar benchmark (onto which the lenders add their profit margin, which is usually negotiable if you throw enough money at them). If you know any with fixed interest rates let me know, that'd be a helluva deal!
- ncallaway 5y agoI think the comments here miss a couple of factors. First, and primarily, Tim Sweeny states: "If this tax scheme had been place, I’d have been forced to liquidate nearly my entire ownership." This is absolutely false. The proposed law (legislative text available here: https://www.finance.senate.gov/chairmans-news/wyden-unveils-billionaires-income-tax https://www.finance.senate.gov/chairmans-news/wyden-unveils-...) would not apply the tax scheme to Epic Games. At all. See Section 491, which applies the new tax scheme to "tradable covered assets", and Section 497 which defines "Tradable Covered Assets". Those are defined assets traded on established securities markets or readily available on secondary markets. Epic Games is a privately held company, and not traded on established securities markets or readily available on secondary markets. Additionally, the law allows each person to designate up to $1B of normally "tradable covered assets" as "nontradable covered assets". Which means if this law did apply to Tim Sweeny, it wouldn't have impacted his holdings by as much as he implies, as $1B of his assets is removed from his "assets" at the start of the calculation. This significantly reduces the amount of shares he would have to liquidate to cover his take burden.
- seanmcdirmid 5y ago> Epic Games is a privately held company, and not traded on established securities markets or readily available on secondary markets. So this law would lead to a proliferation of privately held companies as billionaires avoid the stock market and other tradable covered assets?
- ncallaway 5y agoMaybe, but there are a lot of factors that drive IPO decision making and I don't think this would be a huge one. It's not only traded on established securities market, it's also "readily available on secondary markets". Basically, if there's a significant number of shares trading hands between parties on an ongoing low-friction basis it's going to be subject to the tax rules. Which means a company that wants to have a really large pool of investors wouldn't be able to skirt this by just not listing. I think this law could affect the number of IPOs at the margins, but I suspect it wouldn't be the fundamental consideration for a lot of companies. I think if this law was paired with one that treated putting shares as a collateral for a loan as a taxable event (that is, if you use your shares as the collateral for a loan, those shares are taxed as capital gains at the value that they were assigned as collateral) it would mitigate most of the "IPO avoidance" concerns, since another primary tax avoidance strategy would also be shut down.
- deleted 5y ago[deleted]
- frebdo 5y ago[flagged]
- necovek 5y agoWhat's to stop individual founders from setting up their "proxy" LLCs owned by them to own their stock? As LLC would be privately owned, they'd have no stock value, and their owners could not be taxed on the gains. If LLC company does not qualify as a "corporate investor" like Sony or Tencent (from Tim's examples), is there a structure that does?
- ttul 5y agoThe best way to fund Democrat programs is a value added tax. But of course nobody wants to talk about that. Every other country with significant social programs has a VAT. It’s not a coincidence.
- 8bitsrule 5y agoA billion dollars ought to be enough for anybody.
- eftychis 5y agoI am still trying to go through everything proposed and well I don't see a final draft somewhere -given that a lot of sub clauses, that are tax critical, seems to be flying around: I agree with Tim's tweet and the article: not sure it will actually bring more money. It might bring much less. Essentially the fundamental assertion this breaks is that the stock market is going to stay the same. This might be a great tool now for predicting stock upper value: you are the majority owner and have to decide if you are going to do a buyback or liquidate corporate stock. If your paper value is close to a billion of money you will never see but will pay taxes to, I think you have a strong incentive to keep control of your company and screw the rest of your investors, who would love a buyback as that is the tax effective way of making money of stock right now. Maybe dividends will do a comeback? Regardless, I would be surprised if some stock -- say tesla -- remain high. So a lot of small investors / average Joe get to declare tax losses so that a big fish that has greater control on the stock price might declare wins??? I am missing some clause I guess. I am not touching IPO implications as that is anothwr minefield and a lot of other threads are discussing it
- Proven 5y agoLOL, 400 comments and counting. I guess this hits too close to home even for our tax-horny HN founders, both prospective and current. If you like your wealth tax, you can keep your wealth tax, period.
- lr1970 5y agoIn American system corporations have personhood. In such context, why this new tax law applies only to individuals holding the stock and not to the corporations, banks, hedge-funds, etc. I genuinely do not understand! If it were to apply uniformly for all stock owners the absurdity of the proposal would become obvious.