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> Epic Games is a privately held company, and not traded on established securities markets or readily available on secondary markets. But suppose it were publi

> Epic Games is a privately held company, and not traded on established securities markets or readily available on secondary markets. But suppose it were publicly held, with Sweeney holding majority ownership. Why would that distinction make his criticism of this tax scheme invalid? It seems to me his criticism is still perfectly valid, it only applies to a smaller set of companies.

ncallaway 5y ago
Yes, but the strength of the criticism is really dependent on the number of companies that it applies to. If his criticism applied to every company and every founder in the country, it would be devastating and the law shouldn't be considered at all. If the criticism would affect the control of only a single company, then it's a much smaller concern. So, saying: "this criticism is quite a bit smaller in scope than it was being presented as" is a significant change. > Why would that distinction make his criticism of this tax scheme invalid? I didn't say his criticism was "invalid". I said that one factual claim he made was wrong (which it was), and that the commenters here were overlooking some of these mitigating factors. It doesn't mean we should entirely ignore the concerns that he raised, but I think we should evaluate those concerns in a complete and measured way. By the same token, I don't think raising a "valid" criticism also totally dooms the proposal. It's possible that there are other mitigations we can apply, but fundamentally every tax structure has to balance the good with the bad. We need to decide if the benefits of the structure outweigh the downsides. Is it possible that this tax scheme would require the founders of some companies to sometimes sell shares to cover their tax burden? Yes, it's possible. Is it possible that the amount of shares those founders would have to sell could impact their control over the company? Yes, it's certainly possible. How many companies that are founder controlled will be forced to no longer be founder controlled because of this tax scheme? Based on the legislative text, I suspect it's a very small number and might be 0, but I grant that it may not be 0.
- sieabahlpark 5y ago
  > Yes, but the strength of the criticism is really dependent on the number of companies that it applies to. Not really. That's a subversive way of approaching it if anything. It's basically saying "you're not allowed to trade equity if you want to retain ownership"
- fhrow4484 5y ago
  > How many companies that are founder controlled will be forced to no longer be founder controlled because of this tax scheme? Based on the legislative text, I suspect it's a very small number and might be 0, but I grant that it may not be 0. I guess one can do the mental exercise of consider what would have happened had this law been in place already to Bill, Jeff, Sergei, Larry, and Mark. Ignoring whether it's a "good thing" or "bad thing": Mark owned 22% of FB shares at IPO in 2012, 4 years later the market cap was ~$500B, so assuming he kept 22% ownership throughout, he went from ~20 to ~$100B of wealth, meaning over those 4 years he'd have to find how to pay for an extra $16B tax bill (20% of 80B gain). Unless his salary was set to a couple billions a year, he'd definitely have to sell some of the stocks. As a way to protect himself from this dilution in ownership, what could he do? - Setup a complex class of shares (like F class described somewhere else in this thread)? - Not go public? The Mark, Jeff etc of the world are obviously the extreme outliers, but the same would apply to "smaller fish" (billionaires still!), Including Tim Sweeney if if ever wanted to take his company public.
  - Brian_K_White 5y ago
    "Not go public" seems most sensible to me, from both sides, being a Zuck/Bezos/Gates/etc, and being the rest of the economy and society with Z/B/G/etc's in it. If your priority is continuing to own your creation, then by all means, keep it. If the setup disincentivises the creation of Z/B/G/etc's, I don't consider that a detriment to the overall society.
  - ncallaway 5y ago
    > As a way to protect himself from this dilution in ownership, what could he do? First, I think a “dilution in ownership” for founders is possible as an outcome of the tax structure. My quibble is mostly that the dilution will affect fewer companies that was presented, and will be less dilution than was presented. Specifically, I think it’d be a small enough amount that it’d flip the control from the individual founders to not the individual founders. In the FB example, it’s worth noting that as of 2019 Facebook already had two classes of shares (class A, held by public investors, and class B held by FB executives, which have 10x the voting power), which (again, in 2019) gave Zuckerberg total control of Facebook. So, insofar as dual classes of shares already exist, that certainly seems like one option. Zuckerberg can sell class A shares for his tax burden, but keep class B shares. That would dilute his ownership to some extent, but his voting power would be diluted significantly less. Other options could be paying the tax burden over 5 years instead of a single year (which is in the legislative text), which’d let him pay his tax burden with something like hundreds of millions per year. Another option instead of selling stock would be to take out loans collateralized by the stock, and use that to pay the tax burden. This would effectively allow them to pay the tax burden over (say) 30 years, which again makes it easier to cover on salary alone. Or, they could forego the benefits of being a public company (or being a private company that’s readily tradable on secondary markets). There are real downsides to that, though. To your point, though, I think it’s fair to say that this tax law may dilute the ownership interest of billionaires to some degree. I think it’s less likely than Tim Sweeney was suggesting to wrest control out of founder’s hands (though obviously still possible, especially for any founder that is just barely holding on to 50% ownership).
- FranksTV 5y ago
  I don't know, I think we should trust the ultra-wealthy guy when he says that paying his fair share of taxes will hurt the little guy.
dragonwriter 5y ago
> But suppose it were publicly held, But its not, for a reason, and there are existing reasons why companies don't tend to go public while still in the meteoric valuation growth phase. And when companies are public, so that stock is a tradable asset subject to the tax, you can borrow against it; with sustained rapid appreciation, the interest rates will be substantially below the rate of appreciation, so there is no reason to liquidate assets to pay stock. Without sustained rapid appreciation, liquidating sufficient stock to pay the taxes won't force people to liquidate the bulk of their holdings, even over a long time.
downrightmike 5y ago
Its not like companies that are listing to the stock markets have any value left. Most of them are just using it after they've burned all their rounds of funding to hopefully dump the picked over carcass on retail and pension funds. So the less they CAN dump, the better.

ncallaway 5y ago

Yes, but the strength of the criticism is really dependent on the number of companies that it applies to. If his criticism applied to every company and every founder in the country, it would be devastating and the law shouldn't be considered at all. If the criticism would affect the control of only a single company, then it's a much smaller concern. So, saying: "this criticism is quite a bit smaller in scope than it was being presented as" is a significant change. > Why would that distinction make his criticism of this tax scheme invalid? I didn't say his criticism was "invalid". I said that one factual claim he made was wrong (which it was), and that the commenters here were overlooking some of these mitigating factors. It doesn't mean we should entirely ignore the concerns that he raised, but I think we should evaluate those concerns in a complete and measured way. By the same token, I don't think raising a "valid" criticism also totally dooms the proposal. It's possible that there are other mitigations we can apply, but fundamentally every tax structure has to balance the good with the bad. We need to decide if the benefits of the structure outweigh the downsides. Is it possible that this tax scheme would require the founders of some companies to sometimes sell shares to cover their tax burden? Yes, it's possible. Is it possible that the amount of shares those founders would have to sell could impact their control over the company? Yes, it's certainly possible. How many companies that are founder controlled will be forced to no longer be founder controlled because of this tax scheme? Based on the legislative text, I suspect it's a very small number and might be 0, but I grant that it may not be 0.

sieabahlpark 5y ago
> Yes, but the strength of the criticism is really dependent on the number of companies that it applies to. Not really. That's a subversive way of approaching it if anything. It's basically saying "you're not allowed to trade equity if you want to retain ownership"
fhrow4484 5y ago
> How many companies that are founder controlled will be forced to no longer be founder controlled because of this tax scheme? Based on the legislative text, I suspect it's a very small number and might be 0, but I grant that it may not be 0. I guess one can do the mental exercise of consider what would have happened had this law been in place already to Bill, Jeff, Sergei, Larry, and Mark. Ignoring whether it's a "good thing" or "bad thing": Mark owned 22% of FB shares at IPO in 2012, 4 years later the market cap was ~$500B, so assuming he kept 22% ownership throughout, he went from ~20 to ~$100B of wealth, meaning over those 4 years he'd have to find how to pay for an extra $16B tax bill (20% of 80B gain). Unless his salary was set to a couple billions a year, he'd definitely have to sell some of the stocks. As a way to protect himself from this dilution in ownership, what could he do? - Setup a complex class of shares (like F class described somewhere else in this thread)? - Not go public? The Mark, Jeff etc of the world are obviously the extreme outliers, but the same would apply to "smaller fish" (billionaires still!), Including Tim Sweeney if if ever wanted to take his company public.
- Brian_K_White 5y ago
  "Not go public" seems most sensible to me, from both sides, being a Zuck/Bezos/Gates/etc, and being the rest of the economy and society with Z/B/G/etc's in it. If your priority is continuing to own your creation, then by all means, keep it. If the setup disincentivises the creation of Z/B/G/etc's, I don't consider that a detriment to the overall society.
- ncallaway 5y ago
  > As a way to protect himself from this dilution in ownership, what could he do? First, I think a “dilution in ownership” for founders is possible as an outcome of the tax structure. My quibble is mostly that the dilution will affect fewer companies that was presented, and will be less dilution than was presented. Specifically, I think it’d be a small enough amount that it’d flip the control from the individual founders to not the individual founders. In the FB example, it’s worth noting that as of 2019 Facebook already had two classes of shares (class A, held by public investors, and class B held by FB executives, which have 10x the voting power), which (again, in 2019) gave Zuckerberg total control of Facebook. So, insofar as dual classes of shares already exist, that certainly seems like one option. Zuckerberg can sell class A shares for his tax burden, but keep class B shares. That would dilute his ownership to some extent, but his voting power would be diluted significantly less. Other options could be paying the tax burden over 5 years instead of a single year (which is in the legislative text), which’d let him pay his tax burden with something like hundreds of millions per year. Another option instead of selling stock would be to take out loans collateralized by the stock, and use that to pay the tax burden. This would effectively allow them to pay the tax burden over (say) 30 years, which again makes it easier to cover on salary alone. Or, they could forego the benefits of being a public company (or being a private company that’s readily tradable on secondary markets). There are real downsides to that, though. To your point, though, I think it’s fair to say that this tax law may dilute the ownership interest of billionaires to some degree. I think it’s less likely than Tim Sweeney was suggesting to wrest control out of founder’s hands (though obviously still possible, especially for any founder that is just barely holding on to 50% ownership).
FranksTV 5y ago
I don't know, I think we should trust the ultra-wealthy guy when he says that paying his fair share of taxes will hurt the little guy.

dragonwriter 5y ago

> But suppose it were publicly held, But its not, for a reason, and there are existing reasons why companies don't tend to go public while still in the meteoric valuation growth phase. And when companies are public, so that stock is a tradable asset subject to the tax, you can borrow against it; with sustained rapid appreciation, the interest rates will be substantially below the rate of appreciation, so there is no reason to liquidate assets to pay stock. Without sustained rapid appreciation, liquidating sufficient stock to pay the taxes won't force people to liquidate the bulk of their holdings, even over a long time.

downrightmike 5y ago

Its not like companies that are listing to the stock markets have any value left. Most of them are just using it after they've burned all their rounds of funding to hopefully dump the picked over carcass on retail and pension funds. So the less they CAN dump, the better.