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> 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

> 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).
- candiodari 5y ago
  What is to prevent "franking" of capital gains the way dividends are franked (ie. every shareholder gets paid back whatever capital gains taxes they would need to pay to keep their stocks/control stable) ? Obviously shareholders who are all equally affected by this would find this to be a fair deal. Likewise these companies exist because of the vision of the founders (or at least, that's a good argument to make. See Yahoo vs Google for example, or even Yahoo by itself)
  - ncallaway 5y ago
    I don't think anything would prevent it, but I doubt many companies would have equally affected shareholders. The point that I agree with Tim the most is that this legislation only affects individuals, not corporate owners. I'd absolutely want to apply it to those owners as well. But, an investment group would not be taxed the same way as individual owners, and so might be less inclined to approve such payments. Also, since each individual can exempt up to $1B in assets, it would only be those individuals that hold a massive amount of the company that would typically be liable for the tax burden. So, an early employee that has $900M of Facebook shares wouldn't receive any of the tax-payback money that Zuckerberg would receive. Because the exposure would be fairly selective, it seems marginally less likely that enough shareholders would be equally affected at a company to find it to be a fair deal.
    - candiodari 5y ago
      If it only affects individuals, it's trivial to circumvent. Have a holding company under your control "owned" by a bunch of people (who are well paid for that role, but have no control. You could even do it the middle eastern way and use extended family for that). Besides, I'm personally much more worried about Blackrock than I am about Bezos, or any billionnaire. But "doing something" while doing nothing. That, I imagine, is the intention. any tax rule can be circumvented, because the US allows international share ownership ... which they in fact do: https://www.forbes.com/sites/danielmitchell/2012/05/11/facebook-billionaire-gives-up-citizenship-to-escape-bad-american-tax-policy/?sh=53e1b6641995 https://www.forbes.com/sites/danielmitchell/2012/05/11/faceb... So this needs compromise, talking. The main talking point of these founders seem to be that they want to maintain control of these companies, and choose their successor. Do we care about that with this legislation? Why not give them that?
dragonwriter 5y ago
> As a way to protect himself from this dilution in ownership, what could he do? Borrow against his stock holdings to pay the taxes, at interest rates far below the rate of stock appreciation. (That people already do this—but not for taxes—to perpetually avoid realizing gains while enjoying all the benefits of the gains is central to the explicit motivation of this bill, so its kind of a major oversight to ignore it as an option for paying the taxes.)

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).

candiodari 5y ago
What is to prevent "franking" of capital gains the way dividends are franked (ie. every shareholder gets paid back whatever capital gains taxes they would need to pay to keep their stocks/control stable) ? Obviously shareholders who are all equally affected by this would find this to be a fair deal. Likewise these companies exist because of the vision of the founders (or at least, that's a good argument to make. See Yahoo vs Google for example, or even Yahoo by itself)
- ncallaway 5y ago
  I don't think anything would prevent it, but I doubt many companies would have equally affected shareholders. The point that I agree with Tim the most is that this legislation only affects individuals, not corporate owners. I'd absolutely want to apply it to those owners as well. But, an investment group would not be taxed the same way as individual owners, and so might be less inclined to approve such payments. Also, since each individual can exempt up to $1B in assets, it would only be those individuals that hold a massive amount of the company that would typically be liable for the tax burden. So, an early employee that has $900M of Facebook shares wouldn't receive any of the tax-payback money that Zuckerberg would receive. Because the exposure would be fairly selective, it seems marginally less likely that enough shareholders would be equally affected at a company to find it to be a fair deal.
  - candiodari 5y ago
    If it only affects individuals, it's trivial to circumvent. Have a holding company under your control "owned" by a bunch of people (who are well paid for that role, but have no control. You could even do it the middle eastern way and use extended family for that). Besides, I'm personally much more worried about Blackrock than I am about Bezos, or any billionnaire. But "doing something" while doing nothing. That, I imagine, is the intention. any tax rule can be circumvented, because the US allows international share ownership ... which they in fact do: https://www.forbes.com/sites/danielmitchell/2012/05/11/facebook-billionaire-gives-up-citizenship-to-escape-bad-american-tax-policy/?sh=53e1b6641995 https://www.forbes.com/sites/danielmitchell/2012/05/11/faceb... So this needs compromise, talking. The main talking point of these founders seem to be that they want to maintain control of these companies, and choose their successor. Do we care about that with this legislation? Why not give them that?

dragonwriter 5y ago

> As a way to protect himself from this dilution in ownership, what could he do? Borrow against his stock holdings to pay the taxes, at interest rates far below the rate of stock appreciation. (That people already do this—but not for taxes—to perpetually avoid realizing gains while enjoying all the benefits of the gains is central to the explicit motivation of this bill, so its kind of a major oversight to ignore it as an option for paying the taxes.)