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There's so much inaccuracy in your comment that I feel needs to be addressed.

> Vesting has the unique property that before it occurs the shares are not yours and after it occurs, they clearly are (and can't be clawed back).

That's not correct. You're vesting 'options' i.e. the option to purchase shares at a certain price. Not shares. Even once you buy the options they are not easily liquidated.

> Nothing stops you from offering it. It's up to the potential employee to accept it, weighing the possible tax liability.

If it makes zero financial sense to anyone why would you offer it?

> In the vast majority of cases startup equity isn't worth the paper it's printed on. Paying their employee bonuses with cash would be a net win for their employees. The "losers" in this situation are established companies that arguably are already in a good position to pay out bonuses in cash (or at least include a cash component to cover taxes).

No, the losers in this situation are early stage startups, and employees who want to work at those companies and get rewarded in the potential upside. At an early stage startup there is no 'cash' to pay bonuses. Even if there was cash, equity comp is incredibly more valuable in a company that sees any kind of success. Clearly you're bearish on equity based comp, so be it, but it has been my experience that equity is the primary avenue people see any financial success in tech.

If any semblance of this gets passed into law, and it effects ISOs, I think it'll be the end of Silicon Valley as we know it.

> The "losers" in this situation are established companies that arguably are already in a good position to pay out bonuses in cash

If you can pay cash you can compensate your employees for the tax change. The losers are cash-poor companies. They will need to sell more shares, earlier, to pay for the change. That shifts leverage in early-stage negotiations from founders and early employees to investors. It also advantages, in the job market, firms with more cash over those with less cash.

> If you don't tax vesting, are you going to instead wait until the shares are sold to tax them? That would be very easy to abuse.

would you care going in details on why this would be "very easy to abuse"?

In France that's how ISO works:

You have 2 taxable events:

- At exercise-time, calculate the gain here (between current date price and strike price).

- At sell-time, calculate the gain here (between exercise date price and current date price).

However, the first event, you don't owe any tax yet. You only pay the taxes for both exercise-time and sell-time taxes the year you sell the shares.

See the picture on [1] where "Prix d'exercise" = strike price; "Levée des options" = day you exercise the options.; "Vente des actions" = day you sell the stocks.

What is not 100% clear to me there is, what happens if the stock lost value between exercise date and sell date, can this loss offset the gains made on the first taxable event. In my opinion, to be 100% employee friendly, it should. But since the exercise date could have happened years ago, I'm not sure those can be offset since they aren't the same "type" of gains.

Anyways, with this system, in the case the company goes bankrupt and you never sold the stocks, at least you didn't pay taxes on money you never had in hands, you only loose the money you spent when exercising the options. I don't see how this can be abused.

[1] https://particuliers.societegenerale.fr/epargner/gestion_pat...

Taxing on sale is farer or if say you get taxed on vesting and then 1 year later the company goes but do you get a tax refund I think not.

> If you don't tax vesting, are you going to instead wait until the shares are sold to tax them? That would be very easy to abuse.

Why would it be easy to abuse? Surely you can just set the tax basis of those shares to 0?

> I really doubt that. The talent pool, networks, and legal infrastructure in the USA are second to none. That's not going to suddenly shift because of minute changes to tax law.

Working for a startup is already immensely risky. If there was a practically guaranteed bankruptcy risk as a result of appreciating stock options, no sane employee would work for a startup anymore-- they would all go work for the big companies offering liquid stock. That, to me, is a very profound impact on our industry.

Or startups could pay, you know, salary + bonus like the rest of the world?

That's not the point one of the reasons for Woking at a start up its to make FU money - and big companies also offer stock options not very few FTSE 100 companies don't have share schemes for their employees for example.

Actually curious: Why are you talking about British companies in a thread about American taxes?

Or do you happen to be British so you use FTSE 100 as a shorthand for what most Americans would use the S&P 500 for?

I was contrasting the experience of share schemes in the UK which are a no brainer with effectively zero tax implications rather than the currently broken system the US has