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Comment by noego | Hacker News Reader

The main problem seems to be that startup employees are being asked to pay taxes simply to exercise their options, even though the stock they now own is extremely illiquid. This problem exists here in America too. The best solution in both countries would be for employees to be taxed only for cash income/dividends, or when there is a liquidity event such as IPO or acquisition.

I highly recommend doing away with the lower capital-gains tax entirely and treating investment income the same as labor income. However, it seems ridiculous to ask someone to pay taxes when they literally don't have the money to do so.

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This has always bothered me. I don't like incurring a tax penalty that has to be paid in cash, when I don't have any more cash to pay it or a way to turn the asset into cash!

Sidenote: how do you actually determine the spread for tax purposes when you can't sell the stock/it doesn't have a current price?

How does it make sense to treat investment income the same as labor income? I've already been taxed on the investment amount, and I get no rebate if I lose my investments.

You've already been taxed on the investment principal. Not the returns that you're getting on the investment. By your logic, the capital-gains-tax should be eliminated entirely because its double taxation, which is a ridiculous idea.

Why is that ridiculous? Investment is a good thing -- it should be encouraged.

Is labor not a good thing that should be encouraged?

Yes, but if you think getting rid of capital gains would be ridiculous, you're probably not interested in reducing income taxes.

We're conflating different things here. The point we're discussing is that investment-income should be treated the same as labor-income. From your last comment, you presumably agree that labor is also a good thing that should be encouraged, so I don't see why investment-income should be taxed so much lower than labor-income.

Risk.

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