Ask Entrepreneurs: Obama and capital gains tax increases | Hacker News Reader

Ask Entrepreneurs: Obama and capital gains tax increases

1 pointmpc8 comments

The majority of entrepreneurs that I know are big fans of Obama despite the likely tax increases. This also includes a steep increase in capital gains.

I'll be the first to admit that I don't follow politics as closely as I should and I'm not trying to use HN for political debating...but I was interested in hearing other entrepreneurial minded people chime in on this.

As a hacker at a startup...why do I want a 25%+ capital gains tax if we're successful? It's like being punished for working hard and taking a lot more risk than the average schlep.

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If you're successful, a 25% capital gains tax is not all that onerous. What's the difference between $20M and $15M? Sure, it's $5M, but what can $20M buy you that $15M cannot?

Many entrepreneurs are much more concerned with becoming successful, and having a reasonably tech-friendly politician in the White House like Obama would help. Net neutrality can generate far more wealth for entrepreneurs than the capital gains tax will take away.

Of course, then he had to go and nominate Biden for VP...

If you're successful, a 25% capital gains tax is not all that onerous. What's the difference between $20M and $15M? Sure, it's $5M, but what can $20M buy you that $15M cannot?

After the fact, yes. But a 25% capital gains tax reduces your expected outcome by 25%, so if you are thinking of starting a business that within a year you suspect has a 10% chance of being worth $1 million, and a 90% chance of being worthless, your expected return goes from $100K to $75K -- and that might rule it out for people who are already making a decent amount of money.

Only math dorks go by expected returns. ;-) (Which includes myself, since initially I got into entrepreneurship because I figured "10% chance of $40M, 90% chance of 0 - hey, a $4M expected return for a couple years of work beats most other professions." Silly me.)

Utility functions aren't linear, and often aren't continuous. For most people, the increase in utility from $75k to $100k is negligible - it just means you can buy a fancier car, get a bigger TV, and have a few more lattes. The increase in utility from $100K to $15M is enormous, because it means you never have to work again. The increase in utility from $15M to $20M is, again, negligible.

As far as I know, people act as if they're math dorks, even if they don't make those explicit calculations (the same way your average basketball player doesn't know that f = ma, but can still apply f sufficient to give a particular m the a necessary to make a three-pointer).

For most people, the increase in utility from $75k to $100k is negligible

Well, the savings rate is not variable enough by income for that to be true. It looks like people ratchet up their consumption nearly as fast as their income increases, so it is fairly linear. And if you consider utility to be the optimal bundle of goods, even rapidly diminishing marginal utility doesn't change the fact that you get exponentially more consumption bundles with more money, so the best bundle is likely to require a high income.

I still think that talking about the final outcome is not useful, since the final outcome is hidden behind the probability of failure. You can't talk about the incentive to play the lottery just by reciting the prizes -- the odds are important, too.

And anyway, math dorks are a disproportionate number of successful entrepreneurs.

Here's why: http://www.paulgraham.com/inequality.html

You are rewarded for being born in a country that has a rule of law, reasonably well-regulated securities markets, little chance of having governmant thugs take your successful company away from you just because they can, and you bitch about giving some of it back?

It's not about how much tax you pay. It's about how the government uses it.

For example, in most of Scandinavia, the tax rates would make a typical American's eyes bleed. But what they get for it is: clean streets, low crime, great public transport, education and healthcare, and so on. Here in the UK we're taxed almost as much and our government is staggeringly inefficient and pisses most of it away. Filthy streets, knife crime, falling literacy and numeracy rates, a healthcare service that is as likely to kill you as cure you. If I relocated to Sweden or Iceland, I'd have no problems with paying their taxes. But I bitterly resent every penny that goes to the UK government.

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