Tim Sweeney: Tax bill would likely end founder control of independent companies
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First, and primarily, Tim Sweeny states: "If this tax scheme had been place, I’d have been forced to liquidate nearly my entire ownership." This is absolutely false.
The proposed law (legislative text available here: https://www.finance.senate.gov/chairmans-news/wyden-unveils-...) would not apply the tax scheme to Epic Games. At all.
See Section 491, which applies the new tax scheme to "tradable covered assets", and Section 497 which defines "Tradable Covered Assets". Those are defined assets traded on established securities markets or readily available on secondary markets. Epic Games is a privately held company, and not traded on established securities markets or readily available on secondary markets.
Additionally, the law allows each person to designate up to $1B of normally "tradable covered assets" as "nontradable covered assets". Which means if this law did apply to Tim Sweeny, it wouldn't have impacted his holdings by as much as he implies, as $1B of his assets is removed from his "assets" at the start of the calculation. This significantly reduces the amount of shares he would have to liquidate to cover his take burden.
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.
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.
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.
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.)
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.
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).
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.
So this law would lead to a proliferation of privately held companies as billionaires avoid the stock market and other tradable covered assets?
It's not only traded on established securities market, it's also "readily available on secondary markets".
Basically, if there's a significant number of shares trading hands between parties on an ongoing low-friction basis it's going to be subject to the tax rules. Which means a company that wants to have a really large pool of investors wouldn't be able to skirt this by just not listing.
I think this law could affect the number of IPOs at the margins, but I suspect it wouldn't be the fundamental consideration for a lot of companies.
I think if this law was paired with one that treated putting shares as a collateral for a loan as a taxable event (that is, if you use your shares as the collateral for a loan, those shares are taxed as capital gains at the value that they were assigned as collateral) it would mitigate most of the "IPO avoidance" concerns, since another primary tax avoidance strategy would also be shut down.
Sweeny's twitter thread doesn't tell the whole story, and this comment chain has been treating it largely as fact. I wanted to add context and correct some of those points, so we can have a reasonable discussion.
Sounds like a great way to import rich people and exploit poor people by capping their level of home value.
Thanks for all that hard work on the house, sorry it's getting repo'd and auctioned. Next time, don't try to make a place to live so high quality!
Property tax should be paid on square footage of the boundaries. Impose a property sales tax with progressive residency penalties or some other extractive mechanism, but have the common decency to let people invest in and improve their own homes.
Sure, Georgism has a lot to recommend it (more or less exclusively taxing land), but that's not happening in the US any time soon.
Property taxes are also essential tools against speculation, since your asset naturally depreciates, and the more you bid it up, the more you pay (as a counter example where speculation rules the day because property taxes are absent, see China).
Well dang I’m so relieved that it’s a measurably less severe amount of bullshit.
- Tax capital gains >1m a year as regular income.
- Fix loopholes that allow for equity as collateral for perpetual loans without ever selling the underlying.
- Remove step up in cost basis on inheriting assets.
- Tax stock buybacks at same level as dividends.
- Don't bring back SALT deduction.
Pretty easy to justify. Why should capital gains get favorable tax treatment over income, especially for wealthy who have this as a primary income source? Overall, proportion of assets allocated to investment capital would not dip due to change in tax, where else would they put the money?
Buybacks are effectively a technique to consolidate wealth primarily for the CEO and board of a company, who are paid primarily in equity comp. Very few companies do buybacks for legitimate operational reasons, like purchasing stock when it's undervalued to reduce operational expenses re dividends. It's mostly a buy at any price to juice valuations. I'm not against companies returning money to shareholders, but buybacks shouldn't be tax advantaged vs dividends.
SALT is a direct handout to wealthy homeowners. The fact that this is even in the spending bill shows how far the narrative of fixing wealth inequality has deviated from the actual legislation.
I suspect Congress doesn't do these things because it would actually impact their own finances. And of course they need unilateral agreement on any approach.
my impression is that the step-up cost basis is there because you've already paid the estate tax when the assets were transferred to you? otherwise you'd end up getting double-taxed.
Now let's say I still buy the stock at price A, but instead of selling I hold until my death and my heirs inherit. They pay the estate tax, yes (presuming that my total wealth is massive enough to reach that level), but they pay it as a % of value B- at this point no one owes the government any of that (B-A) tax.
Is that "double taxation"? Well, it kinda depends on your perspective, and this is a situation where perspective seems to be determined by bank balance. If you are wealthy, of course you feel that it is double taxation- it's two separate bites of taxes on the same underlying asset! If you aren't, then what you notice is that somehow this death has created a situation where the government never got it's cut of that (B-A) difference, so this is avoiding taxes.
While capital was transferred, value increase was never really monetized. Would it not be fair to say that it will be taxed only once it turns into money, against the B-A gains, and A is taxed according to normal inheritance rates.
Of course, this has a huge practical issue of knowing what A was, which could be a while back.
As for knowing what A is, if you don't know it you can always fill in 0 and pay slightly more tax than you should, to be safe, so you don't caught in an audit. As of 2011 the IRS requires all brokers to track and report the cost basis for all purchases- that is, any purchase made after 2011 when you sell it they will tell you and the government what the value of A should be.
So why not put the burden of establishing a basis (A) on the person seeking to claim its benefit — who, in this case, is also best-positioned to gather such evidence?
Should they keep poor records, they lose the benefit of that basis, and will instead pay taxes on (B-0).
because the person who should be paying that cut is dead! You don't tax the dead.
Who we tax, and what way, is entirely a choice made by a society. I routinely pay sales tax out of the income that I paid income tax on, and pay extra tax when I buy alcohol- those are all decisions made by society that they were the socially correct way to pay for everything we jointly need as a society. That's all taxes are.
The modern estate tax was created in 1916. In 1906, then President TR gave a speech supporting this kind of tax as a way to try and reduce the power of dynastic wealth- to keep American society from being ossified, and to make sure that the current generation of talented people could amass wealth too.
The modern income tax was created in 1909 as part of an attempt to clear the way for prohibition- a significant part of the Federal budget was paid for with alcohol taxes, and they needed to replace that hole in the budget[1]. For the first three decades it hit only a tiny percentage of the richest, until World War Two when it was expanded and covered a greater percentage of the population, as the Federal government massively expanded and needed more money to pay for its massive size[2].
But those were all the results of political choices, and taxing the dead makes just as much sense.
[1]: Similarly, women's suffrage was also, at least in the US, largely a proxy battle over prohibition- it seems to have been a widely held assumption of everyone in politics in 1910 that as soon as women's suffrage was achieved prohibition would follow immediately afterwards (in fact, prohibition passed two years before women's suffrage). This is why the largest anti-suffrage organization had as its honorary chairwoman Mrs. Adolphus Busch, matriarch of the Budweiser fortune.
[2]: Adam Tooze's book _The Deluge_ has as its basic thesis that the US Government was too small, and had too limited state capacity, which was a major cause of all of the problems of the 1920's and 1930's.
Why not? If someone owes a bunch of taxes when they die, their estate should still be on the hook for it. I don't see any reason that money owed to the government should go to someone's heirs instead just because they happened to die at a specific time
There's nothing fundamentally wrong with "double taxation," no rule that says every dollar must be taxed exactly (or at most) once. Sales tax is also "double taxation," for example. It's a useful heuristic for determine what should and shouldn't be deductible from a particular tax base but it's not a hard-and-fast rule.
My own country has a famous issue with double taxation as I know it: diesel/gasoline have a specific tax and then VAT is calculated on top of original_price * gas_tax, instead of the original price.
So if the gas tax goes up 1% we end up paying more than 1% because it also the increases the value of the VAT.
I'd prefer some simpler overall approach though. Removing step up in cost basis alone obviates the need for an estate tax, as eventually assets would be sold and tax revenue generated.
But important to do some research into how often inherited assets are kept permanently and gains never realized (thus tax never paid).
Just on gut instinct, I would guess most who inherit wealth eventually sell off any assets. I recall it tends to be that most accumulated wealth is lost by the third generation.
The estate tax is still due. The federal estate tax is 40%.
>When a person dies, their assets could be subject to estate taxes and inheritance taxes, depending on where they lived and how much they were worth. While the threat of estate taxes and inheritance taxes does exist, in reality, the vast majority of estates are too small to be charged a federal estate tax—which, as of 2021, applies only if the assets of the deceased person are worth $11.70 million or more
(Investopedia; https://www.investopedia.com/articles/personal-finance/12071...)
If you could remove estate tax and cover by removing step up in cost basis, is probably preferable (but contingent on assets eventually getting sold, requires some research)
It sounds fair, but aren't lower capital gains taxes used to encourage investment? And if we get rid of that incentive on income > $1 million (at least, can they still offset losses?), then would that lead to some adverse consequence (like much lower investment overall as direct income generation becomes preferred at that point)?
It will lead to reduced liquidity though. E.g. holders of assets are likely to sell less frequently to avoid the higher tax burden.
Stock market is a risky place to put it for sure, especially if the upside is taxed more aggressively.
> What are you proposing re: direct income generation?
They will invest more in private businesses and just take a salary, which is also taxed as income.
They get paid every quarter by the company, and can just live off of passive distributions.
If they follow what you're proposing, they pay the higher tax rate anyway. But also don't think that's really feasible at very high net worth.
My take on this is that the capital gain was not actually generated all in one year, but by taxing it as ordinary income, you are putting it into a higher bracket as though it were all generated in one year.
As an example, say your father builds a successful company, and runs it well for 40 years before selling it for $10 million and retiring. By taxing the entire $10 million in one tax year, almost all of it is in the highest tax bracket, which is anything above $500,000 for single filers. But the actual average amount earned per year is only $250,000, which doesn’t reach the highest tax bracket at all.
There are ways to balance this, of course, e.g. if you did exactly what I did in my example, and applied the income tax bracket based on the average gain per year of the securities sold. Something like that would still take care of billionaires “paying their fair share,” since you would have to divide by a lot of years to get billions of dollars in gains into a lower tax bracket.
At a 6% rate of return and a 25% tax rate, after 40 years, even a 100% deferred tax rate is financially preferable to a 25% immediate tax rate, ie: I make more from the interest on my deferred tax than on my entire principle.
The SALT deduction benefits people in high tax states which happen to also be states where democrats hold political power. Many of them ran on restoring the SALT deduction. It benefits states that have high tax rates not exclusively 'wealthy' home owners.
The vast majority taking the deduction are going to be well off homeowners. But yes for sure, high state income tax and other factors play in as well.
If you increase long term rate from 20%, to roughly 40% (top income rate), you'll generate roughly 200B a year in additional revenue. Of course changes in tax law will alter behavior, but we can say likely 100-150B+ per year. We can assume the large majority of these gains are from those above the 1m threshold.
Facebook is doing ~60B in buybacks this year. Taxing that at 20% nets 12B a year in revenue from Facebook alone. Dollar amount of total market buybacks is much higher, obviously. So we can say this likely generates 100B+ per year.
SALT deduction alone costs 100B/year to reinstate
So how does 300-450B a year not cover a 1.5T spending bill over 10 years?
What logic are you using to assert this isn't sufficient? Or are you just writing it off without any research?
Stock buy backs will end, they'll just pay it out as dividends instead. So $0.
SALT deduction has already been capped, no change there.
It's like the wealth tax in France that they expected would bring in billions brought in a few percentage of that.
There's 0 chance that capital gains will drop from 1T to much less than 500B, or that buybacks go to 0. You think people will suddenly never sell their assets because the tax rate is higher?
Dividends are already taxed at 20% for most people, yet companies still pay dividends. So why wouldn't they do buybacks at a 20% tax rate?
Even if you cut projections in half, it's more than enough to fund.
And it seems like you're not aware of the legislation. The budget bill brings back the SALT deduction, which will reduce tax revenue by 100B/year.
That single provision alone is almost enough to fully fund the (pared down) bill.
Also, would you give a credit for share issuance?
1) if company A issues 100 shares in January, and buys back 150 shares in February, then would company A accrue a tax liability on 50 shares, or 150 shares, and how does A's tax liability change? What rate does the liability accrue at? What if it's more than 12 months -- can you bank this somehow?
2) if company A lends $100 to company B, and company B buys $100 worth of company A's shares, then would company B incur a tax liability, and if so, what is the liability?
3) Is this a general tax liability incurred when a company buys shares of any other company?
4) Is this a general tax liability incurred whan a company buys other instruments -- preferred stock, long term debt, etc, of any other company?
5) Does this tax on corporate purchase of financial assets also extend to banks or is it just the non-financial sector?
6) What if a hedge fund buys shares in company A, do they incur a tax liability?
7) Is a company allowed to retire its own debt prematurely under this plan without incurring a tax liability?
8) Can a company do a repo or reverse-repo of its own shares without incurring a tax liability?
9) If instead of buying back its own shares, a company were to buy gold or shares in another company, would that trigger a tax liability?
Thanks!
Because the income has already been taxed when it was the corporation's profit.
But it wouldn't matter anyway, given GP's point. Taxes on corporate income are not taxes on the capital gains of those who hold corporate stock.
And if not, why not?
Another consideration is that maybe having sole control of a massive pot of cash or financial instruments by an individual is just a Bad Thing. Consider how Zuckerberg structured FB so that while he it's a public company, the bulk of the stock is non-voting so he has de facto sole control of the firm. No matter how destructive of shareholder value or public goods his executive decisions, it's virtually impossible for anyone else to overturn them barring some novel legal line of attack.
I have no particular feelings about Tim Sweeney/Epic, but would the economy or the gaming world be worse off if he no longer had founder control? If he's great at his job I presume shareholders would want to keep him on as CEO and would compensate him handsomely in cash money.
agreed. that should 100% be a taxable event and it's totally absurd that it's not. and i'm sure there's a lot of... lobbying that will never allow that kind of law to pass.
Similarly, stocks (or things like gold) that one owns have some worth, and using it as collateral for taking a loan against it is a completely valid thing to do
you bought house for $600K cash (for simplicity). Some years later the house appreciated to $1.5M, and you take out a $1M loan against it - you are obviously realizing a $400K of the value of the house as otherwise those additional $400K can only come from thin air. So those $400K of the realized value of the house (not the loan) need to be taxed with the house adjusted cost basis becoming $1M. If you sell the house later for $1.5M the remaining $500K would get taxed as the difference between sale proceeds and the adjusted cost basis.
Any assets, above $100M, used to collateralize a loan are taxed as if they are realized capital gains at the time that you collateralize the loan.
I don't think the loan itself should be taxed, but if you use assets to collateralize a loan, those assets should be taxed as if they're realized income—since by taking the loan you are now "realizing" the value of those appreciating assets.
It's how the entire banking system works. Taking out loans against collateral deposited in the bank.
People also take out a loan every time they use a credit card. Is that income, too?
I put up $100k of stock for a $100k loan, I do nothing, turn around and pay the money back, and now I have a tax bill? If I repeat this process, I can have an infinite tax liability with no realized gain or net income. Am I missing something?
And I'd bet if it was a strategy employed effectively by the 99% it would be vigorously labelled as tax evasion and dealt with accordingly
All companies once they reach a certain size (including Tesla, SpaceX) have a Senior Leadership Team which decides on the critical decisions affecting the company.
This personality obsession is really only perpetuated by people who haven't worked in business and don't realise just how much of a team effort it is.
How many shares of Apple did Steve Jobs control when he was the CEO?
This is just a ridiculous argument that companies can only succeed if the Founders/CEOs have absolute voting control. There are many examples of shareholders being more than happy to put their votes behind whatever the CEO wants as long as they believe in the CEO.
Also, it's worth considering that not everything great is good, so perhaps a braking or governance system (in the sense of an engine) is worth requiring on any enterprise sufficiently large to become a juggernaut.
This really isn't how the real world works. It's easy to design rules that would work acceptably if no humans were involved, but in reality this would ensure there are no sole owners of companies with control. Sooner or later, every CEO does something that "conventional wisdom" doesn't agree with, and if he doesn't have corporate control, he's out.
Yes, this would "hurt" gaming and the economy, because it would change the ownership of companies for the worse. If every game company was Bethesda, mediocrity and micropayments would rule the gaming world, because every company would pursue whatever strategy is perceived to be "obvious" to make shareholders' money increase.
If this tax had existed when Doom came out, Id software and the effects it had on gaming as we know it would never have existed.
On a side note, the people here commenting that companies could just pay a salary to their CEOs large enough to cover the wealth tax apparently have never owned or run a company. Any company being forced to pay out liquid cash equal to 20% of its stock valuation would go under. The usual killer of small to medium companies is cash flow.. having enough money to buy what you need to keep producing and paying bills until your customers pay their bills.
Also, if they're trying to tax theoretical gains, are they also going to pay out when companies' valuation decreases?
In corporate performance, you get what you measure. If the tax is charged based on companies gaining value, companies won't gain value.
That plus the fact that certain corporations are exempted from it (hedge funds) makes it a non starter.
>I think everyone needs to read the bill and calm down. "Gains on private assets -- including harder-to-value assets like real estate, art and private companies -- would escape the annual levy, and only be taxable when sold. "
I suspect it would be harder to stop this strategy than it might seem, because someone could happen to make me a large personal loan at a low interest rate when I happened to have a large portfolio with them. If the numbers are big enough, it makes sense to do.
If you treated all loans as income, but got a deduction for making payments... Maybe you could make it work. Although, that's kind of rough for mortgage and auto loans.
One quirk of that is that regular Joe could then get a loan against their cost basis in their portfolio and still have no taxes. E.g. they bought 10shares of $X at $100 and now it’s $200. A loan secured against those shares would not be taxable up to $1000 and the portion between $1000 and $2000 would be taxable. This still stops mega billionaires from never paying taxes because the cost bases on their shares are usually very low.
IMHO, if the CEO's decisions are destructive of public goods, shareholders aren't the ones we should go to. We should be able to stop the CEO via government powers.
>but would the economy or the gaming world be worse off if he no longer had founder control?
Shareholder activism has a very double edged record. Their interests aren't necessarily the public's interest or the company's. Maybe they like dividends now rather than investment - their incentives definitely point that way. Giving them more power is unlikely to end well.
1. Whatever happened to increasing tax rates, like pretty much every other country? Why these weird gimmicks?
2. A much greater cause of elite wealth accumulation is running deficits. Deficits are when you want to spend on social welfare but don't have the courage to pay for it with taxes. So you make both sides happy and increase spending while running up deficits. The reason we've seen this astronomical increase in top incomes is because of massive deficit spending.
3. Any tax bill targeting billionaires is going to fail since they can give up US citizenship and offshore whatever they want. If you are serious about soaking the rich, you need controls on capital flight. But that goes against the neoliberal project of globalization. Commitment to that project is going to make any soak-the-rich effort not work. It will end up hitting the upper middle class that can't offshore -- they are the real targets.
4. Envy-based politics don't work. There is a dangerous game being played here. You want to inculcate solidarity and national purpose, but again that goes against the liberal project that only tells us who we are supposed to hate based on their race and/or class.
5. If you have a low interest rate policy, then you are going to make a lot of billionaires much richer via capital appreciation. That's not the fault of the billionaires. If you want to reduce that, then raise interest rates. All these billionaires will become much poorer. Because this is all just paper wealth.
6. The Original Sin of the left is trying to mess with prices instead of incomes. Tax incomes, not repricing of wealth.
I live in one of those countries,... I used to live in another country, that had a red star in the flag, I haven't moved, but I now live in another country... which again has new parties with red star flags.
Every time I hear "tax the rich", the same thing happens... the poor already pay almost zero tax, so nothing happens to them. The rich open a company two countries away in one direction, and register their car two countries away in a different direction, and in the end, pay very little tax. And me? Earning an above-national-average engineering pay, but way below "rich" enough to make such manipulations worth it? I get fucked with new taxes.
In an ideal world, both people like me and people like bezos would pay a same amount (percentage) of tax for every dollar/euro going from our workplace to the crap we both buy, but somehow i get taxed as fuck, and Bezos doesnt ( https://www.businessinsider.com/jeff-bezos-did-not-pay-incom... ).
So how about we first tax Amazon and Bezos at the same rate we tax the local mom and pop bookstore, and their owners paychecks, and then continue from there.
I live in New Zealand and a billionaire here can have a lot of land but otherwise we just don't have the infrastructure to support that ultra high end lifestyle. They would basically be average people with nice toys and a big house here.
I guess my point is that you lose a lot of the perks of being rich by leaving the USA. If you are happy without them then maybe the wealth tax doesn't impact you anyway and you stay where you are
2) I don't agree with your reasoning here.
3) The US is pushing extraterritoriality pretty well, and the nations of the world have agreed to try to eliminate tax havens. Pretty soon there won't be an "overseas" to go to.
4) I don't accept the terms "liberal" or "conservative" to mean what most of the people who use them mean. As labels, they promote sloppy thinking. I consider the authors of this tax to be the Democratic party, who have already proven they are far too establishment to be allowed to continue to exist.
5) Not really possible, because raising those interest rates has other effects. Rather than taxing theoretical company values, tax purchases, VAT- style.
6) You're treating "the left" here as if it's a hard and fast definition of a group of people. Politics in the US is far more complicated than that. There may be some truth to what you say here if you are talking about specific groups of people, but just equating Democrats/the authors of this bill to "the left" isn't accurate, and that sort of inaccuracy perpetuates political partisanship and extremist thinking.
I got tired of reading the daily play-by-plays, but something to do with appeasing Kirsten Sinema's objection to a more straightforward tax hike.
Very few people are going to give up US citizenship. A lot of these guys can't even stand living in Florida; they're not going to hang out in the Caribbean for the rest of their lives.
This is less of an issue for those who inherited wealth, since a lot of it might already be in offshore trusts. Company founders don't have an easy out.
This is, frankly, an extremely dangerous misunderstanding because it's austerity and slack labor markets markets that have immiserated the non-rich. Deficits themselves are never the problem.
Look mo further than the pandemic checks causing us to live in a time of renewed labor unrest rather than a second great depression.
Also debt financing is a charade. Read https://www.jstor.org/stable/40981939 which spells it out clearly.
Honestly, that's not much of a rebuttal.
If you believe in Ricardian Equivalence, then sure, the future deficits are matched by private savings to offset future tax liabilities. Well, what do you think an increase in networth is other than an increase in private savings?
But if you do not believe in Ricardian Equivalence, then the deficit spending is an increase in net-wealth, which again shows up disproportionately on the balance sheets of the wealthy.
So there is really no way around it. Merely calling this "wrong" and "dangerous" is not an argument -- when a government wants to pay benefits but refuses to fund them with taxes, then given that taxes are disproportionately paid for by the wealthy, you are going to have distributional effects.
This is just the flip-side of the old Keynesian saw about balanced budget multipliers.
I really don't see how this is controversial except for the crowd that wants more spending but knows there is not the political will to fund it with taxes. Then this is an unpleasant side effect that they don't want to think about, but that doesn't make it "not true".
> But if you do not believe in Ricardian Equivalence, then the deficit spending is an increase in net-wealth, which again shows up disproportionately on the balance sheets of the wealthy.
My whole point was that this is not necessarily true, and depends on the form the spending takes place. Did you miss that?
Even if a UBI eventually trickles up, we must not conflate solvency and liquidity. The boss has power because the worker's consumption is more time sensative than the production. A good UBI takes away that coercive power not (just) by increasing worker savings, but by making an income floor. (Stock vs flow).
That's like giving people the ability to go longer without food and water so long as their nutritional needs are still met on a (longer term) average.
Nope, I didn't miss it, because it's not relevant. Giving money to poor tenants ends up in the pocket of landlords. Letting poorer people buy iPhones ends up in the money of shareholders and is realized as an increase in Apple stock price, etc.
When you have a small group of the people disproportionately own the capital stock, then giving people more spending money absolutely ends up benefiting those people disproportionately.
> Even if a UBI eventually trickles up, we must not conflate solvency and liquidity.
Neither is being discussed here. I am saying that if you have an economy in which people earn unequal incomes which, you know, must happen given that people make unequal contributions to society, then things like supports for the poor have to be funded with taxes, otherwise this will drive more inequality.
And given that the wealthy pay by far the most taxes, then deficit spending disproportionately benefits the wealthy.
So far, it's showing signs of being both.
UBI is a non starter for at least the next three or four decades except in limited cases. Education of all the rural ("red state") voters has to happen before anything like that would be possible to enact... right now their perception that other people are having an easier time in life because they're given things that the first group had to work for is reason enough for them to have put Trump in power.
But they'll also get taxed out the wazoo when they do so, so it won't really avoid the problem causing them to leave in the first place.
Instead, we want to make economic policy based on what will do the most good, not what we think of as being "fair" or "equitable".
The idea of "fairness" says you should shut down gifted programs because they don't support "equity" -- another name for fairness. The smart policy is to have gifted programs even if the result does not seem fair to you. Because that improves living standards for everyone. Having those people drive innovation in the economy is a good thing, even if they are not racially balanced according to whatever bucket system you are using. Constantly worrying that someone else might have more than you is a great way to create an impoverished society, even though that is what the Plains Ape brain worries about.
Now we already disproportionately tax people -- quite a bit. There is no need to disincentivize entrepreneurship in order to satisfy our base instincts for "fairness". If you want to raise marginal rates -- fine, do that. If you want to eliminate the preferential tax treatment for long term capital gains, fine, do that. I'm happy treating all income the same and taxing it according to a single progressive rate. But I would not support taxing paper wealth or unrealized gains merely as a result of repricing of assets. There are other tax reforms that are less harmful to capital formation.
What you're describing is the failed mentality of the early 1980's : the idea that the wealthy are "better" at capital allocation than everyone else. What it leads to is not some utopia, but simply bigger yachts, and more expensive sports teams, and more expensive land, while the human capital of the poor goes neglected and untapped.
What does the most good for living standards is the government investing in humans and households without capital. More broadly distributed capital, in other words.
So modern economies are not constrained for money, since money is just paper you can print.
But we are not talking about financial capital, but real capital. E.g. entrepeneurs taking big risks to start businesses instead of just getting some cushy sinecure. And the problem is that although the government can print money, Elon Musk can't. He has to risk his own money and his own time, in order to place big bets. He is the one working 14 hour days, creating new fields, while everyone else tells him it's a crazy idea that will never work.
As you start to punish those people and become angry at them for succeeding (ignoring the massive survival bias) they start saying screw it, and don't make those big bets, or move to a different country and place big bets there.
And it is the ability to organize production in innovative ways that is scarce in the society, not paper and ink to create money. So we should focus our economy on rewarding and encourgaging that type of entrepeneurship, and fostering the growth of productive ecosystems, because that creates the surplus wealth that gives value to the government's paper and ink.
Technically you two own the same thing, but you'll get fucked by taxes and he wont.
Why would you be taxed on something you you already paid tax for to buy?
Renting out the house? Sure, get taxed. Selling the house? Sure, get taxed on the price difference. You're growing weed there? Sure, got taxed on profits from that. Otherwise, you never own anything.
Doesn't this open up the possibility of debt slavery of the entrepreneur, to the government ?
If my stock in my biotech startup goes thru the roof and i get taxed X, i could perhaps sell some stock to cover. More likely, though, I will get into an installment plan with the IRS since the gains are so massive its going to be tough to sell so much stock without a discount, to pay the IRS off.
Next year, FDA does not approve my device, and my stock tanks to near $0. Now even if i sold all my stock, I can't even pay back the IRS for my tax debt.
I now have lost my company, but I have also incurred massive debt in the process. And if I am not mistaken, IRS debt is not dis-chargeable in bankruptcy.
Am I reading this wrong ?
You don't have to unless your company is publicly traded (or has shares readily tradable in a secondary market), and your personal shares in the company are worth in excess of $1B.
> More likely, though, I will get into an installment plan with the IRS since the gains are so massive its going to be tough to sell so much stock without a discount, to pay the IRS off.
No, you don't have to do that. The law allows you to carry-forward your first payment over 5 years. That's different from a payment plan, because if the stock goes to 0 in year 3, you no longer owe anything.
So, I'd argue you are reading it incorrectly. Tim Sweeny gets a fair bit wrong, and I'd highly recommend starting with the actual legislative text (available here: https://www.finance.senate.gov/chairmans-news/wyden-unveils-...) to get more details on the law.
This is what happens in Russia, Eastern Europe, Saudi Arabia, and other corrupt oligarchies. When a business gets successful enough, the oligarchs of the countries show up and offer a deal that the person running the company can't refuse and force them to sell to the local oligarch gang at a bad price.
If they wanted to raise more tax revenue, they could just raise the top marginal income tax rate up to 98% or raise capital gains tax rates and not totally screw up things by forcing the confiscation of companies from their founders.
> If tax revenue is too low, just raise the top tax brackets. (Sweeney)
That was the original proposal [0]. Republicans and moderate Democrats shot it down.
Part of me thinks this is the "crazy" option, to actually get motion on increasing top rates and capital gains.
Complaints about those ideas shrink when this is the current alternative.
[0] https://www.nytimes.com/2021/05/28/us/politics/tax-rising-on...
Raising cap gains rates and/or increasing top marginal income tax rates are not very effective ways to achieve this goal.
He lost his home and last I saw was living in an RV.
> stock tanks to near $0
means you get all your paid tax back.
As a founder, my only assets were the stock of my company . I don't own any other stock, certainly none that would go thru the roof over a year or 2.
If the company goes south after a hot streak, I end up with excess unrealized losses that I can't use, because I have no other assets with unrealized gains to book against my carryforward losses.
- Is it a publicly traded company? Or do you readily trade shares of it on the secondary market? If not, then you wouldn't owe any taxes under this scheme, which only applies to "tradable covered assets" (leg. text is here: https://www.finance.senate.gov/chairmans-news/wyden-unveils-...)
- Are your personal shares of the company worth > $1B? If not, then you also wouldn't owe any taxes under this scheme, which allows you to designate up to $1B of normally "tradable covered assets" as "non-tradable covered assets".
It makes having all your eggs in one basket (very slightly) worse than the generally bad idea it already is (if its a billion dollar basket so that you qualify for this treatment in the first place.)
But if all your eggs are in that basket, either the company bounces back later or you are wiped out anyway, so its not that much of a change from the status quo in that respect.
Not that I like the proposal, mind you
The only other option that comes to mind is that if you take a significant loss, you get to retroactively get refunded from a previous year. This actually doesn't seem that intractable, it shouldn't be all that complicated to implement.
No, among other reasons, because its not going to happen, just as it doesn't with the taxes on realized capital gains and losses, where losses can offset gains, and if there is excess a certain amount of regular income, and if there is still excess (or not enough taxable regular income to use the full offset) end up as carryforward losses that can be used as future-year losses, but don't result in negative liability on their own.
> if the economy goes to shit, the government has to come up with money to stimulate the economy AND pay back all the capital gains taxes they collected during the boom times
If they were to write the law so that unrealized capital losses resulted in tax refunds, that would be stimulus, not an extra thing on top or stimulus. It might not be optimally targeted stimulus, but that rarely happens, anyway.
https://www.researchgate.net/publication/249882612_The_Econo...
That used to be called saving and it was considered a good thing. Lower consumption would be better for the environment as well.
Putting cash under your mattress just takes it out of circulation.
Now, of course, I'm exaggerating, but only a little I think. And, of course, this happens on both sides of the debate... but the side in power right now is the one making taxation proposals. Personally, I support your idea by and large. An amount that scales to the degree of the transaction ensures that big transactions pay larger amounts and that everyone has a stake.
Our whole economic system is itself grounded in the vicious promotion of the parochial interest of the capitalist, née mercantile, class, rooted in their envy of the privileges previously enjoyed by the feudal aristocracy, dressed up as virtue.
The capitalist class is now in the position the feudal aristocracy was in when the movement toward capitalism was young, for much the same reason.
This is the whole reason the VAT taxes value added, not the whole transaction.
I have to wonder whether you’ve even looked at existing tax systems, or spent any time sketching out what the consequences of yours might be.
Yes. But maybe having a long chain of suppliers is worth a tax penalty.
The vertically integrated company has a stronger incentive to stay solvent.
I’m thinking particularly about construction businesses here.
Any transaction tax would need to take that into account.
If so, that's clearly a problem.
If not, that's definitely a different set of problems.
Everything seems simple at first, and then it isn't. Every change in taxation rewards some behaviors and punishes others. Either your proposal would result in more tax revenue or less, either of which is a problem for someone, Maybe many someones.
The most obvious issue with the tax structure you describe--aside from who controls which entities--is that it is one of the most regressive tax policies I can imagine. Those at or near the poverty line would now be paying a percentage of everything they earn, while those earning far more would be paying that percentage on only a small subset of their earnings. Considered another way, while this seems mathematically equal, it's most burdensome on those with the least ability to afford it.
“introduce tax on debt creation (when the bank gives you the money).”
> If not, how do you tax billionaires who never sell their stock and just get loans with their stock as collateral.
Depending on how serious you are about taxing gross transfers, giving a collateral interest is also a transfer of interest in money, so you could tax that, too. Valuing the collateral interest could be tricky, though.
I'm not sure who originated this "loans are an infinite money cheat" narrative, but I've been seeing it all over the internet recently and it's simply not true.
If that's the case, then what prevents billionaires like him from creating "Tim Sweeney angel fund LLC" and have that entity retain control of Epic?
Then since this entity is private, couldn't it defer that tax at the time it sells the entity?
With the whole deferred tax scheme that applies to assets not traded on an exchange, i.e. a "deferral charge meant to replicate interest payments on taxes that went unpaid each year, together totalling a tax capped at 49%" as described in https://www.rollcall.com/2021/10/27/wyden-details-proposed-t...
The only way to avoid this is being a foreigner.
Effectively, what they'll accomplish with this tax is either:
1) Letting only foreign billionaires control American companies; or 2) Force American entrepreneurs to waive their citizenship (which, in practice, is #1).
So, yeah, it seems these politicians are either blind or are legislating against American entrepreneurship, in favor of foreign billionaires.
Maybe it's because I'm not in the room, but this feels incredibly slapdash for something so incredibly important.
This language was proposed by Wyden at least two years ago, and has gone through multiple rounds of refinements. (For example, the original text didn’t exempt private assets.) It’s not unrelated because income taxes are how we pay for general expenses in this country. (Granted, limiting it to billionaires always struck me as a way to make it palatable for a lower, e.g. $10mm, threshold.)
Income taxes pay for almost everything; should they only pay for things related to income? I don't understand that.
And my point is I would expect something more thought through than trotting out each legislator's favorite pet taxation overhaul. A few days to consider amongst the options doesn't really seem like enough time, but I guess we're still talking about "a framework" so there will be more time. They're not attempting to pass any of this right now.
[0] - https://www.taxpolicycenter.org/briefing-book/what-are-sourc...
Most of the up and coming interesting industries that have been happening in the last ten years are mostly happening outside of the USA, and this trend will only continue as it becomes harder and harder to operate there.
USA is winning on rockets and EVs but that is 100% because of one person and not wider US policy (and I assume most of his production of the latter will be non-US within 5 years).
Two of those three (TSMC & Intel) are building fabs in Arizona due to political pressure, hefty subsidies and geological stability of the area (reducing the number of defects in chips).
The US has been far ahead in space since the 1960s, and advanced work in space is by NASA (and contractors). SpaceX has advanced orbital launches.
The US is the leader in many, many industries, including IT.
Don’t take my word for it. How many fourth generational heirs do we see among America’s wealthiest billionaires? Essentially zero.
This was used recently by an MP.
That being said I agree with your thoughts, however:
> How many fourth generational heirs do we see among America’s wealthiest billionaires? Essentially zero.
This is probably true but I'd like to ask the question: how many of them simply inherit a lot of money without any of the fame associated with it, and just go unnoticed? I've met such a person, actually.
EDIT: https://www.bbc.com/news/business-36009963 - this is what I was thinking about.
Quite a few. Not sure how long you would make four generations, but let's say 100 years.
There are the obvious famous families; Ford, Rockafellers, Du Pont, Mellon, Mars, Hearst, SC Johnson ("a family company"), etc. But there are a number of billionaire families that aren't recognized much outside of their "home towns" because they started mundane things like retail stores or own mineral rights.
That's not even getting into families whose wealth has diluted, but whose descendents are politicians, actors, or otherwise notable / influential people.
Granted, most billion dollar businesses are <4 generations old, but more sophisticated investment vehicles exists for preserving wealth than existed even 50 years ago.
Plus, that money may get divided and spent over time, but it’s usually invested. It’s not like after 100 years it’s the same amount of money adjusted for inflation, if the next generations didn’t mismanage it.
Entrepeneurs aren't going to not build a company because of some specific tax treatment that only applies whilst they are wildly successful.
Well, arguably it's the step up in basis that enables generational transfer without taxation.
Wealth inequality is a good thing too. People who work harder necessarily live better lives. If you want to start stealing their hard work to give to the lazy, you're going to find that the hard-working flee the country à la the USSR.
There is no evidence that rich people work harder than poor people. In fact the opposite is far more likely to be true given the unique stresses of manual labour.
And there is no evidence that the driver of success is providing for their offspring. There are a whole range of factors at play.
Nothing is stopping someone from employing their wealth to build a yacht, fifteen McMansions, and a thirty-foot solid-gold Mothman statue just after getting off of a six-month prison stint for a billion dollars of ecological damage (all purely hypothetical but I would assert entirely plausible); that people exist with the right to exchange a colossal amount of wealth to be allowed to waste an equally colossal amount of actual effort and resources is the problem.
I won't say nobody has an issue with individual people being allowed to direct huge amounts of funding, but I would assert that more people recognize that extravagant waste for the purpose of status should not be scaled to the extant degree of wealth disparity.
Genuinely smart people with genuinely valuable skill (like Musk or Jobs) would work equally hard whether their offspring were set to inherit 10 million or 10 billion dollars.
The words "CITATION NEEDED"— in bold 72 point-font flashing letters—spring to mind.
Do you have any data, or other evidence, to back that claim up?
Do you believe people without children have no motivation to work hard?
The only reason my high school educated 80 years old mother in declining health can stay in a home, and county, she feels somewhat safe is because of prop 13.
Her biannual property taxes are still a big deal when they arrive.
I've said this before, but I'm beginning to think if you didn't live through the craziness before Prop 13, you won't ever quite get it.
Prop 13 has been the only blessing most homeowners have been given.
If you want to put income limits on the gift of prop 13 fine, but doing away with it completely would be evil. By income limits I mean the guy making $600,000/year, and a huge bank account, could probally still survive without prop 13 protection.
The 80 year old lady, or man, surviving on 1/2 widower's blue collar pension is another story.
(I'm for means testing on all programs. I'm also for tieing all societal fees/fines---speeding tickets, registration, patent fees, etc. to 1040 income/assets wealth.)
Stop calling people evil just because your grandmother isn't the center of their policy concerns.
> US budget deficits don’t require a radical confiscation scheme like this. We already have a very effective progressive tax system which applies the same rules - but different rates - to everyone. If tax revenue is too low, just raise the top tax brackets
That, together with closing the step-up-in-basis loophole, are the simplest ways to more equitably raise revenue.
Instead they get liquidity through loans backed by their shares, on which they of course have no tax.
I agree that taxing based on unrealised gains is not a good solution, but I don't see how raising the top bracket solves that either.
The one loophole here is that if you don't pay your loans back until you die, then your heirs have to pay back the loan. But there is a special "step up in basis" provision where your heirs wouldn't have to pay capital gains tax on the rise in the value of your shares (but you would). Close that loophole and then you'd have a fair system.
I've long held that there should be public liquidity in all companies over a certain valuation and the company should not be allowed to bar you from selling the stock (though it could retain right to beat any pending offers)
It's asinine that companies are allowed to treat equity pay as pay, and IRS can tax it as realized (AMT), but the worker does not in fact have any instrument with which to pay the bill.
Edit: Also this is a really smart tweet IMO
Give yourself a salary that pays for your wealth tax obligations. You don't have to sell anything.
The valuation would grow slower due to burn rate, but the ownership % would not change.
Teslas market cap is 1030m on 31.5m of revenue. GM is 79m on revenue of 122.5m. That's 50x the market cap per revenue.
Also what if it had been in place during the dotcom boom and bust?
https://www.ft.com/content/993e4c11-8729-3168-a280-69e1d400b...
Is there some specific critique you have of what OP has said ?
A. you'll maintain ownership
B. you wont have to pay taxes on the gains
Tons lot of founders care about 'A' a lot more than is "rational".
It sounds okay, but the USA will miss out on a lot of potential wealth and tax revenue from people who choose not to grow their companies into huge multinational corporations.
This complaint I've heard my entire life about the dominant companies of the day that have since collapsed of their own accord. Companies like RCA, IBM, Sears, Kodak, etc.
10 biggest companies by market cap 20 years ago:
GE Cisco Exxon Phizer Microsoft Walmart Citigroup Vodafone Intel Royal Dutch Shell
and today:
Apple Microsoft Alphabet Amazon Facebook Tesla Berkshire Hathaway TSMC Tencent Nvidia
If you're lucky you'll have enough common stock to sell off. But eventually you'll run out.
It’s hard to fathom FB, Amazon, Tesla and SpaceX becoming the behemoths they are without a dictatorish stock holder with absolute control. Amongst those, certainly Musks’ contribution from an electric car and space exploration standpoint are societally argueably positive. Tesla and SpaceX simply would not have happened without him.
Can you honestly point to Bezos and say he is "worth" 196,100,000 times more to society than the Amazon warehouse worker who has $1000 in the bank?
Did he put in 190 million man hours more than the Warehouse worker?
Did he have ideas that were 190 million times better? What kind of IQ would you need to pull that off?
It a matter of good ideas, some long hours no doubt, right time, right place and leverage the work of many thousands of others.
Smart work, but not worth 190 million times his lowest paid.
This level of wealth inequality is indicative of a broken system.
No one knows how much someone is "worth to society". Not me, and not you. Not even Bezos. This is not even a well-defined question.
But what we do know is that this is not what money measures, and attempts to politicize that -- to create some algorithm that decides what someone is worth to society, and then pay them according to that algorithm, always lead to terrible outcomes.
In the same way, we don't know how good or evil Bezos is, and neither is money a measure of good points net evil points.
The sooner we abandon these weird discourses around money, trying to endow it as some kind of metaphysical tally, or make it conform to some metaphysical tally, the better.
Changes in law often result in changes to how companies operate, they're not forced to stick with status quo.
The idea that it would apply to everyone, and be 20% was literally laughed out of the debate on implementing a national income tax as a "crazy conspiracy", it took less than 50 years before that crazy conspiracy was reality.
There is little reason to believe history will not play out the same, and it will not be long before this expands beyond the evil billionaires you despise soo much to those mom and pop stores you seem to claim love for...
you wanna take a loan against your stock? you pay taxes on that loan.
you wanna sell your stock? you pay taxes on the stock you sell.
you just get your salary from the company and never sell stock? you pay taxes on your salary, and not on stock that are doing nothing.
That’s exactly the problem —- loans aren’t income, they’re debt, and debt isn’t taxed. Worse yet, the ultra-elite can carry out “buy (or ‘found’), borrow, die” strategies that let them pass the debt onto their kids, who can sell the securities at a tax advantage due to the stepped-up basis loophole.
but they aren't.
and now we wonder why some "loopholes" are closed and some are not.
I agree with Tim's tweet and the article: not sure it will actually bring more money. It might bring much less.
Essentially the fundamental assertion this breaks is that the stock market is going to stay the same. This might be a great tool now for predicting stock upper value: you are the majority owner and have to decide if you are going to do a buyback or liquidate corporate stock. If your paper value is close to a billion of money you will never see but will pay taxes to, I think you have a strong incentive to keep control of your company and screw the rest of your investors, who would love a buyback as that is the tax effective way of making money of stock right now. Maybe dividends will do a comeback? Regardless, I would be surprised if some stock -- say tesla -- remain high.
So a lot of small investors / average Joe get to declare tax losses so that a big fish that has greater control on the stock price might declare wins???
I am missing some clause I guess. I am not touching IPO implications as that is anothwr minefield and a lot of other threads are discussing it
As long as he has no legal fiduciary duty, it seems like an obvious thing to do. It's definitely what I would do.
And in 4 more years the new tax laws could be anything.
I wonder if this is the kind of thing CNNs might be good at simulating some day.
If LLC company does not qualify as a "corporate investor" like Sony or Tencent (from Tim's examples), is there a structure that does?
Assuming a wealth tax gets through, couldn't the wealthy just take out a loan at near 0% against their stocks to pay the bill?
Could they get away without selling any stock at all?
Especially in an inflationary environment that many people think will get even more inflationary and a Fed that seemingly won't let the stock market crash.
> I think everyone needs to read the bill and calm down. "Gains on private assets -- including harder-to-value assets like real estate, art and private companies -- would escape the annual levy, and only be taxable when sold. "
So this wouldn't have even applied to Epic Games?
If there's no huge incentive for an investor once a company makes it to hold their stock, every successful company will be led by corporate hedge funds/investment firms.
First, this creates a perverse incentive for founders to stifle the growth (or more specifically, in private companies: valuation) of their companies in order to avoid a high-tax event. This may actually be something the Board would approve, in some companies, because this high-tax event would involve the dilution of founder control; companies grant founders tons of shares for a reason, its because they're assumedly doing something to deserve it, and if the Board wanted those shares in someone else's hands they would have done that in the first place.
Second, this is again especially true for private companies but also applies to public ones: it adversely impacts American companies and American founders. We are a global society. If a strong, American company is forced to sell a significant portion of their shares, either on the public market or through private investors, in order to pay a large tax bill, who is going to buy those shares? Investors, generally, which includes entities both domestic AND FOREIGN. These taxable events will move significant wealth out of American hands and into foreign investment entities who are not subject to the same laws.
Third, many people don't realize that the total valuation of the stock market outweighs the total value of all US Dollars in circulation by ~30x (~$50T vs ~$1.5T). Tim could not be more right when he says that he's not really a billionaire, and Musk is not an almost-trillionaire. Stock wealth ISN'T REAL, and I don't just mean that in nebulous, floaty terms, I mean it in very physical, real, "If Democrats try to make stock market wealth real, they will destroy the economy, full stop, there are literally not enough US Dollars to represent the wealth of the US Stock market in real terms." Because taxes are paid in US Dollars, not in TSLA shares, these taxable events will reify a MASSIVE portion of fake-wealth currently tied up in the stock market, which is already significantly inflated due to the Fed's QE over the past decade.
Fourth, this is basically a "Delaware C-Corp" situation; the only reason this tax bill would generate so much income for the US Government is because it is new; billionaires haven't prepared for it. So, it'll make a ton of money, ONE TIME. Looking into the future, its unsustainable; it creates a massive incentive to offshore personal founder wealth, and possibly even citizenship and corporate headquartering. With COVID accelerating remote work, there's a ridiculously real possibility of companies, in the near near future, being founded outside the US, but still accessing as much US talent as they need. The USG can tax the middle class people who work for the company within their borders, but the rich founders? They're on an island. Ayn Rand was an idiot, but she wasn't wrong about everything; rich people will do anything to escape a tax bill.
But the dumbest thing, above all else, is how fucking self-servingly idiotic this bill is. I know our policymakers all share one brain cell, and Biden has been using it a lot recently, but this is beyond reproach. The democrats need money to pay for social programs. That isn't wealth redistribution; its a handout. That money will come from taxing American businesspeople, forcing them to sell shares, which will then be bought by other corporations and investment entities, and the wealth gap will just keep getting bigger and bigger; on the one side are average Americans who can't breach into the INSANE wealth inside corporate America, but are at least kept going on food stamps and free childcare. On the other side, people still insanely rich, just a little bit less so, and their companies are now owned by Tencent and the CCP.
The better path forward for some kind of wealth redistribution bill is something which creates incentives for companies to distribute significantly more corporate shares to more employees. I don't know what that looks like, specifically, but: Every single employee of every single company should see a portion of their compensation be represented as shares in the company, even if its just a handful, from the Waitresses serving tables at the Cheesecake Factory to the CEO who plans strategy. Ultimately this benefits the company, at least in some way, because it aligns financial success at every level, it benefits employees because its an additional vector for compensation which is anti-inflationary at a macroeconomic level (unlike a minimum wage increase, which is absolutely still necessary, but I don't feel is enough), it benefits tax revenue because many lower-wage roles will liquidate these shares very quickly (if possible) (a taxable event), and it benefits US political policy because it keeps ownership of many American corporations in the hands of Americans, rather than foreign investment entities.
1. While there might be attempts to "juke" 409a valuations, a tax on capital appreciation still makes founders wealthier if their stock holdings appreciates in value. They might get 75 cents for every dollar of appreciation due to taxes, but it's irrational to think there isn't an incentive to continue growing their companies and wealth.
2. In order to maintain control of their companies, and avoid taxation, it's possible for companies to create separate classes of voting, non-voting, and sometimes super-voting shares. Even though only one of GOOG and GOOGL holds voting power, they still trade relatively closely in value.
3. Founders of privately held companies can choose who they want to sell their shares to. It's possible they might sell them to closely-tied venture capital firms or pension funds. I don't know why you're so concerned about foreign purchasers, when they already have the ability to purchase public and private companies. It's not like anything is changing in that regard.
4. The amount of currency in circulation might seem relatively small, but pales in comparison to the $29 trillion held in savings accounts and Money Market Funds. The NASDAQ had $300 billion in transactions on Tuesday October 26th, so dollar liquidity is hardly an issue. https://fred.stlouisfed.org/series/M2SL https://www.nasdaqtrader.com/Trader.aspx?id=DailyMarketSumma...
5. It's possible that some existing billionaires will attempt to avoid these taxes, but it's hard to expect that future founders will have the foresight to prematurely sacrifice founding their business in a country that attracts investment and talent.
It's certainly possible, but if founding a business in the USA is a common characteristic among billionaire founders, it's hard to imagine entrepreneurs who aren't yet billionaires will take their business somewhere else due to the potential future tax consequences of becoming a billionaire.