Comment by lanceweatherby | Hacker News Reader

Comment by lanceweatherby | Hacker News Reader

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Mr. Obama's official tax plan states the following:

Eliminate capital gains taxes for small businesses, cut corporate taxes for firms that invest and create jobs in the United States, and provide tax credits to reduce the cost of healthcare and to reward investments in innovation. * What you have stated he said is very different, and perhaps he has changed his position.

Regardless, I would love to hear Obama explain what he means by eliminating capital gains for startups and small businesses?

There is a big diff between eliminating all capital gains taxes on start-ups and small businesses and eliminating all capital gains taxes for individuals that found/invest in start-ups and small businesses.

Small businesses and startups have very little capital gains liabilities.

Entrepreneurs that start successful companies and those that invest in them have potentially huge capital gains liabilities and the latter by definition reside in the wealth class that Obama wants to tax more.

You really think he is proposing that folks like PG, Cuban, Larry, Sergey, and Bill Gates for that matter pay no taxes on their capital gains. I think not.

The concept would encourage investment so I like it. But I want the details which have not been forthcoming.

> You really think he is proposing that folks like PG, Cuban, Larry, Sergey, and Bill Gates for that matter pay no taxes on their capital gains.

He doesn't have to propose that because it's already law.

I don't know about PG, but the estates of the others, which will get the vast majority of what they earned, won't pay taxes when they die. At most they're going to pay capital gains on what they spend while they're alive, and even then there are some tricks.

Inheritance tax is optional if your assets are liquid enough and large enough. In short, when Gates and Buffet said that estate taxes should be higher, they were talking about taxing other people.

And you thought that they set up those foundations to do good....

I beg to differ.

Estates are currently taxed. I believe to the tune of 45% of the amount over $2 million.

As far as capital gains goes, they are due when you sell your capital. In the case of PG this most likely occurred when he sold ViaWeb. Everytime Larry and Sergey sell their GOOG stock they incur captial gains.

Obama is generally proposing raising the capital gains tax from 15% to 20% for anyone that earns over $250,000. Any startup founder that has a successful exit should make a heck of a lot more then $250k. By def an angel investor must earn $200k per year or have a net work of more than $1 million.

And that is why I want to see the details.

> Estates are currently taxed.

The key word there is "estates"; "legal estates" would be more accurate.

Gates et al move their accumulated wealth out of their legal estates into tax-free foundations and the like. So, while their legal estates may be taxed, there is almost nothing there to tax.

No, they didn't sell their stock to fund these foundations - they donated stock, which is either tax free or provides a tax benefit. Yes, those foundations serve many of the purposes of "estates". (The Gates kids and their kids and so on will always have an income.)

There are other things that they can do to shift money to their kids and grand-kids without significant tax consequences. (Yes, there's a $10k limit on some transactions, but ....)

There are things that these folk can do while they're alive to generate tax benefits that they can then use to make other sales tax free, giving them something to live on. (I don't know the legal status of the Google planes, but the planes that are available to NASA could easily generate tax benefits.)

You think that Bill got that money to build that big ol house of his tax free?

I don't know how much tax planning Gates does. He may think that avoiding cap gains on $40M (which is what I heard that his house cost) isn't worth the trouble.

I previously mentioned using donations to shelter income. His house offers some additional opportunities.

I think that a huge fraction of the cost went to cool custom gadgets. If Gates set up a company to research/develop those gadgets, he can deduct the "losses" when said company doesn't manage to sell them. Yes, he should pay for the gadgets themselves, but they're cheap compared to the NRE.

There are some ways to do tax-free roll-over to fund companies, so the deductions would shelter other income.

Even if Gates had to pay cap gains to fund the company that developed the gadgets, he's way ahead if the deductions are at ordinary income rates. If he both pays and deducts at cap gains rates, he's just out cap gains on the gadgets themselves.

However, like I said, I don't know how much tax planning Gates does. He has over $60B, so avoiding cap gains on $40M is like someone with $2M avoiding cap gains on a cheap used car. Then again, he may have set up a system 20 years ago to pull out money tax-free every year. Putting $40M through it may be just SOP.

Fair enough, though I think that we have strayed from the topic of taxes on capital gains on startups or investments in startups or whatever it is that Obama is proposing.

My point was, however poorly made with the Gates example, that I doubt that the thought, other loopholes aside, is to eliminate capital gains tax for people that are deemed to be "rich".

Regardless, I am all for any tax incentive that provides incentives for anyone to start or invest in a startup.

> My point was, however poorly made with the Gates example, that I doubt that the thought, other loopholes aside, is to eliminate capital gains tax for people that are deemed to be "rich".

I think that it's silly to consider "the thought". We should look at where we actually are and what is likely to actually happen if we make proposed changes.

Part of "where we actually are" is that the very rich don't pay estate taxes and can work around cap gains taxes, so evaluating cap gains proposals based on their effects on the very rich is silly.

Instead, we should look at people who are actually paying cap gains (and estate taxes for that matter).

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