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Tim Sweeney: Tax bill would likely end founder control of independent companies

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Re: Tim Sweeney: Tax bill would likely end founder control of independent companies

#11

Post by anigbrowl »

Well, one workaround would be to treat securitization of shares (eg for a loan) as a taxable event. This is a common (and currently legal) tax avoidance strategy.

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.

Re: Tim Sweeney: Tax bill would likely end founder control of independent companies

#12

Post by dsizzle »

DLTADragonHawk wrote: post #7
kinghajj wrote: post #2

It looks like Epic Games is a private company, so from what I understand in the proposal, this wouldn't affect him, since his shares are not publicly tradable. The proposal might affect him when/if he were to sell any shares, though, since it has a provision to accrue tax liability on illiquid assets like art/etc, to be owed at time of sale.

From what seems to be the intention of the tax plan it would be regardless of if the asset was available in a stock exchange so if the value of Tim's shares put him above the threshold he would still have to pay the tax. His wealth through epic would likely be less then if it were a publicly traded company though. The effect of paying tax on shares was always true as it becomes a realized capital gain and is already…

The stories I see, like https://www.cnbc.com/2021/10/25/senate-democrats-push-for-bi..., says the tax on unrealized gains only applies to "tradeable assets." It doesn't seem like that would cover private companies. From what that article says, it would invoke an increased tax due to the deferral of taxes though.

Re: Tim Sweeney: Tax bill would likely end founder control of independent companies

#13

Post by RNCTX »

wod3m wrote: post #10
AdamN wrote: post #9

There's some truth to it ... but why is that a bad thing exactly?

if you start a company you should be able to continue to own that company until you decide you're ready to sell it

There are no mom and pop store billionaires.

Re: Tim Sweeney: Tax bill would likely end founder control of independent companies

#14

Post by dsizzle »

d23 wrote: post #8
kinghajj wrote: post #2

It looks like Epic Games is a private company, so from what I understand in the proposal, this wouldn't affect him, since his shares are not publicly tradable. The proposal might affect him when/if he were to sell any shares, though, since it has a provision to accrue tax liability on illiquid assets like art/etc, to be owed at time of sale.

It still seems problematic. Even if my company goes public, if I haven't actually sold the shares and made any money, why should this be taxed? If there are loopholes that let the founder avoid those taxes at sale time, fix those, but otherwise why should we effectively take away ownership of a company just because someone has built it up successfully.

One loophole is the step-up basis that applies when the owner dies. Not sure why that wasn't targeted instead (maybe because the current plan produces revenue more quickly?).

Re: Tim Sweeney: Tax bill would likely end founder control of independent companies

#15

Post by dsizzle »

anigbrowl wrote: post #11

Well, one workaround would be to treat securitization of shares (eg for a loan) as a taxable event. This is a common (and currently legal) tax avoidance strategy. 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…

Actually, why wouldn't the Epic's of the world just issue themselves shares with super voting power, like what Facebook and Google did. That would address the concern in his tweet.

Re: Tim Sweeney: Tax bill would likely end founder control of independent companies

#16

Post by fernandotakai »

AdamN wrote: post #9

There's some truth to it ... but why is that a bad thing exactly?

because taxes should be paid on money that exist and can spent.

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.

Re: Tim Sweeney: Tax bill would likely end founder control of independent companies

#17

Post by wod3m »

RNCTX wrote: post #13
wod3m wrote: post #10

Earlier quoted context omitted.

if you start a company you should be able to continue to own that company until you decide you're ready to sell it

There are no mom and pop store billionaires.

It's a principle that we should apply evenly. I also find it hard to believe that this won't grow in scope once implemented.

Re: Tim Sweeney: Tax bill would likely end founder control of independent companies

#18

Post by randyrand »

It will also add very odd incentive to not grow your company after you reach the billionaire tax-level.

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.

Re: Tim Sweeney: Tax bill would likely end founder control of independent companies

#19

Post by DLTADragonHawk »

maerF0x0 wrote: post #4

I'm actually in favor of this. 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 w…

I think it is a smart way to handle it and it would work for some CEO/founders however, some founders operate as board members that still influence much of the direction and operation without the same possibilities for pay rate increases to cover the gains. I think this could work under specific ownership scenarios but, for high p/e ratio companies this will likely requires ownership sales.

Re: Tim Sweeney: Tax bill would likely end founder control of independent companies

#20

Post by fernandotakai »

anigbrowl wrote: post #11

Well, one workaround would be to treat securitization of shares (eg for a loan) as a taxable event. This is a common (and currently legal) tax avoidance strategy. 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…

> Well, one workaround would be to treat securitization of shares (eg for a loan) as a taxable event. This is a common (and currently legal) tax avoidance strategy.

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.

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