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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

#171

Post by quickthrowman »

dsizzle wrote: post #21
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…

He could also himself shares with super-voting power, like what Facebook and Google have done.

Companies don’t do this anymore because S&P and other index creators will refuse to add your company to their indexes if you have multiple share classes. It’s much better to be part of an index than to retain founder control, for shareholders.

https://www.ft.com/content/993e4c11-8729-3168-a280-69e1d400b...

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

#172

Post by fooey »

posguy wrote: post #145
sneak wrote: post #136

Earlier quoted context omitted.

Cryptocurrencies, advanced semiconductors, and cheap per-passenger rail/aircraft. 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).

Samsung (South Korea), TSMC (Taiwan) and Intel (US, Israel) locate their fabs in small countries that are heavily dependent on the US for ensuring their neighbors do not attack. 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 fabs in AZ are them fishing for ultra massive government handouts.

I'll believe it when I see it if the things actually start producing chips within a couple decades.

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

#173

Post by dannyw »

over_bridge wrote: post #141
rsj_hn wrote: post #106

Some observations: 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 astro…

Why would a billionaire leave the US? There they are like gods with services to cater to their every whim. Nowhere else in the world will roll out the carpet for big money like the US does (excluding maybe Monaco and other small states). I just see 3 as a false assumption, as any country they 'flee' to will have higher taxes anyway. I live in New Zealand and a billionaire here can have a lot of land but otherwise we…

Do all billionaires want the big carpet? What about those that want a lot of land and houses, complete financial irrelevance for their family's lifestyles, and perhaps meaningful work by directing a large company or endowment.

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

#174

Post by mywittyname »

dcolkitt wrote: post #77
new_realist wrote: post #6

The current tax situation is like property taxes in California before Prop 19: nobody sells, so ownership and control never changes. This facilitates wealth transfer from generation to generation (in the equity case, though the use of trusts) and perpetuates wealth inequality.

Except there’s a 40% estate tax still levied at each generation. Plus unlike European aristocracy, American plutocrats rarely intermarry. Even if you’re only reproducing at replacement, your wealth gets diluted by 50% each generation. Stack the two and you’re getting slashed by 80% every generation. Don’t take my word for it. How many fourth generational heirs do we see among America’s wealthiest billionaires? Essent…

> How many fourth generational heirs do we see among America’s wealthiest billionaires? Essentially zero.

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.

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

#175

Post by yuliyp »

gfodor wrote: post #166
fernandotakai wrote: post #20

Earlier quoted context omitted.

> 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.

That doesn’t make any sense, presuming you meant “collateralize.” 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?

No, the tax bill would come with an adjustment of cost basis. The second time there's no change in value so no tax bill.

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

#176

Post by [deleted] »

gfodor wrote: post #166
fernandotakai wrote: post #20

Earlier quoted context omitted.

> 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.

That doesn’t make any sense, presuming you meant “collateralize.” 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?

[deleted]

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

#177

Post by awillen »

gfodor wrote: post #166
fernandotakai wrote: post #20

Earlier quoted context omitted.

> 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.

That doesn’t make any sense, presuming you meant “collateralize.” 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?

The theoretical ability to create an infinite tax liability isn't an issue because people just won't do that.

Also, you only tax people in this way if they're over a certain level of net worth/income.

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

#178

Post by ameetgaitonde »

015a wrote: post #101

This is legitimately one of the dumbest, most boneheaded tax schemes I've ever seen the left devise. I'm all for taxing the rich, but not like this. 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 th…

Just some counterpoints:

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.

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

#179

Post by elliekelly »

jimbob45 wrote: post #40
new_realist wrote: post #6

The current tax situation is like property taxes in California before Prop 19: nobody sells, so ownership and control never changes. This facilitates wealth transfer from generation to generation (in the equity case, though the use of trusts) and perpetuates wealth inequality.

Generational wealth transfer is a good thing. It's the main reason most people work hard in life - to provide a better life for their offspring. 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.

> It's the main reason most people work hard in life - to provide a better life for their offspring.

Do you believe people without children have no motivation to work hard?

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

#180

Post by dannyw »

quickthrowman wrote: post #171
dsizzle wrote: post #21

Earlier quoted context omitted.

He could also himself shares with super-voting power, like what Facebook and Google have done.

Companies don’t do this anymore because S&P and other index creators will refuse to add your company to their indexes if you have multiple share classes. It’s much better to be part of an index than to retain founder control, for shareholders. https://www.ft.com/content/993e4c11-8729-3168-a280-69e1d400b...

Plenty of IPOs this year had dual class shares (~20% I believe). Founders are often billionaires; money is now measured in log terms, but control is a boolean.

If they already have control, they'll want to keep that control.

Investors (VC, etc) have made 20x or more on their investment already and no one is going to go on a fight with successful founders, for a variety of reasons but primarily, they don't care how a company performs in the long run because their fund has already sold their stake and closed already.

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