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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

#291

Post by ethbr0 »

bananabreakfast wrote: post #216
kyleee wrote: post #84

Earlier quoted context omitted.

It does seem like a loophole, such funds when used as income should be taxed. Probably more complicated in practice but it does seem like a strategy that runs counter to the intent of taxation laws. 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

This is not a loophole. Collateralizing a loan against assets does not produce income. It produces cash and an even larger liability. That loan still has to be paid off with separate, regularly taxed, income. Also this is a strategy used all the time by the 99%. It's called a second mortgage. This proposal would mean that taking out a loan against the equity in a home would become a taxable event.

I don't think anyone's arguing people should be taxed twice.

What they are arguing is that individuals should be taxed at the event of first utility (that is, realizing value from the gains). And then the tax is paid, so not paid again, or offset, later.

And what we're really talking about here is individuals using equity loans for the majority of their income.

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

#292

Post by lokedhs »

whakim wrote: post #268
missedthecue wrote: post #237

Earlier quoted context omitted.

You're not. There are a lot of good reasons why governments don't implement or keep unrealized capital gains taxes for long.

This isn't true. There are lots of recorded instances of wealth taxes (e.g. France prior to the abolition of the ISF several years ago; many countries which levied temporary wealth taxes after WWII, etc.)

Sweden did the same. A lot of people suffered during the dot com bust because they were taxed on enormous unrealised profits that had completely disappeared by the time they had to pay them (because the stock had tanked)

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

#293

Post by gok »

hedora wrote: post #260
vburg wrote: post #244

Buffet/Gates/Bloomberg/Soros/Cuban have been saying for years the rich need to pay more taxes. Propose a tax increase that actually hits the super-rich and the screaming begins. Guess all along they meant the "other rich", anyone making 200k.

In the Twitter thread, Sweeney proposes a progressive capital gains tax maxing out at 75%. It would hit him personally, but still allow him to run his company. He’s not complaining about the magnitude of the tax. He’s complaining about the mechanism.

No, it would never hit him in a meaningful way. He has no intention of ever realizing most of his capital gains.

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

#294

Post by adam_arthur »

gruez wrote: post #256
adam_arthur wrote: post #248

It'd be pretty easy to levy completely fair and progressive tax structure that only directly impacts the wealthy, and is sufficient to cover the spending. - 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. - Do…

>- Remove step up in cost basis on inheriting assets. 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.

I need to read more into that. If true, the cost basis should only be stepped up such that it accounts for the estate tax.

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.

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

#295

Post by WalterBright »

whakim wrote: post #268
missedthecue wrote: post #237

Earlier quoted context omitted.

You're not. There are a lot of good reasons why governments don't implement or keep unrealized capital gains taxes for long.

This isn't true. There are lots of recorded instances of wealth taxes (e.g. France prior to the abolition of the ISF several years ago; many countries which levied temporary wealth taxes after WWII, etc.)

There are indeed. And those countries wound up repealing them because of the disastrous effects.

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

#296

Post by mandevil »

gruez wrote: post #256
adam_arthur wrote: post #248

It'd be pretty easy to levy completely fair and progressive tax structure that only directly impacts the wealthy, and is sufficient to cover the spending. - 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. - Do…

>- Remove step up in cost basis on inheriting assets. 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.

I buy stock at price A and sell, it later, at price B. Assuming B > A, (if it isn't this is a whole different thing) then I am taxed on the gain the stock made, I pay tax on the value of (B-A). On the other hand, I do have all of the (B-A) cash, which is nice. (Or as my tax professor once said, it's always better to have more money rather than less, and to die later rather than sooner.)

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.

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

#297

Post by neltnerb »

IG_Semmelweiss wrote: post #283
dragonwriter wrote: post #270

Earlier quoted context omitted.

I think that the proposal is, much as with taxes on realized gains and losses , unrealized losses would be allowed to offset unrealized gains and be carried forward if there was an excess of losses.

Ouch. If I understand you correctly, this is then a really awful scenario for founders. 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 carryfo…

I am not an accountant, but I believe this to indeed be the case. If you previously took losses, you can carry them forward but not get an actual refund. It might not be practical to do because what tax bracket do you use? It's simpler as an offset, so I guess they just have to pick a rule and so they picked one that is advantageous to them.

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.

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

#298

Post by threeseed »

WalterBright wrote: post #236
threeseed wrote: post #221

Earlier quoted context omitted.

I worked at Apple when Steve Jobs was there. Yes he's amazing. But people like Avie Tevanian, Tim Cook, Bertrand Serlet, Bob Mansfield, Johnny Ive, Dan Riccio etc. all played critical roles in turning Apple around. iPhone simply isn't a success without all of the above functioning at a high level.

Of course those people helped. But there's no doubt who was in charge and who set the direction. From everything I've read about Apple, it was Jobs who was in command, and everyone else followed.

Well I would suggesting looking a bit more into the company.

Because it's never been the case that Steve Jobs was in charge and everyone just fell in line. It's always been consultative and has always been the leadership team making the decisions. It's in fact how most companies run.

Especially given Steve was not 100% during most of his time at Apple.

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

#299

Post by WalterBright »

lokedhs wrote: post #292
whakim wrote: post #268

Earlier quoted context omitted.

This isn't true. There are lots of recorded instances of wealth taxes (e.g. France prior to the abolition of the ISF several years ago; many countries which levied temporary wealth taxes after WWII, etc.)

Sweden did the same. A lot of people suffered during the dot com bust because they were taxed on enormous unrealised profits that had completely disappeared by the time they had to pay them (because the stock had tanked)

That happened to a friend of mine in the US. He had a "taxable event" when his stock options vested. By the time the tax bill was due, his stock was worthless, and he went bankrupt.

He lost his home and last I saw was living in an RV.

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

#300

Post by Dracophoenix »

BigJono wrote: post #234
Dracophoenix wrote: post #199

Earlier quoted context omitted.

Warren Buffet lives in a 6000 sq ft (~600 sqm) house, drives a 2014 Cadillac, and has McDonald's for breakfast. Despite owning one of the most valuable companies in the world at most one could say he lives like a single-digit millionaire. If your characterization of the "average people" of New Zealand is true, then it seems like he would have no problem fitting right in.

So why would he uproot his entire life that he's happy with to move somewhere with a slightly lower tax rate when he can still support his relatively modest lifestyle a thousand times over?

If the United States accepts a federal wealth tax, moving to a low tax state like South Dakota or Alaska won't help. And despite what you imply in your last statement, owning a successful business isn't just limited to how much money it makes. Few people just give up the sum of their life's work or accept others' taking away from it. Just because others believe that the Warren Buffets of the world have achieved "enough" does not make it so.
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