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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

#331

Post by ncallaway »

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…

> 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.

- 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".

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

#332

Post by the_optimist »

missedthecue wrote: post #250
UncleOxidant wrote: post #116

Earlier quoted context omitted.

> cash hoarding That used to be called saving and it was considered a good thing. Lower consumption would be better for the environment as well.

Saving is when you put your money in the bank, who then loan it out to businesses and homebuyers. Putting cash under your mattress just takes it out of circulation.

This conveys a misunderstanding of money creation. The bank specifically does not need your cash to make loans; that is in fact what makes it a bank. However, putting your cash inside your mattress withholds your funds from the investment manager, who would or could invest it in risk assets.

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

#333

Post by narrator »

flurben wrote: post #321
narrator wrote: post #310

Earlier quoted context omitted.

If you have high net worth that means you have control, not that you are necessarily living lavishly. If you want to pay for personal expenses and buy yachts and the usual kinds of things that socialist complain about, you need to take that out in income or through capital gains. Thus, they want to pay for everything by forcing founders to sell control to the country's financial oligarchs like Blackrock and Vanguard…

Blackrock and Vanguard are just intermediaries, they do not actually own the shares in their ETFs, they manage the assets on behalf of clients.

They could easily exert any kind of pressure on these companies though. For example, Blackrock was given exclusive access to do wealth management in China recently[1]. It's one of the few western financial institutions allowed to do so. What kind of influence do you think the Chinese government exerts on Blackrock in exchange for this privilege?

[1]https://www.nasdaq.com/articles/blackrock-expands-china-foot...

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

#335

Post by adam_arthur »

WalterBright wrote: post #319
adam_arthur wrote: post #294

Earlier quoted context omitted.

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 The estate tax is still due. The federal estate tax is 40%.

I was saying, in a world without an estate tax.

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)

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

#336

Post by ncallaway »

IG_Semmelweiss wrote: post #231

Curious. 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 doe…

> If my stock in my biotech startup goes thru the roof and i get taxed X, i could perhaps sell some stock to cover.

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.

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

#337

Post by hartator »

ncallaway wrote: post #325

I think the comments here miss a couple of factors. 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…

For now. Tomorrow is you paying capital gain on your home each year. What happen to be able to deduct inflation from capital gains?

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

#338

Post by chii »

WalterBright wrote: post #299
lokedhs wrote: post #292

Earlier quoted context omitted.

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.

That's a different situation.

Stock options are the same as having a cash payment, which is then immediately used to purchase the stock.

It's correct to tax stock options when they vest.

> By the time the tax bill was due, his stock was worthless

if you could not afford the tax bill with free cashflow, you need to sell to cover. Not selling means you're taking the tax debt owed, and gambling it on stocks. It sucks that your friend lost everything - often people who have vested stocks don't think about the consequences of what they're doing, and just go for the greediest (and most risky) option of holding and hoping.

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

#340

Post by necovek »

What's to stop individual founders from setting up their "proxy" LLCs owned by them to own their stock? As LLC would be privately owned, they'd have no stock value, and their owners could not be taxed on the gains.

If LLC company does not qualify as a "corporate investor" like Sony or Tencent (from Tim's examples), is there a structure that does?

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