Tim Sweeney: Tax bill would likely end founder control of independent companies • Hacker News Board

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

#341

Post by torstenvl » Thu, Oct 28, 2021, 3:30 AM UTC

necovek wrote: post #314

mandevil wrote: post #296

Earlier quoted context omitted.

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…

> 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. While capital was transferred, value increase was never really monetized. Would it not be fair to say that it will be taxed only once it turns into money, against the B-A gains, and A is taxed according to normal inheritance rates. Of cou…

> this has a huge practical issue of knowing what A was, which could be a while back

So why not put the burden of establishing a basis (A) on the person seeking to claim its benefit — who, in this case, is also best-positioned to gather such evidence?

Should they keep poor records, they lose the benefit of that basis, and will instead pay taxes on (B-0).

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

#342

Post by tfehring » Thu, Oct 28, 2021, 3:32 AM UTC

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.

The estate tax is almost always double taxation in general. If you just save up money from working and then you die, you'll have paid income tax on that money, then you'll be taxed again on that same money under the estate tax. If you invested it and realized capital gains, you'll pay capital gains tax on those gains, then you'll be taxed on those same gains again under the estate tax. Unrealized capital gains are the exception and not the rule here.

There's nothing fundamentally wrong with "double taxation," no rule that says every dollar must be taxed exactly (or at most) once. Sales tax is also "double taxation," for example. It's a useful heuristic for determine what should and shouldn't be deductible from a particular tax base but it's not a hard-and-fast rule.

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

#343

Post by bryanlarsen » Thu, Oct 28, 2021, 3:32 AM UTC

megaman821 wrote: post #204

mywittyname wrote: post #174

Earlier quoted context omitted.

> 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…

So at least on this list, https://www.forbes.com/forbes-400/ , the vast majority do not have families that been on the list (or would have potentially been on the list if it existed 100 years ago) for 4 generations.

The list of billionaire families would be very different than the list of billionaire individuals. For example, there are currently 86 Ford heirs.

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

#344

Post by ncallaway » Thu, Oct 28, 2021, 3:33 AM UTC

hartator wrote: post #337

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?

I mean, it's fair to say: "hey, where might this go in the future", but when discussing what this specific proposal is today, I'm suggesting that we have a more factually sound starting point.

Sweeny's twitter thread doesn't tell the whole story, and this comment chain has been treating it largely as fact. I wanted to add context and correct some of those points, so we can have a reasonable discussion.

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

#345

Post by adam_arthur » Thu, Oct 28, 2021, 3:34 AM UTC

refurb wrote: post #320

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…

This won't cover the spending at all. Not even close.

There are ~1T in capital gains realized every year, roughly.

If you increase long term rate from 20%, to roughly 40% (top income rate), you'll generate roughly 200B a year in additional revenue. Of course changes in tax law will alter behavior, but we can say likely 100-150B+ per year. We can assume the large majority of these gains are from those above the 1m threshold.

Facebook is doing ~60B in buybacks this year. Taxing that at 20% nets 12B a year in revenue from Facebook alone. Dollar amount of total market buybacks is much higher, obviously. So we can say this likely generates 100B+ per year.

SALT deduction alone costs 100B/year to reinstate

So how does 300-450B a year not cover a 1.5T spending bill over 10 years?

What logic are you using to assert this isn't sufficient? Or are you just writing it off without any research?

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

#346

Post by nmfisher » Thu, Oct 28, 2021, 3:36 AM UTC

hn_throwaway_99 wrote: post #311

sailingparrot wrote: post #196

Earlier quoted context omitted.

The issue is that many billionaires effectively have zero revenue. For example, Elon's salary at Tesla is 0$ per year. So you can increase the top bracket all you want, they won't pay more. Instead they get liquidity through loans backed by their shares, on which they of course have no tax. I agree that taxing based on unrealised gains is not a good solution, but I don't see how raising the top bracket solves that ei…

People keep using this example, but it doesn't really make sense. If you take out a loan against the value of your increased shares, then you still have to pay that loan back eventually, and when you do, you have to pay tax on whatever you liquidate to get the funds to pay back the loan (in addition to paying interest on the loans). This is literally how all loans work. The one loophole here is that if you don't pay…

As I understand, though, the USA CGT rate is basically half the income tax rate, so even if they eventually pay tax on disposal to meet the loan repayments (which they don't, at least not on a 100% basis), they still pay only half the effective tax rate.

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

#347

Post by PaulDavisThe1st » Thu, Oct 28, 2021, 3:37 AM UTC

hartator wrote: post #337

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?

Today, you pay property taxes based on some assessed value of your home every year, and in most municipalities, your home gained value. You're already paying tax on the gain in value of your home, what would be so different about paying tax on the gain in value of other illiquid, capital holdings?

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

#348

Post by PaulDavisThe1st » Thu, Oct 28, 2021, 3:39 AM UTC

tfehring wrote: post #342

gruez wrote: post #256

Earlier quoted context omitted.

>- 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.

The estate tax is almost always double taxation in general. If you just save up money from working and then you die, you'll have paid income tax on that money, then you'll be taxed again on that same money under the estate tax. If you invested it and realized capital gains, you'll pay capital gains tax on those gains, then you'll be taxed on those same gains again under the estate tax. Unrealized capital gains are th…

Discussing the estate tax without mentioning how few people are even subject to it is seriously misleading, even if you're not intending to be (and I don't think you are).

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

#349

Post by PaulDavisThe1st » Thu, Oct 28, 2021, 3:40 AM UTC

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%.

Almost nobody pays the estate tax.

>When a person dies, their assets could be subject to estate taxes and inheritance taxes, depending on where they lived and how much they were worth. While the threat of estate taxes and inheritance taxes does exist, in reality, the vast majority of estates are too small to be charged a federal estate tax—which, as of 2021, applies only if the assets of the deceased person are worth $11.70 million or more

(Investopedia; https://www.investopedia.com/articles/personal-finance/12071...)

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

#350

Post by crystalmeph » Thu, Oct 28, 2021, 3:40 AM UTC

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…

> Why should capital gains get favorable tax treatment over income

My take on this is that the capital gain was not actually generated all in one year, but by taxing it as ordinary income, you are putting it into a higher bracket as though it were all generated in one year.

As an example, say your father builds a successful company, and runs it well for 40 years before selling it for $10 million and retiring. By taxing the entire $10 million in one tax year, almost all of it is in the highest tax bracket, which is anything above $500,000 for single filers. But the actual average amount earned per year is only $250,000, which doesn’t reach the highest tax bracket at all.

There are ways to balance this, of course, e.g. if you did exactly what I did in my example, and applied the income tax bracket based on the average gain per year of the securities sold. Something like that would still take care of billionaires “paying their fair share,” since you would have to divide by a lot of years to get billions of dollars in gains into a lower tax bracket.