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

#371

Post by chuckee » Thu, Oct 28, 2021, 4:14 AM UTC

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…

> Epic Games is a privately held company, and not traded on established securities markets or readily available on secondary markets.

But suppose it were publicly held, with Sweeney holding majority ownership. Why would that distinction make his criticism of this tax scheme invalid? It seems to me his criticism is still perfectly valid, it only applies to a smaller set of companies.

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

#372

Post by ncallaway » Thu, Oct 28, 2021, 4:16 AM UTC

seanmcdirmid wrote: post #362

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…

> Epic Games is a privately held company, and not traded on established securities markets or readily available on secondary markets. So this law would lead to a proliferation of privately held companies as billionaires avoid the stock market and other tradable covered assets?

Maybe, but there are a lot of factors that drive IPO decision making and I don't think this would be a huge one.

It's not only traded on established securities market, it's also "readily available on secondary markets".

Basically, if there's a significant number of shares trading hands between parties on an ongoing low-friction basis it's going to be subject to the tax rules. Which means a company that wants to have a really large pool of investors wouldn't be able to skirt this by just not listing.

I think this law could affect the number of IPOs at the margins, but I suspect it wouldn't be the fundamental consideration for a lot of companies.

I think if this law was paired with one that treated putting shares as a collateral for a loan as a taxable event (that is, if you use your shares as the collateral for a loan, those shares are taxed as capital gains at the value that they were assigned as collateral) it would mitigate most of the "IPO avoidance" concerns, since another primary tax avoidance strategy would also be shut down.

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

#373

Post by seanmcdirmid » Thu, Oct 28, 2021, 4:16 AM UTC

adam_arthur wrote: post #370

seanmcdirmid wrote: post #366

Earlier quoted context omitted.

> - Tax capital gains >1m a year as regular income. It sounds fair, but aren't lower capital gains taxes used to encourage investment? And if we get rid of that incentive on income > $1 million (at least, can they still offset losses?), then would that lead to some adverse consequence (like much lower investment overall as direct income generation becomes preferred at that point)?

I would guess not much reduction in investment. If you have 100m dollars, there's only a limited number of places you can put it. What are you proposing re: direct income generation? It will lead to reduced liquidity though. E.g. holders of assets are likely to sell less frequently to avoid the higher tax burden.

> If you have 100m dollars, there's only a limited number of places you can put it.

Stock market is a risky place to put it for sure, especially if the upside is taxed more aggressively.

> What are you proposing re: direct income generation?

They will invest more in private businesses and just take a salary, which is also taxed as income.

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

#374

Post by PaulDavisThe1st » Thu, Oct 28, 2021, 4:16 AM UTC

robbedpeter wrote: post #363

PaulDavisThe1st wrote: post #347

Earlier quoted context omitted.

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?

So if you make improvements to your house over the course of a year, and/or the property value in the region goes way up, you could face an unpayable tax bill and lose your house. I don't have much sympathy for renters complaining about gentrification, but property tax laws like this are hot garbage. Sounds like a great way to import rich people and exploit poor people by capping their level of home value. Thanks for…

If you can afford the cost of the improvements, the chances of you being unable to pay X% (where X is likely a single digit) taxes on the value of those improvements is ... small.

Sure, Georgism has a lot to recommend it (more or less exclusively taxing land), but that's not happening in the US any time soon.

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

#375

Post by WalterBright » Thu, Oct 28, 2021, 4:18 AM UTC

PaulDavisThe1st wrote: post #353

WalterBright wrote: post #322

Earlier quoted context omitted.

> Why should capital gains get favorable tax treatment over income Because the income has already been taxed when it was the corporation's profit.

Even if I was to buy that there's some theoretical argument that no dollar may be taxed more than once (which I don't), the income isn't the capital gains. It's not related in any way to the capital gains. A corporation may have enormous profits, and zero capital gains. It may have enormous capital gains, and zero profits. The capital gain has not been previously taxed.

The value of a corporation is inevitably linked to its profits.

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

#376

Post by 8bitsrule » Thu, Oct 28, 2021, 4:18 AM UTC

A billion dollars ought to be enough for anybody.

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

#377

Post by WalterBright » Thu, Oct 28, 2021, 4:19 AM UTC

PaulDavisThe1st wrote: post #349

WalterBright wrote: post #319

Earlier quoted context omitted.

> 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…

> applies only if the assets of the deceased person are worth $11.70 million or more

And hence they apply to billionaires, which is the topic of this page.

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

#378

Post by throwawaylinux » Thu, Oct 28, 2021, 4:19 AM UTC

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…

The bigger point it misses is that this will never pass, at least not without massive loopholes allowing the ultra wealthy backers of these politicians to pay practically nothing. It's a stunt. The people voting for it will be able to claim they've been struggling with all their might to go after the capitalist fatcats, and the people voting against it will be able to say they've protected you from communists, and they'll all be heroes.

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

#379

Post by WalterBright » Thu, Oct 28, 2021, 4:20 AM UTC

bryanlarsen wrote: post #330

WalterBright wrote: post #316

Earlier quoted context omitted.

> Similarly, stocks (or things like gold) that one owns have some worth, and using it as collateral for taking a loan against it is a completely valid thing to do It's how the entire banking system works. Taking out loans against collateral deposited in the bank. People also take out a loan every time they use a credit card. Is that income, too?

No, a credit card isn't collaterizing an asset because it's unsecured.

Try not paying your credit card debt and see what happens :-/

They'll come after your assets. And it's very hard to get a credit card without assets.

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

#380

Post by seanmcdirmid » Thu, Oct 28, 2021, 4:20 AM UTC

ncallaway wrote: post #372

seanmcdirmid wrote: post #362

Earlier quoted context omitted.

> Epic Games is a privately held company, and not traded on established securities markets or readily available on secondary markets. So this law would lead to a proliferation of privately held companies as billionaires avoid the stock market and other tradable covered assets?

Maybe, but there are a lot of factors that drive IPO decision making and I don't think this would be a huge one. It's not only traded on established securities market, it's also "readily available on secondary markets". Basically, if there's a significant number of shares trading hands between parties on an ongoing low-friction basis it's going to be subject to the tax rules. Which means a company that wants to have…

There are lots of factors that drive IPO decisions, preferable treatment on capital gains is definitely one of them. You become taxed merely for holding shares (as a sort of share deprecation), then you won't do that if you have better options, so they will flock to better options. Building a private company is something they can do much more easily than anyone else, why wouldn't they? The complete avoidance of shares would then make the tax law meaningless.