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

#421

Post by WalterBright » Thu, Oct 28, 2021, 5:43 AM UTC

PaulDavisThe1st wrote: post #392

WalterBright wrote: post #375

Earlier quoted context omitted.

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

Not really. Amazon, a company I once knew a bit about, showed gigantic growth in stock value with minimal or zero profit. This is hardly a new story. But it wouldn't matter anyway, given GP's point. Taxes on corporate income are not taxes on the capital gains of those who hold corporate stock.

I know about the Amazon case. The stock price was linked to expected future profits. Which will be taxed.

The stock price can deviate for a time from the current profits, but it will inevitably move back to what the overall profit is.

The reason is simple. The gains in value of a company are when (revenue > expenses), i.e. it comes from profit.

> Taxes on corporate income are not taxes on the capital gains of those who hold corporate stock.

Yes they are, because they reduce the value of the stock (and hence the capital gains) by the same amount. There's no free lunch.

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

#422

Post by lazide » Thu, Oct 28, 2021, 5:48 AM UTC

PaulDavisThe1st wrote: post #411

PaulDavisThe1st wrote: post #374

Earlier quoted context omitted.

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.

Also, notice that most property tax assessments are based on purely physical exterior-visible aspects of a home. If you convert that rats nest of a bathroom into a wondrous home spa, in most places no tax assessment change will follow.

Only if you don't file any permits, correct? I'm not aware of anywhere that won't reassess on major improvements. Which is partly why SF Bay area housing is so terrible - none of the owners want to trigger a reassessment, as in many cases it may increase their tax bill 10x.

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

#423

Post by WalterBright » Thu, Oct 28, 2021, 5:49 AM UTC

PaulDavisThe1st wrote: post #406

WalterBright wrote: post #397

Earlier quoted context omitted.

20% is still far from "a world without an estate tax".

WA state has a population of about 8M. Its citizens decided in 1981 to switch from an inheritance tax to an estate tax. This citizen-driven state law affects slightly more than 2% of the US population, in theory. In fact, median household income for WA in 2019 was about $78k, median household net worth in 2019 was about $400k, and median family net worth in WA in 2021 was $865k. So in reality, even within WA state, a…

The cited article has zero information on what percentage of Washingtonians die with more than $2,000,000 estate value.

Drawing a conclusion that it is "almost nobody" is completely unwarranted.

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

#424

Post by PaulDavisThe1st » Thu, Oct 28, 2021, 5:53 AM UTC

WalterBright wrote: post #421

PaulDavisThe1st wrote: post #392

Earlier quoted context omitted.

Not really. Amazon, a company I once knew a bit about, showed gigantic growth in stock value with minimal or zero profit. This is hardly a new story. But it wouldn't matter anyway, given GP's point. Taxes on corporate income are not taxes on the capital gains of those who hold corporate stock.

I know about the Amazon case. The stock price was linked to expected future profits. Which will be taxed. The stock price can deviate for a time from the current profits, but it will inevitably move back to what the overall profit is. The reason is simple. The gains in value of a company are when (revenue > expenses), i.e. it comes from profit. > Taxes on corporate income are not taxes on the capital gains of those w…

This is a deeply simplistic reading of stock trading.

People who buy (or used to buy) "blue chip" stocks in the hope of collecting a nice monthly dividend payout certainly see things the way you're describing.

But there are plenty of people who buy stock because they believe the stock price will increase for reasons that may or may not include profits. The idea that "gains in value of a company ... comes from profit" is some sort of glorified 1850-1970s view of how stock prices vary. Once we allowed for derivatives, amongst other things, this sort of simplistic approach to stock trading has become more and more of an anachronism.

To use amzn as an example, though they are hardly unique, lots of people bought amzn stock because they belived that other people believed that the stock price would increase.

We have entire sub-sectors of stock trading that use high level math and leading edge technology (and or day-trader gut feelings) to try to earn from fluctuations in stock pricing that are best a derivative of profits, but more typically 3rd order effects.

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

#425

Post by hellbannedguy » Thu, Oct 28, 2021, 5:55 AM UTC

bryanlarsen wrote: post #355

hellbannedguy wrote: post #28

Earlier quoted context omitted.

You mean old middle class, and poor homeowners, can stay in the house they raised a family in? The only reason my high school educated 80 years old mother in declining health can stay in a home, and county, she feels somewhat safe is because of prop 13. Her biannual property taxes are still a big deal when they arrive. I've said this before, but I'm beginning to think if you didn't live through the craziness before P…

Your mother could easily pay higher property taxes with a home equity line of credit. She probably should also be using that HELOC to fund a more comfortable lifestyle -- she probably needs that money more than her heirs do. (I'm assuming, given that you're posting on HN).

She's not in poverty. She has everything she wants. Her biggest want is living in the modest home she raised us.

She knows about Home Equity Loans, and Reverse mortgages.

Actually, I inherited my father's half of the home.

I quitclimed it to my mother the minute I saw the final Accounting of Probate.

I have a thankless job in a few states away. I have nothing. It would be nice being a blue collar worker to have something later in life if my mom sees fit.

Life is complicated?

I just know revoking prop 13 is not the answer. I'm sure wealthy foreigners, and corporate home buyers, are hoping this prop 13 hate continues though.

(If you are going to rebut--please read the entire post.)

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

#426

Post by WalterBright » Thu, Oct 28, 2021, 6:04 AM UTC

PaulDavisThe1st wrote: post #424

WalterBright wrote: post #421

Earlier quoted context omitted.

I know about the Amazon case. The stock price was linked to expected future profits. Which will be taxed. The stock price can deviate for a time from the current profits, but it will inevitably move back to what the overall profit is. The reason is simple. The gains in value of a company are when (revenue > expenses), i.e. it comes from profit. > Taxes on corporate income are not taxes on the capital gains of those w…

This is a deeply simplistic reading of stock trading. People who buy (or used to buy) "blue chip" stocks in the hope of collecting a nice monthly dividend payout certainly see things the way you're describing. But there are plenty of people who buy stock because they believe the stock price will increase for reasons that may or may not include profits. The idea that "gains in value of a company ... comes from profit"…

Once again, if the stock price outpaces profits, it is because the investors are expecting FUTURE profits.

You appear to believe that this is some anachronism. It is not. The people who believe it is not based on (expected future) profits are in for a rude awakening. If the expected future profits don't materialize, the stock tanks.

Why do you think TSLA jumped when Hertz ordered a ton of Teslas? It wasn't based on the value of that deal, it was based on the EXPECTED FUTURE PROFITS from the legitimizing effect on Tesla sales from Hertz' vote of confidence. People expect other rental fleets to now be buying Teslas. And those expected future profits just got priced in to the stock.

Of course, they could guess wrong. But the two numbers, stock valuation and profits, will inevitably converge.

ANY news that affects future profits is going to affect the stock price. All those mathematical models are just attempts to predict just what the magnitude of those effects will be.

Not realizing this is like looking at the thermometer today and drawing a conclusion about climate change.

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

#427

Post by PaulDavisThe1st » Thu, Oct 28, 2021, 6:13 AM UTC

WalterBright wrote: post #423

PaulDavisThe1st wrote: post #406

Earlier quoted context omitted.

WA state has a population of about 8M. Its citizens decided in 1981 to switch from an inheritance tax to an estate tax. This citizen-driven state law affects slightly more than 2% of the US population, in theory. In fact, median household income for WA in 2019 was about $78k, median household net worth in 2019 was about $400k, and median family net worth in WA in 2021 was $865k. So in reality, even within WA state, a…

The cited article has zero information on what percentage of Washingtonians die with more than $2,000,000 estate value. Drawing a conclusion that it is "almost nobody" is completely unwarranted.

It seems very difficult to find such information. The best I've managed to do so far has been a report from 2006 which stated:

> About 200 estates per year in Washington pay taxes out of 45,000 deaths – less than half of 1%.

http://www.opportunityinstitute.org/wp-content/uploads/tax-r...

It seems likely that this number has increased since 2006. But by how much?

The same report noted total estate tax revenue at $100M. Adjusting for inflation, and using the total revenue number from 2019 ($297M), it would seem that total revenue has just about doubled. If we make the egalitarian but hardly realistic assumption that the gain in total revenue number has been driven by an equally distributed gain in the value of estates, then it seems that a reasonable back of the envelope guestimate is that in 2019 or thereabouts, roughly 1% of annual deaths trigger estate tax liability.

[ EDIT: in addition, this page from the WA OFM seems to show that whatever the revenue from the state estate tax, it is so low that it doesn't even get it's own category in a chart of state revenue sources:

https://ofm.wa.gov/washington-data-research/statewide-data/w... ]

It's not nobody, but it's a hell of a lot closer to "almost nobody" than "this is a government policy that significant numbers of ordinary people have to worry about".

[EDIT: this page from the WA OFM suggests a possibly notable increase for 2019-2021 estate tax revenue, among other increasing sources of revenue. It's not clear that the increase changes the accuracy of my final paragraph (pre-edit)

https://ofm.wa.gov/about/news/2019/09/state-revenue-projecti... ]

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

#428

Post by rsj_hn » Thu, Oct 28, 2021, 6:14 AM UTC

thoughtstheseus wrote: post #418

rsj_hn wrote: post #398

Earlier quoted context omitted.

> I mean, c'mon, there's a gigantic tax avoidance industry just for regular income tax. Because we have an extremely complex tax code. But seriously, eliminate all corporate taxes and replace that with a 10% VAT. Treat all income the same -- I don't care whether it's a long term capital gain, or a meteor filled with gold crashing into your yard, don't distinguish at all. Put it all into a single bucket, get one numbe…

We should implement a digital central bank currency and use it to implement a progressive consumption tax. Vats are great.

Corporate profit tax + payroll tax = VAT

Except it's super easy to cheat on the left hand side, but hard to cheat on the right. VAT taxes get paid, payroll taxes get mostly paid, but corporate profit taxes - not so much.

Unfortunately most progressives don't understand this point and keep thinking that corporate profit taxes are good while VATs are bad, and they are kinda confused about payroll taxes.

Then you try to tell them what matters is tax incidence and their heads explode.

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

#429

Post by sieabahlpark » Thu, Oct 28, 2021, 6:23 AM UTC

ncallaway wrote: post #384

chuckee wrote: post #371

Earlier quoted context omitted.

> 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.

Yes, but the strength of the criticism is really dependent on the number of companies that it applies to. If his criticism applied to every company and every founder in the country, it would be devastating and the law shouldn't be considered at all. If the criticism would affect the control of only a single company, then it's a much smaller concern. So, saying: "this criticism is quite a bit smaller in scope than it…

> Yes, but the strength of the criticism is really dependent on the number of companies that it applies to.

Not really. That's a subversive way of approaching it if anything.

It's basically saying "you're not allowed to trade equity if you want to retain ownership"

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

#430

Post by sieabahlpark » Thu, Oct 28, 2021, 6:25 AM UTC

ncallaway wrote: post #344

hartator wrote: post #337

Earlier quoted context omitted.

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.

> 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.

Damn you really are pushing for this. I've seen you respond to many people. I think it's critical to think longer term than just the present because precedent is what people like you rely on to talk about the specifics of today.

It's regressive and you're extremely subversive.