Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

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

twitter.com

Post reply on HN
Print view View original

431–440 of 498 posts

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

#431

Post by TameAntelope »

wolverine876 wrote: post #404
TameAntelope wrote: post #326

Earlier quoted context omitted.

How would I be able to verify that? It seems like these are not very well considered options, based on my limited view.

I know it because I've read about them for years. Keep up on public affairs; it's sometimes almost impossible to show up at the last minute and be informed.

Well that's the thing; I do keep pretty well up with public affairs, and from what I can tell, most of these ideas come from academia, but without much rigor or data to support these new taxation plans, and the legislators who support them do so for largely un-scientific reasons (e.g. has a good hook for a title).

So when I say this all seems slapdash, I mean that I'm thoroughly unimpressed with the way by which these taxation plans are coming out of the woodwork. Feels like an episode of West Wing, the one with the Cartographers for Social Equity.

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

#432

Post by PaulDavisThe1st »

WalterBright wrote: post #426
PaulDavisThe1st wrote: post #424

Earlier quoted context omitted.

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 t…

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

This is just false. We live in a world where stock trading occurs based on at least 3rd order derivatives. My belief about her belief about his belief can drive me buying or selling stock.

I don't have to believe anything about future profits, I only have to believe that you believe that somebody else believes something about future profits.

But I don't even have to believe that. I can simply have an expectation that I can surf the volatility of a given stock, without regard for its "underlying causes", and make a profit doing so.

You don't actually think all those hedge fund quants do is some fancy computation of expected future profit, do you?

> 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.

The people who are no longer playing the simplistic game are already gone when that happens.

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

#433

Post by adam_arthur »

refurb wrote: post #408
adam_arthur wrote: post #345

Earlier quoted context omitted.

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.…

You need to start putting realistic numbers. First off, if you double the tax rate on capital gains you'll see a dramatic change in behavior. You're not going to capture 75% of the expected, maybe half that. Instead of companies issuing equity, they'll just issue debt instead if it has clear tax advantages for investors. Stock buy backs will end, they'll just pay it out as dividends instead. So $0. SALT deduction has…

I explicitly stated in my response that behavior would change in response to tax policy changes. Why state that as if I didn't lead with that?

There's 0 chance that capital gains will drop from 1T to much less than 500B, or that buybacks go to 0. You think people will suddenly never sell their assets because the tax rate is higher?

Dividends are already taxed at 20% for most people, yet companies still pay dividends. So why wouldn't they do buybacks at a 20% tax rate?

Even if you cut projections in half, it's more than enough to fund.

And it seems like you're not aware of the legislation. The budget bill brings back the SALT deduction, which will reduce tax revenue by 100B/year.

That single provision alone is almost enough to fully fund the (pared down) bill.

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

#434

Post by rsj_hn »

adam_arthur wrote: post #345
refurb wrote: post #320

Earlier quoted context omitted.

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.…

I am confused as to how you would tax share buybacks.

Also, would you give a credit for share issuance?

1) if company A issues 100 shares in January, and buys back 150 shares in February, then would company A accrue a tax liability on 50 shares, or 150 shares, and how does A's tax liability change? What rate does the liability accrue at? What if it's more than 12 months -- can you bank this somehow?

2) if company A lends $100 to company B, and company B buys $100 worth of company A's shares, then would company B incur a tax liability, and if so, what is the liability?

3) Is this a general tax liability incurred when a company buys shares of any other company?

4) Is this a general tax liability incurred whan a company buys other instruments -- preferred stock, long term debt, etc, of any other company?

5) Does this tax on corporate purchase of financial assets also extend to banks or is it just the non-financial sector?

6) What if a hedge fund buys shares in company A, do they incur a tax liability?

7) Is a company allowed to retire its own debt prematurely under this plan without incurring a tax liability?

8) Can a company do a repo or reverse-repo of its own shares without incurring a tax liability?

9) If instead of buying back its own shares, a company were to buy gold or shares in another company, would that trigger a tax liability?

Thanks!

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

#435

Post by WalterBright »

PaulDavisThe1st wrote: post #432
WalterBright wrote: post #426

Earlier quoted context omitted.

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 t…

> Once again, if the stock price outpaces profits, it is because the investors are expecting FUTURE profits. This is just false. We live in a world where stock trading occurs based on at least 3rd order derivatives. My belief about her belief about his belief can drive me buying or selling stock. I don't have to believe anything about future profits, I only have to believe that you believe that somebody else believes…

> This is just false

What do you imagine it is based on? Collector value? The position of Mars in the sky?

> I can surf the volatility of a given stock

You can make a profit in Vegas with your system, too, but you'll lose in the long run because the math is inevitable.

> You don't actually think all those hedge fund quants do is some fancy computation of expected future profit, do you?

Hedge fund long term results struggle to match the S&P 500. The owners of the hedge fund, however, do far better than their customers. All those commissions, fees, percentages and loads.

I put my money where my mouth is, and it's not in hedge funds.

> are already gone when that happens

2008 Oops!

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

#436

Post by adam_arthur »

pmorici wrote: post #413
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…

"SALT is a direct handout to wealthy homeowners." The SALT deduction benefits people in high tax states which happen to also be states where democrats hold political power. Many of them ran on restoring the SALT deduction. It benefits states that have high tax rates not exclusively 'wealthy' home owners.

Texas was the number 4 state for number of SALT deduction claims due to the high property tax.

The vast majority taking the deduction are going to be well off homeowners. But yes for sure, high state income tax and other factors play in as well.

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

#437

Post by kmonsen »

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…

I was going to mention sales tax, but many other taxes are also double taxation I think like property tax or gas tax or whatever is not income tax since you will pay for them with whatever you have left after paying for income tax.

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

#438

Post by kmonsen »

rsj_hn wrote: post #391
PaulDavisThe1st wrote: post #388

Earlier quoted context omitted.

Actually most billionaires manage to reshuffle their assets to that their estate, such as it is, is under the limit by the time they die. The main people hit by it are those holding large amounts of valuable land, and there are very few of them. Almost all mentions of the estate tax in this thread has been generic whining about the fact that there is an estate tax. For almost all US persons, there is no estate tax.

> Actually most billionaires manage to reshuffle their assets I was talking to some people sufficiently wealthy that this is a concern, and their point is that the only reason some don't transfer their assets like this is fear of their own children. Unless you really are a farmer, or small business owner, the estate tax is completely optional if you trust your kids. In 2019, there were only 2,570 estate taxes filed.…

If you fear your children you could transfer the assets to someone else?

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

#439

Post by WalterBright »

PaulDavisThe1st wrote: post #432
WalterBright wrote: post #426

Earlier quoted context omitted.

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 t…

> Once again, if the stock price outpaces profits, it is because the investors are expecting FUTURE profits. This is just false. We live in a world where stock trading occurs based on at least 3rd order derivatives. My belief about her belief about his belief can drive me buying or selling stock. I don't have to believe anything about future profits, I only have to believe that you believe that somebody else believes…

BTW, hedge fund trading is all about finding an edge based on:

1. executing a trade on breaking news ahead of the other guys

2. finding an unknown correlation between Event A and the stock price

The thing about (2) is once someone does find a correlation, that knowledge spreads out to the other hedge fundies, negating the advantage.

And then it's back to future profits. It always goes back to future profits. Bill Gates was asked once if he followed MSFT. He replied that he didn't, he just focused on making Microsoft profits and MSFT took care of itself.

I also remember a CEO who said at a company meeting that he'd adjusted the books to "what Wall Street was looking for". The stock promptly tanked. WS wants profits, not manipulation.

P.S. did you see what MSFT did yesterday? It jumped up quite a bit. Because of profits beating expectations. Not because of a 3rd derivative.

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

#440

Post by fhrow4484 »

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…

> How many companies that are founder controlled will be forced to no longer be founder controlled because of this tax scheme? Based on the legislative text, I suspect it's a very small number and might be 0, but I grant that it may not be 0.

I guess one can do the mental exercise of consider what would have happened had this law been in place already to Bill, Jeff, Sergei, Larry, and Mark.

Ignoring whether it's a "good thing" or "bad thing": Mark owned 22% of FB shares at IPO in 2012, 4 years later the market cap was ~$500B, so assuming he kept 22% ownership throughout, he went from ~20 to ~$100B of wealth, meaning over those 4 years he'd have to find how to pay for an extra $16B tax bill (20% of 80B gain). Unless his salary was set to a couple billions a year, he'd definitely have to sell some of the stocks.

As a way to protect himself from this dilution in ownership, what could he do?

- Setup a complex class of shares (like F class described somewhere else in this thread)?

- Not go public?

The Mark, Jeff etc of the world are obviously the extreme outliers, but the same would apply to "smaller fish" (billionaires still!), Including Tim Sweeney if if ever wanted to take his company public.

Post reply on HN