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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

#451

Post by rmbyrro »

fhrow4484 wrote: post #30

> It doesn’t apply to shares held by hedge funds like KKR, nor to corporate investors like Tencent and Sony. If that's the case, then what prevents billionaires like him from creating "Tim Sweeney angel fund LLC" and have that entity retain control of Epic? Then since this entity is private, couldn't it defer that tax at the time it sells the entity? With the whole deferred tax scheme that applies to assets not trade…

Because his shares on "Tim Sweeney angel fund LLC" would appreciate every year and he'd have to pay the same taxes on unrealized gains.

The only way to avoid this is being a foreigner.

Effectively, what they'll accomplish with this tax is either:

1) Letting only foreign billionaires control American companies; or 2) Force American entrepreneurs to waive their citizenship (which, in practice, is #1).

So, yeah, it seems these politicians are either blind or are legislating against American entrepreneurship, in favor of foreign billionaires.

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

#452

Post by mrep »

adam_arthur wrote: post #433
refurb wrote: post #408

Earlier quoted context omitted.

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.…

Buybacks would absolutely go to 0. If a company has the option to return 100% of their net income through dividends or 80% of their net income through buybacks, why on earth would they do buybacks?

US has the same top marginal dividend and cap gains rate so you'd make dividends much more tax efficient as a way to return money to investors [0].

[0]: https://en.wikipedia.org/wiki/Share_repurchase#Tax-efficient...

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

#453

Post by disgruntledphd2 »

WalterBright wrote: post #322
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 Because the income has already been taxed when it was the corporation's profit.

So should my income spent on clothes be exempt from sales tax?

And if not, why not?

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

#454

Post by xtracto »

the_optimist wrote: post #332
missedthecue wrote: post #250

Earlier quoted context omitted.

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.

They need the money to lend. Otherwise they couldn't give you money. Tge holy grail of any lender is being able to get money from consumers. So they can lend that same money (I e. You dont have to get a credit line to get money you'll lend)

That's the reason countries have made regulations that I sure money you deposit in your bank (FDIC in the USA?) : if banks screw up with crazy debt, your money is still safe. In Mexico one way it works is that banks must keep x% of the lent money available.

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

#455

Post by ncallaway »

fhrow4484 wrote: post #440
ncallaway wrote: post #384

Earlier quoted context omitted.

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 "g…

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

First, I think a “dilution in ownership” for founders is possible as an outcome of the tax structure.

My quibble is mostly that the dilution will affect fewer companies that was presented, and will be less dilution than was presented. Specifically, I think it’d be a small enough amount that it’d flip the control from the individual founders to not the individual founders.

In the FB example, it’s worth noting that as of 2019 Facebook already had two classes of shares (class A, held by public investors, and class B held by FB executives, which have 10x the voting power), which (again, in 2019) gave Zuckerberg total control of Facebook.

So, insofar as dual classes of shares already exist, that certainly seems like one option. Zuckerberg can sell class A shares for his tax burden, but keep class B shares. That would dilute his ownership to some extent, but his voting power would be diluted significantly less.

Other options could be paying the tax burden over 5 years instead of a single year (which is in the legislative text), which’d let him pay his tax burden with something like hundreds of millions per year.

Another option instead of selling stock would be to take out loans collateralized by the stock, and use that to pay the tax burden. This would effectively allow them to pay the tax burden over (say) 30 years, which again makes it easier to cover on salary alone.

Or, they could forego the benefits of being a public company (or being a private company that’s readily tradable on secondary markets). There are real downsides to that, though.

To your point, though, I think it’s fair to say that this tax law may dilute the ownership interest of billionaires to some degree. I think it’s less likely than Tim Sweeney was suggesting to wrest control out of founder’s hands (though obviously still possible, especially for any founder that is just barely holding on to 50% ownership).

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

#456

Post by PaulDavisThe1st »

lazide wrote: post #422
PaulDavisThe1st wrote: post #411

Earlier quoted context omitted.

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.

I have not lived in any municipalities where doing remodelling that doesn't chnage the number of rooms or enlarge the total footprint of the built area would change tax assessment.

SF is not going to tax your house more because you went from Home Depot subway tile in the bathroom to Murano hand made glass from Italy, whether you file a permit or not. One of my children just had their house electrical system upgraded from knob&tube to contemporary romex, all under a permit, and I don't believe it will have any impact on their property taxes whatsoever.

If you did in fact add a room or enlarge the building, then it's worth more and will/should be taxed more, no? The taxes represent a small additional part of the total cost of the changes, spread out over years.

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

#457

Post by zarkov99 »

jurassic wrote: post #400
SirSourdough wrote: post #382

Earlier quoted context omitted.

Very cursory search suggests 8% of US adults are millionaires according to CNBC. That means there's something like 300 million non-millionaires compared to 30 million millionaires. The rate of "billionaire hate" would need to be astronomically higher among millionaires than non-millionaires for millionaires to make up any sort of the majority of people complaining about income inequality. On top of that, NPR polling…

I didn't mean to suggest that millionares are a majority in the US. But they may well be a majority of those with the time, energy, money, and influence to meaningfully invest into political activities. A majority of those elected to Congress, including major wealth tax pushers Elizabeth Warren and Bernie Sanders, are millionares. Broke people everywhere may harbor resentment toward the ultrarich, but it wouldn't be…

Broke people everywhere have no use for the distinction between millionaire and billionaire. They are one and the same for those of us that cannot pay their credit card debt. As you say, its patently obvious that the people actually doing the most strident complaining are the members of the virtue signaling, chattering, millionaire class. Since they are complaining on behalf of the poor masses they get to act out their resentment while displaying their virtue. Win, win.

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

#458

Post by PaulDavisThe1st »

WalterBright wrote: post #439
PaulDavisThe1st wrote: post #432

Earlier quoted context omitted.

> 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 Gat…

Despite having a good chunk of my "retirement" money in the market, I try to avoid paying much attention to it's day to day issues. So no, I did not see what happened to MSFT.

But look, the point is that there are two fundamental reasons to buy a stock. One is to collect dividends paid to stock owners (so called "blue chip" stocks). The other is because you believe the price of the stock will rise. (For the big players, there's also the issue of corporate control, but that's not a factor for most investors, even many institutional ones)

There are many reasons why the price of a stock will rise. One of them could be more people wanting in on the dividend payout, and them being willing to pay (a bit) more than the current price. That could happen due to demographic changes (ie. shifts in the number of people who want dividend paying stocks), it could happen due to a change in the expectation of what those dividends will be (as in your MSFT example).

But it can also (and demonstrably has) happen(ed) that the price rises because derivative beliefs about the likely future price. And that's precisely what happened in the case of amzn and dozens if not hundreds of tech startups over decades: there was never any profit (and in some cases there never would be any profit), but there was a belief about either:

   1. that future profit would be above a certain level
   2. the number of people who believed in 1, and so would drive the price up
   3. the number of people who believed in 2, and so would drive the price up
   4. [ repeat as deep as you think feasible ]
As for the Gates anecdote, I prefer the stories from German CEOs who express wonderment at the idea that anyone would pay attention to quarterly results.

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

#459

Post by missedthecue »

the_optimist wrote: post #332
missedthecue wrote: post #250

Earlier quoted context omitted.

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.

A bank can't make loans with assets AKA deposits.

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

#460

Post by professoretc »

lazide wrote: post #422
PaulDavisThe1st wrote: post #411

Earlier quoted context omitted.

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.

I just got the form from the county for this for some improvements to my house, so I can answer. Permits for "improvements" are sent on to the county tax assessor, and they send you a form basically asking for the value of the improvement. Note that "maintenance" doesn't count, only "improvements" (and then only specific improvements; e.g., adding solar doesn't count). The value gets added to your Prop 13 value, but does not trigger a complete reassessment. So it's unlikely that any improvement would result in a 10x tax bill increase, unless you've owned the property for a long time (meaning that your Prop. 13 value was significantly less than the real value of the property).
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