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

#471

Post by wolverine876 » Thu, Oct 28, 2021, 5:46 PM UTC

TameAntelope wrote: post #431

wolverine876 wrote: post #404

Earlier quoted context omitted.

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 thes…

If you want to keep up on it, a great source is The Economist. They have a strong free market bias (it is the solution to all things) but they provide serious analysis, including serious economics, accessibly and succinctly. Paul Krugman is good too, when he writes an article on economics - he clearly distinguishes his political preferences from the economics, and presents all serious sides of economic debates (and he has a Nobel Prize in economics).

> 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)

Can you give some examples? I think it's too easy to deride everything and everyone; some are good and some are bad ideas.

I agree that policy inevitably goes through the filter of politics, though I think that's essential: The economists who designed the policy cannot know the needs of people in District 9 of North Carolina, and human nature is to designate inconvenient needs of others as nice-to-have, but unnecessary category. (That's how, IMHO, so many policies benefit the wealthy but not working class or poor: It's wealthy people making the policies.)

Of course, that can go too far. We won't get perfect laws.

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

#472

Post by gonehome » Thu, Oct 28, 2021, 5:52 PM UTC

wolverine876 wrote: post #470

gonehome wrote: post #464

Earlier quoted context omitted.

I’d like to think I mean “non-partisan”. One thing that keeps me honest there is that I hold positions across the political spectrum (not all in the center) - usually this makes partisans uncomfortable because they don’t know which “camp” I’m in. I think dismissing the anti-woke stuff in the way you do isn’t an accurate portrayal, sure partisanship is definitely motivating some but not all (not me) - it’s because I t…

> I think dismissing the anti-woke stuff in the way you do isn’t an accurate portrayal, sure partisanship is definitely motivating some but not all (not me) - it’s because I think it’s genuinely bad policy. I think either favoring 'woke' or being 'anti-woke' is partisanship. It's applying a label and dismissing it. The non-partisan thing is to look at each policy, regardless of labels applied by others. Even using th…

Yeah - I agree generally generic terms like that make discussion worse.

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

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Post by adam_arthur » Thu, Oct 28, 2021, 6:05 PM UTC

mrep wrote: post #452

adam_arthur wrote: post #433

Earlier quoted context omitted.

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...

Qualified dividends are taxed as long term capital gains, which is 20% for most. So if you have a 10% buyback tax, they are still more tax efficient than dividends. A 20% buyback tax puts them roughly at par.

Dividends are "double taxed" today and buybacks are not.

Not sure where you got your information, but it's wrong. Your source confirms what I'm saying, so maybe try reading it again.

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

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Post by adam_arthur » Thu, Oct 28, 2021, 6:16 PM UTC

refurb wrote: post #446

adam_arthur wrote: post #433

Earlier quoted context omitted.

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.…

Money will shift from capital gains to other investments. Same with buybacks. I mean, that's why company's do buybacks today, they are tax advantaged. And I don't get why you'd tax stock buyback. That's a key way company's control their equity. Take $10B to buy $10B of their own stock and you'd make them pay $2B in taxes? Really?

Why tax anything? The free market always works better without taxes altering behaviors.

The reason you tax buybacks is because you presumably care about wealth inequality. Buybacks by and large are mechanisms to increase the wealth of shareholders in a tax deferred manner. Dividends are not tax deferred.

Ideally legislation would differentiate between "operational buybacks" where the buyback is actually justified by fundamentals and "indiscriminate buybacks" where the goal is to increase the value of the equity regardless of efficiency of the buyback. If a company has ROIC of 20% and a cashflow yield of 3%, it's pretty obvious that the buyback is indiscriminate and not rooted in any sense of the best allocation of capital.

Of course impossible to differentiate these two things in legislation. But we can say 90% of the money allocated towards buybacks has nothing to do with operational efficiency, and acts more as a tax deferred transfer of wealth to shareholders. From the governments perspective, encouraging dividends over buybacks makes a lot of sense.

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

#475

Post by mrep » Thu, Oct 28, 2021, 6:22 PM UTC

adam_arthur wrote: post #473

mrep wrote: post #452

Earlier quoted context omitted.

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...

Qualified dividends are taxed as long term capital gains, which is 20% for most. So if you have a 10% buyback tax, they are still more tax efficient than dividends. A 20% buyback tax puts them roughly at par. Dividends are "double taxed" today and buybacks are not. Not sure where you got your information, but it's wrong. Your source confirms what I'm saying, so maybe try reading it again.

No it does not because the person who they buy the stock back from has to pay cap gains still. The wiki page even has an example of how a dividend effectively reduces the shares price whereas buybacks effectively transfer the money into the share price which raises it over time proportionally and you will have to pay cap gains on it when you do sell.

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

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Post by lazide » Thu, Oct 28, 2021, 6:38 PM UTC

PaulDavisThe1st wrote: post #456

lazide wrote: post #422

Earlier quoted context omitted.

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…

FYI - the house I’m renting, if it got reassessed at market rates, would go from $3600/yr in property taxes to $23000/yr in property taxes. Which for all but the most lavish upgrades would swamp the cost of the upgrades pretty quickly.

California Prop 13 causes some serious market distortions.

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

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Post by the_optimist » Thu, Oct 28, 2021, 7:26 PM UTC

xtracto wrote: post #454

the_optimist wrote: post #332

Earlier quoted context omitted.

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…

Responding to all of the responses here: this is not correct. Banks explicitly do not 'need money' to lend. They need equity to maintain their capital adequacy ratio to be able to lend. Banks literally beget money and are governed only by regulation. Non-bank institutions cannot do so. Deposits are merely a less-expensive-than-'fed-funds' liability. Here to understand this popular misconception: https://news.ycombinator.com/item?id=28473807

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

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Post by gfodor » Thu, Oct 28, 2021, 8:11 PM UTC

opportune wrote: post #181

gfodor wrote: post #166

Earlier quoted context omitted.

That doesn’t make any sense, presuming you meant “collateralize.” I put up $100k of stock for a $100k loan, I do nothing, turn around and pay the money back, and now I have a tax bill? If I repeat this process, I can have an infinite tax liability with no realized gain or net income. Am I missing something?

The “repeating the process” is entirely the problem. If you perpetually roll over your loans you are able to spend large amounts of money without ever realizing a cent of it, thus never paying taxes (since your estate would end up paying it but then financial trickery makes the realization there non taxable). It would be easy to avoid this infinite tax liability by not taking out an infinite amount of loans…

You missed the part where I said you pay the loan back. You know, like all loans.

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

#479

Post by gfodor » Thu, Oct 28, 2021, 8:13 PM UTC

gruez wrote: post #276

gfodor wrote: post #166

Earlier quoted context omitted.

That doesn’t make any sense, presuming you meant “collateralize.” I put up $100k of stock for a $100k loan, I do nothing, turn around and pay the money back, and now I have a tax bill? If I repeat this process, I can have an infinite tax liability with no realized gain or net income. Am I missing something?

You can presumably adjust this for how much money you actually took out. If you got a line of credit on your house/stocks, but you didn't take out a cent, then you don't owe anything. If you took out 10% of your portfolio value in cash, and the LTV ratio was 50% (that is, you can borrow up to 50% of your portfolio's value), then you're deemed to have sold 20% of your portfolio and have to pay capital taxes. You're fr…

And then you pay back the loan (worth 10% of your portfolio.) So now you've been taxed for what exactly? Having access to a pile of cash for some temporary period that expired? It makes no sense to me. We don't tax you on the principal of a loan since it's not income, its debt.

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

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Post by lr1970 » Thu, Oct 28, 2021, 8:13 PM UTC

In American system corporations have personhood. In such context, why this new tax law applies only to individuals holding the stock and not to the corporations, banks, hedge-funds, etc. I genuinely do not understand! If it were to apply uniformly for all stock owners the absurdity of the proposal would become obvious.