Taxing the unrealized gains doesn't seem like a good idea, however, taxing stock used as collateral for loans would be appealing since that seems a loophole to access the gains without realizing them for tax purposes.
Don’t wait for billionaires to sell their stock. Tax their riches now
21–30 of 32 posts
Re: Don’t wait for billionaires to sell their stock. Tax their riches now
#22Earlier quoted context omitted.
If it was important for Tesla to have musk at the helm, Tesla could simply offer to pay the taxes for Musk.
I'm not knowledgeable enough about corporate finance to run the numbers, but would that sustainable in practice? What's being taxed is the market valuation of the company, which is based on the market's prediction of future cash flows. How common would it be for a company, particularly a startup, to have enough cash on hand to do that? It would be like asking you to pay the next 15 years of your income tax right now,…
Assuming a 6% wealth tax (as Elizabeth Warren proposed) and a founder(s) owning 50% of the company, the yearly tax would be 3% of the company's valuation, which might be, say, 30% of their most recent funding round. So that would be somewhere between devastating and disastrous.
And then you do it again next year.
Re: Don’t wait for billionaires to sell their stock. Tax their riches now
#23Earlier quoted context omitted.
> consuming their unrealized gains. they are getting loans using their unrealized capital gains as collateral. And these loans are not interest free, and would have to be paid back at some point in the future. And in order to pay the interest on the loan, they will have to realize _some_ gains as income. So that gets taxed. Is it better that these billionaires don't obtain their mansions and yachts, or that they do a…
Govt doesn’t get any money from the interest paid. The underlying asset can eventually be sent offshore, put in trust or whatever, and never be taxed.
If the underlying asset goes away and never gets realized then where does the money to pay back the loan come from?
Re: Don’t wait for billionaires to sell their stock. Tax their riches now
#24These kinds of pieces never seem to mention that taxing unrealized gains will take control of the companies away from the founders. Love Musk or hate him, pretty sure nobody thinks Tesla is viable without Musk at the helm.
If it was important for Tesla to have musk at the helm, Tesla could simply offer to pay the taxes for Musk.
What's being taxed is the market valuation of the company, not its actual assets/equity.
You're taxing people of what other people think the company is worth, not on what the company has.
A good example would be McDonald's, its got a 170 billion market cap, but if you were to liquidate the company it would still owe money to creditors and shareholders would get zero
Re: Don’t wait for billionaires to sell their stock. Tax their riches now
#25Earlier quoted context omitted.
> consuming their unrealized gains. they are getting loans using their unrealized capital gains as collateral. And these loans are not interest free, and would have to be paid back at some point in the future. And in order to pay the interest on the loan, they will have to realize _some_ gains as income. So that gets taxed. Is it better that these billionaires don't obtain their mansions and yachts, or that they do a…
Govt doesn’t get any money from the interest paid. The underlying asset can eventually be sent offshore, put in trust or whatever, and never be taxed.
of course they do - these interest payment isn't investment cost that can be claimed.
And the interest payment is profit to the banks/lender, and thus, they pay tax on profits (less expenses).
Re: Don’t wait for billionaires to sell their stock. Tax their riches now
#26Earlier quoted context omitted.
Govt doesn’t get any money from the interest paid. The underlying asset can eventually be sent offshore, put in trust or whatever, and never be taxed.
If the underlying asset goes away and never gets realized then where does the money to pay back the loan come from?
So you're saying that they'd bankrupt themselves, rather than pay off the loan?
And i'm sure the banks lending out the money will want to have a way to hold on to the collateral.
Re: Don’t wait for billionaires to sell their stock. Tax their riches now
#27Earlier quoted context omitted.
> consuming their unrealized gains. they are getting loans using their unrealized capital gains as collateral. And these loans are not interest free, and would have to be paid back at some point in the future. And in order to pay the interest on the loan, they will have to realize _some_ gains as income. So that gets taxed. Is it better that these billionaires don't obtain their mansions and yachts, or that they do a…
They are paying less than half a percent interest in most cases. So the interest doesn't really factor in.
If the banks are willing to lend at this low rate, so be it. It simply means money is cheap.
Re: Don’t wait for billionaires to sell their stock. Tax their riches now
#28Earlier quoted context omitted.
I'm not knowledgeable enough about corporate finance to run the numbers, but would that sustainable in practice? What's being taxed is the market valuation of the company, which is based on the market's prediction of future cash flows. How common would it be for a company, particularly a startup, to have enough cash on hand to do that? It would be like asking you to pay the next 15 years of your income tax right now,…
Assuming a 6% wealth tax (as Elizabeth Warren proposed) and a founder(s) owning 50% of the company, the yearly tax would be 3% of the company's valuation, which might be, say, 30% of their most recent funding round. So that would be somewhere between devastating and disastrous. And then you do it again next year.
But the tax will reduce the valuation of companies, in turn reducing their tax owed. It's a self-balancing system, and will therefore never bankrupt a company - since any company that is bankrupt has a valuation of zero and therefore a tax liability of zero.
Re: Don’t wait for billionaires to sell their stock. Tax their riches now
#29Earlier quoted context omitted.
Assuming a 6% wealth tax (as Elizabeth Warren proposed) and a founder(s) owning 50% of the company, the yearly tax would be 3% of the company's valuation, which might be, say, 30% of their most recent funding round. So that would be somewhere between devastating and disastrous. And then you do it again next year.
But the tax will reduce the valuation of companies, in turn reducing their tax owed. It's a self-balancing system, and will therefore never bankrupt a company - since any company that is bankrupt has a valuation of zero and therefore a tax liability of zero.
It will easily take an investment from viable to unviable, and be especially hard on companies expected to produce long term, stable profits. To illustrate, a company that's guaranteed to make 1mm in profits in perpetuity will be worth, maybe 50 million, let's say 2% is a reasonable risk-free return. But a company that's poised to make 1 mm this year, and probably fail next year (Maybe they sold fidget spinners a few years ago will only be worth about a million.
The 6% tax with founders owning 50% tank the valuation of the first company to 20 million. Which means anyone who invested at the beginning just had their returns cut by 60%. That's just not going to work for most investors, and in all likelihood this company never gets funded and has the chance to contribute to the economy. The fidget spinner company, on the other hand, barely notices the tax, what with its valuation only having been cut by 6%. End result, everyone lives for the short term and sells fidget spinners because you've literally introduced a 6%/year discount rate for everything in the future.
Re: Don’t wait for billionaires to sell their stock. Tax their riches now
#30I would think at a minimum that the government would have to accept shares if the taxpayer elected that. You can't (IMO) reasonably ask someone to pay a cash tax based on a notional value for a transaction that never happened as that notional value will not account for the inevitable execution slippage that will happen if the shares are actually sold later. Let the government eat that slippage.
I agree, but I'd like to point out the US exit tax, which does exactly that.