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PaperclipPerfector  8mo ago (text post)   30075 thread views

Culture War Roundup for the week of August 19, 2024

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Theory — the new unrealized capital gain tax is designed (or will have the effect of) forcing people like Elon Musk to surrender control of corporations resulting in PMC control instead of founder control.

As some detail, there is a proposed 25% tax on unrealized gains for the super wealthy coupled with a 44% tax on realized gains. So let’s say you own 10b of a 100b company. If you do nothing you will owe 2.5b of tax. But if you sell 2.5b, you’d actually owe more! So you end up having to sell a pretty big chunk of your stake. This means that before companies get really large founders have to sell a big chunk of their equity preventing super wealth. It also changes incentive structures for founders making them more likely to cash out.

Once they cash out, PMC will take control. PMC coexists with modern democratic policy. Therefore, the democrat tax proposals help ensure corporations are run by allies.

One thing assisting Musk would be twitter’s massive loss in value after he bought it, according to one recent, independent value estimate. You post unrealized gains or losses using the cost basis of the asset on acquisition. Will Musk get a tax break for the unrealized loss?

How does this even work with a privately traded company?

You're a founder and you (hypothetically) sell an initial 10% stake in your company for 100M, which gives your remaining 90% stake an imputed value of 900M. So now you owe 25% of 900M of this extremely illiquid asset?

Do private company fundraising rounds go down (you'll owe less in taxes) or up (investors cover the tax bill)?

What's even the value of something that's not for sale on any market?

The valuation questions become legion. One method people suggested to solve these issues is simply that any value the taxpayer asserts is a value the taxpayer is obligated to accept if a third party asks to buy. Basically each year you set the option price for your company. Maybe the option only stays open for say a month.

But that’s ridiculous per se since there could obviously be liquidity reasons that forces a founder to have a lowish value in their non public shares. But now due to liquidity they give a free option to competitors to buy their interest for 80 cents on the dollars.

I guess if it was a really low percentage, like how the Swiss do property taxes, there may be some sense you could make of this, and it would actually be some incentive to make companies public, which would reinforce the power of the PMC and create a whole bunch of sinecures in the IRS.

But at the rates proposed here it's just straight up confiscation.

Even the famed 79% tax bracket that only applied to Rockefeller was on revenue income, not just straight up stealing from him because he has too much.

It didn’t apply to revenue but income. Revenue would not be an income tax and therefore would be required to be apportioned amongst the states.

Yeah that's what I meant, it's the same word in French which always trips me up.

What's the word for revenue in French, then?

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