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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.
This 'idea' has zero percent chance of ever happening. And it's not because of rich people lobbying.
It's because it would catastrophically destroy all markets (public and private) overnight.
This is because the price of anything is different at different times and, before an actual transaction occurs, is only an approximate representation of what a theoretical buy and seller would agree on. There are plenty of reasons zero buyers and zero sellers would want to proceed with any transaction at a given time.
Example A would be startups. Startups raise cash from investors to get off the ground, develop products, market and sell them, enter new markets, acquire other companies etc. Their "valuation" at any given time is largely a projection of possible future revenue and/or a future reasonable acquisition price. It is not, in anyway, a guarantee of a spot cash price for equity. I think Anduril, the cool new defense technology company, has something like a $15bn valuation after its last funding round. To make the math easy, let's say there are 100,000,000 shares outstanding all with equal seniority etc. (this is a toy example. The realities are always more complex, which factors in later). Is anyone going to pay anyone else the $150 / share in the secondaries market for Anduril? Fuck no. There are maybe some early investors who got in at $10 (or less!) who may want to sell at $50 or something to lock in gains, but the biggest holders (including insiders) are holding out for an IPO or acquisition.
These are multi-year equity holders. What does their tax situation look like? Are they taxed every year based on new VC funding and the follow on valuations of the company? If that's the case, they would end up paying more in taxes than they invested in the company while being unable to liquidate their holdings in a thinly traded private market. Investing in a start up would become financially impossible. Perhaps evening just starting one on your own. What happens then? Only incumbent, large, highly traded public companies can be invested in - but you still have to pay tax on your not-cash winnings. Very quickly, there are only a few nationalized companies doing any business t all. Retail investors mostly hold cash which inflates away to nothing and there is zero new capital formation and investment. That's stagnancy and inflation - aka stagflation - and is the very model for how to kill a country and, very likely, pave the wave for a populist demagogue to seize power.
Taxing unrealized capital gains is literally taxing a business for existing and operating as normal, but with some sort of arbitrary number thrown on top of it as "valuation." If that number is wrong, which it will be sooner or later, you divide the business by zero and it not only ceases to be viable, it implodes overnight.
Much like price controls, this is an "idea" that reveals profound economic and financial illiteracy. It is 100% vibes based in a Robin Hood aesthetic and is designed with all the depth of most sloganeering. It should be viewed for what it is, a very public display of a lack of interest in developing meaningful policy in any direction.
Kinda reminds me how banks are forced to report transactions in excess of $10,000.
Probably at the time people said "it's no big deal, imagine taking 10 thousand dollars out at one time". Now, 55 years later, $10,000 is not all that much money.
The fact that this the $100 million is not indexed to inflation is a huge red flag. Like the income tax, this tax on the "super rich" will quickly be levied on the much less wealthy. Note also that capital gains are not indexed to inflation. So if the value of the dollar declines by 50%, which it will, your investment has doubled in price and you have to pay tax on your "gains".
This will inevitably lead to regular people having to catalog their wealth so the taxman can take his share. Everything always moves in the direction of more taxation and more government interference in the lives of regular people. It almost never gets rolled back.
This proposal is awful in every way except that it's unlikely to pass.
Not necessarily. At that time, people did a lot more big transactions in cash, so it was actually more common to withdraw a big chunk of cash. They even issued $10,000 bills to make it easier.
They actually discontinued those at nearly the same time, leaving $100 the maximum currency where it has remained since.
Also worth pointing out that $100 today is worth only 1/8th as much as it was in 1970.
Cash is being phased out so the government can monitor all financial activity. Let's not give them the power to monitor and scrutinize all your assets as well.
Did you mean this the other way around? Yes.
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