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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.
Any tax on assets becomes a new and relentless goad to optimization of assets.
A tax on income taxes doing things, earning money. A VAT taxes purchasing things, going out and getting things. A tax on property taxes you even if you do nothing at all.
And what this means is that you constantly have to be putting your property to its optimal use, your property has to be earning its keep.
A land-tax has the effect, if it is assessed on the hypothetical rather than current improvements as Georgists would argue for vacant land in cities, forces the owner to put his property to its greatest value. I can't decide I just like my sprawling old Victorian home, I have to turn it into a shopping center. I can't decide that I like my economically unviable small farm in the middle of a suburb, I have to subdivide it and build townhouses. Because Georgists want to tax it as though it were already townhouses, as that is the value of the underlying land.*
Taxing unrealized gains on companies will mean that people who own large shares in companies will have to put that property to its optimal use. I don't think we'll see founders selling off their shares and losing control, particularly where in IPOs it has been accepted that different classes of shares give founders control even with tiny holdings. Rather, we'll see companies being pushed towards paying dividends and returning capital, both to help defray tax bills and to reduce unrealized capital gains. Where once it made sense to hold a company and develop it into something ever bigger and try weird things in hope of producing even higher share prices; now it will make sense to have your shares in the company maintain their value while paying you a dividend. Money that might have been invested into moonshot R&D programs or skunk works will go back to owners of capital.
My guess is we'll see less of things like AWS because if you had a company like Amazon, it would make sense to have your successful online store paying you a 4% dividend rather than get hit with an unrealized gain tax if you hit blackjack on the next business. And we won't see vanity-project boondoggles like the Cybertruck, in favor of Tesla focusing on profitability and paying money back to Musk. But on the bright side, we might be spared another round of Metaverse hype?
The value of either of these propositions is debatable. Arguably it is better for publicly traded companies to pay dividends than to seek moonshot growth at all costs. Arguably it is better for me to build townhouses on my economically unviable farm rather than let it sit. But the flip side is that relentless optimization leads to less randomness, less adventure. A car company laser focused on maintaining a 5% dividend would never build something like the Cybertruck, judge for yourself the value.
*There are various workarounds to this in place already for property taxes in most states, which we can consider both proof that this is recognized as a problem with property taxes, and as a problem with Georgist moves towards property only taxation as using exceptions like that will get increasingly sticky.
I’m not convinced by the Georgist answer. But in any event, taxes don’t necessarily move assets to highest and best use but can change the nature of an asset invested in.
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