Dilution vs. Risk taking: Capital gains taxes and entrepreneurs

It is basically forcing them to dilute more, which is better for them on average because the shares expire worthless so often anyway.

That said a higher percentage of positive outcomes does not mean much when the majority of significant wealth is in that small percentage of high value firms founded.

Sounds like when I have a major tax bill, me and some friends should found a startup with poor prospects for success

Yeah I'm in favor of leverage == taxable event. I think the meaningful difference between leveraged and unleveraged capital gains is that when you take a loan, you access liquidity via your ownership in the asset. If you had gotten a dividend, that would have been taxable. A loan with a stock backing it isn't the same thing, but it does have a somewhat similar effect.

Why not? I could say the that it is unfair to tax people on income that they haven't spent too. Or property taxes raising for a property they haven't sold. If I wait to pickup my payroll check until after the year rolls over despite earning that money already, should I not pay taxes on it for that previous year?

Especially if it is illiquid

The taxes would be refundable.

> Notable examples are that we are paying more in Interest than for military at the federal level,

It is interesting to me that the party that runs on fiscal responsibility is the one that runs the highest deficits despite having a lower amount of GDP growth.

People aren't versed, and think the problem in their life is that they don't make enough money.

The actual problem (overwhelmingly) is that they spend to much on housing.

If we can just build more housing to bring down prices, 80% of reactionary "just seize their assets in anyway" rhetoric will go away.

Of course, this also means the middle class needs to take a 20%+ hair cut on their net worth. Deeply unpalatable, and doesn't fit the "1% will pay for everything" zeitgeist.

100%, This is the uncomfortable fact of taxes in the US right now. If you are a high earning W2 worker, you are likely paying close to if not above 50% income tax rate. Pretty much on par with all the "high tax" European socialist countries you always hear people complaining about. There is basically no good way to lower this w2 tax burden.

I'm generally a "liberal" and support fair taxation and goverment spending, but the current level, based on the worldwide tax rates I've found, doesn't have much room to grow, especially when it does seem like goverment services are actually supbpar for many, and these taxes don't support some sort of universal health care/cheap university like they do in many European countries. I truly believe that goverment can and should be a force for good in people's lives, but I don't think that means we should give it a blank check. It does feel delulu that so many democrats seems to blindly support raising taxes on the "rich". I do think a wealth tax is very much the wrong approach.

It's pretty frustrating to when folks talk about taxing the rich, since it seems like the policies that get passed often just add even more burden onto the "working" rich vs the capital based rich. Even the long terms capital gains rate is close to 30+% in high tax states + top bracket, but there is way more room for deductions.

Looks like it's over 50% for regular income, but for long-term capital gains the top rate seems to be about 37%:

  20% federal
  3.8% net investment income tax
  13.3% California

And revenue, right?

I have worked about half time over three decades on a problem which I recently solved and am developing for a new venture. "Simple" conceptual solution - which took a long trail of reframing to get to. The complete solution is a layered series (actually a cycle) of partial solutions. Each partial solution except one from fields I never expected to be involved. Lots of work left to implement well, but this is the "easy" part.

Getting taxed on any increases in value early would feel very unfair. I have already put in so much value, for nothing in liquid/credible valuation yet, that things would have to go very well to compare equitably with what could sensibly have been expected if I had accrued half-time earnings, continuously saving and investing that income in its entirety, for over three decades.

Further worries: If I don't want to accept any venture capital, and at least for the foreseeable future bootstrap, would I somehow be forced into needing to liquidate ownership based on some accrued wealth rule anyway?

Hopefully not.

But if capital raises are the trigger for accrued wealth taxes, even a small raise after bootstrapped success gets ugly. Imagine raising capital after achieving bootstrapped success, by selling 1%, only to have to pay taxes on 99% of the company's new valuation! That would create a severe disincentive to take any capital ever, after bootstrapped success.

My suggestion: Only tax valuation gains on the sold shares. The realized valuation gain on capital raising shares passes (indirectly) to owners. The realized gains on any owners shares sold to cover those taxes would also pass (directly) to owners, as usual.

That would bring corporate capital raises into exact tax parity with normal owner stock sales.

The only difference is practical: The cash from an indirect sale (capital raise), goes to the owners indirectly (into the company), and is taxed indirectly (pass through). The cash from a direct sale (same sale percentage, but by each owner independently), goes directly to the owners, and taxes are assigned directly.

Either way, taxes are now identical.

(A third case, where all owners sell the same percentage of stock, and agree to all inject the funds into the company, might be a circuitous way to operate, but again, taxes are identical. Taxes on realized gains become sale path and cash purpose neutral.)

It’s a useful lagging indicator. Most here still think they have a shot at being the next unicorn like in the ZIRP era.

I'm on team "I wanna get rich" and also team "I want you to get rich". I'm also on team "I'm a programmer and not a CPA and definitely not your CPA". I pay a money person so I don't have to deal with this stuff because it's not interesting to me, but for those who do find it interesting, game on!

I will say though, that the most important thing someone ever pointed out to me was 100% of $0 is $0. Even just 65% of $really big number is still > $0

Everyone's on team "temporarily embarrassed billionaire founder"

I’ve always been of the opinion tax brackets should be “lifetime earnings” based regardless of income source.

Your first $1M should be taxed differently than your next $10M and so forth.

Switzerland has a wealth tax. That is a tax on unrealized gains fyi.

Sure but tax on wealth is a tax on the integral of gains and trying to imagine a tax only on realized wealth seems like it would interest Switzerland but is difficult with real estate and stock markets.