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Dilution vs. Risk taking: Capital gains taxes and entrepreneurs

45 points by hhs

by dshuang

4 subcomments

Doesn't seem fair to tax someone on appreciated stock if they haven't sold and haven't taken any loans against it.

by jjmarr

2 subcomments

The paper spots that this pseudo-wealth tax would be better for more founders.
> Moving from current realization-based to accrual-based taxation would reduce founder ownership at exit by 25% on average but would also increase the fraction receiving positive payoffs from 16% to 47% when tax credits are refunded.
Founders would use VC money to pay the tax and get a refund if the startup fails, since the capital gains were never realized. Therefore "pre-paying" capital gains would be a good thing for most founders since otherwise a liquidity event wouldn't happen for 84% of them.
This only happens with a tax on unrealized capital gains, though, not a normal wealth tax.
Another corollary is that "zombie startups" would be heavily discouraged, since "failing fast" could result in a payout.

by hexeater

5 subcomments

The conversations around taxation and gov finance in the USA are absolutely delulu. I'm in California. Not including sales and property taxes, high earners are paying over 50% in taxes. Whereas the overall expenditures are unsustainable and in many cases just not working anyway. Notable examples are that we are paying more in Interest than for military at the federal level, and we are burning cash on failed homeless policies without any hope of actual change. Any rational conversation has to cut spending.

by only-one1701

5 subcomments

Waiting for the comments to roll in so I can see if most hackernews commenters view themselves on team Exception or team Rule.

by bix6

0 subcomment

> Using comprehensive new data on U.S. venture capital deals, we find that founder returns remain extremely skewed, with 84% receiving zero exit value while the top 2% capture 80% of total value.
Where is this data from?

by Todd

1 subcomments

An alternative is graduated capital gains rates based on total assets owned (ideally skewed higher, like 10, 50, 100MM, …). Exemptions like QSBS could still be applied. This would allow shareholder control issues to remain unaffected, which wealth taxes never seem to address.
Not sure how to apply it on the corporate side. There are also multi entity workarounds to consider.
Just an idea.

by ashu1461

0 subcomment

This theory seems to be BS, If let us say a founder is raising a seed round of 2m at 20m valuation, then according to hypothetical accrual tax rate, they would need to pay a tax of ~ 3-4m.

by ur-whale

2 subcomments

Quite funny that half of the team who wrote this hail from Switzerland, a country where there are no taxes on realized capital gains, much less unrealized ones.