Don’t wait for billionaires to sell their stock. Tax their riches now(washingtonpost.com)
washingtonpost.com
Don’t wait for billionaires to sell their stock. Tax their riches now
https://www.washingtonpost.com/outlook/2021/04/14/wealth-tax-capital-gains-billionaires/
31 comments
if you were paid equity compensation, the gov't currently does not accept the actual share as tax payment, but cash only. Therefore, you have to sell a portion to realize the capital of said share compensation.
I think the people should not ask, nor accept equity payment as taxation.
I also think that taxation should only be on income. Wealth tax doesn't work well, and only hurts those who would use that wealth to produce more wealth (to the detriment of all). Taxing consumption is the best, but that's a little regressive, so taxing income is the next best thing.
I think the people should not ask, nor accept equity payment as taxation.
I also think that taxation should only be on income. Wealth tax doesn't work well, and only hurts those who would use that wealth to produce more wealth (to the detriment of all). Taxing consumption is the best, but that's a little regressive, so taxing income is the next best thing.
>I think the people should not ask, nor accept equity payment as taxation.
As a matter of historical fact, governments do sometimes take equity in something, in exchange for what's owed. Like with the financial crisis bailouts.
It's a normal thing among and between capitalists, but also when the government interacts with them. I'm unclear on what principle would forbid it, when you start from the assumption that it's normal, rather than unheard of.
As a matter of historical fact, governments do sometimes take equity in something, in exchange for what's owed. Like with the financial crisis bailouts.
It's a normal thing among and between capitalists, but also when the government interacts with them. I'm unclear on what principle would forbid it, when you start from the assumption that it's normal, rather than unheard of.
It seems weird to me because governments like to drive demand for their own currency by requiring taxes to be paid in that currency.
If you let people pay taxes in assets then demand for dollars would drop, and that’s a big source of American soft power.
If you let people pay taxes in assets then demand for dollars would drop, and that’s a big source of American soft power.
I agree, but I'd like to point out the US exit tax, which does exactly that.
Right in the article they say that these billionaires are consuming their unrealized gains. Wouldn’t a consumption tax on luxury items be more effective and efficient?
> consuming their unrealized gains.
they are getting loans using their unrealized capital gains as collateral. And these loans are not interest free, and would have to be paid back at some point in the future. And in order to pay the interest on the loan, they will have to realize _some_ gains as income. So that gets taxed.
Is it better that these billionaires don't obtain their mansions and yachts, or that they do and don't get taxed?
they are getting loans using their unrealized capital gains as collateral. And these loans are not interest free, and would have to be paid back at some point in the future. And in order to pay the interest on the loan, they will have to realize _some_ gains as income. So that gets taxed.
Is it better that these billionaires don't obtain their mansions and yachts, or that they do and don't get taxed?
Govt doesn’t get any money from the interest paid. The underlying asset can eventually be sent offshore, put in trust or whatever, and never be taxed.
If the underlying asset goes away and never gets realized then where does the money to pay back the loan come from?
So you're saying that they'd bankrupt themselves, rather than pay off the loan?
And i'm sure the banks lending out the money will want to have a way to hold on to the collateral.
And i'm sure the banks lending out the money will want to have a way to hold on to the collateral.
No, I'm saying that they wouldn't bankrupt themselves. They would realize assets (or take income) to pay off the loan, and that's when they would get taxed. The story that rich people don't pay taxes because they just take out loans and never sell the assets doesn't make sense to me for that reason.
of course they do - these interest payment isn't investment cost that can be claimed.
And the interest payment is profit to the banks/lender, and thus, they pay tax on profits (less expenses).
And the interest payment is profit to the banks/lender, and thus, they pay tax on profits (less expenses).
They are paying less than half a percent interest in most cases. So the interest doesn't really factor in.
If the banks are willing to lend at this low rate, so be it. It simply means money is cheap.
They are usually only willing to lend at a rate that low to the wealthy only. Because it is lower risk, but mostly because they want to ingratiate themselves to the super wealthy because it can lead to future, more profitable deals.
They try such a thing in Germany by having different rates of VAT (~sales tax) for different products. Basics (such as food) being on the lower rate, and luxury items on the higher end.
Not sure if it actually works well or is overly complex nowadays.
Not sure if it actually works well or is overly complex nowadays.
Australia uses GST (essentially same as VAT) but everything that is deemed essential/basic is GST free. It's a standard 10%
of course other items incur additional taxes/fees/rates ("luxury cars" also have a 33% tax on top of GST)
Fwiw I think having a standard simple consumption tax + a monthly negative tax is the way to go. So like everyone gets $150/mo from the govt to offset taxes on food or whatever, for example, but then everything could be taxed at a flat rate.
VAT always has felt overly complicated to me. At least everytime I try to look at and understand it. It feels like it's a potentially good solution but calling it VAT will cause issues.
From a consumer perspective VAT as implemented in Europe much simpler than sales tax in the US. The price advertised is actually the price you pay.
As a business it’s really not that much more complex. Add VAT to all the invoices you send out. Keep track of how much was charged to you by your suppliers. Pay the difference to the tax man.
As a business it’s really not that much more complex. Add VAT to all the invoices you send out. Keep track of how much was charged to you by your suppliers. Pay the difference to the tax man.
It's simple enough for honest folks. Yet it also enables VAT carousel fraudsters to illegally get their hands on billions each year.
https://en.m.wikipedia.org/wiki/Missing_trader_fraud
https://en.m.wikipedia.org/wiki/Missing_trader_fraud
These kinds of pieces never seem to mention that taxing unrealized gains will take control of the companies away from the founders. Love Musk or hate him, pretty sure nobody thinks Tesla is viable without Musk at the helm.
If it was important for Tesla to have musk at the helm, Tesla could simply offer to pay the taxes for Musk.
I'm not knowledgeable enough about corporate finance to run the numbers, but would that sustainable in practice?
What's being taxed is the market valuation of the company, which is based on the market's prediction of future cash flows. How common would it be for a company, particularly a startup, to have enough cash on hand to do that? It would be like asking you to pay the next 15 years of your income tax right now, in advance.
Assuming a 6% wealth tax (as Elizabeth Warren proposed) and a founder(s) owning 50% of the company, the yearly tax would be 3% of the company's valuation, which might be, say, 30% of their most recent funding round. So that would be somewhere between devastating and disastrous.
And then you do it again next year.
And then you do it again next year.
But the tax will reduce the valuation of companies, in turn reducing their tax owed. It's a self-balancing system, and will therefore never bankrupt a company - since any company that is bankrupt has a valuation of zero and therefore a tax liability of zero.
It will easily take an investment from viable to unviable, and be especially hard on companies expected to produce long term, stable profits. To illustrate, a company that's guaranteed to make 1mm in profits in perpetuity will be worth, maybe 50 million, let's say 2% is a reasonable risk-free return. But a company that's poised to make 1 mm this year, and probably fail next year (Maybe they sold fidget spinners a few years ago will only be worth about a million.
The 6% tax with founders owning 50% tank the valuation of the first company to 20 million. Which means anyone who invested at the beginning just had their returns cut by 60%. That's just not going to work for most investors, and in all likelihood this company never gets funded and has the chance to contribute to the economy. The fidget spinner company, on the other hand, barely notices the tax, what with its valuation only having been cut by 6%. End result, everyone lives for the short term and sells fidget spinners because you've literally introduced a 6%/year discount rate for everything in the future.
The 6% tax with founders owning 50% tank the valuation of the first company to 20 million. Which means anyone who invested at the beginning just had their returns cut by 60%. That's just not going to work for most investors, and in all likelihood this company never gets funded and has the chance to contribute to the economy. The fidget spinner company, on the other hand, barely notices the tax, what with its valuation only having been cut by 6%. End result, everyone lives for the short term and sells fidget spinners because you've literally introduced a 6%/year discount rate for everything in the future.
What's being taxed is the market valuation of the company, not its actual assets/equity.
You're taxing people of what other people think the company is worth, not on what the company has.
A good example would be McDonald's, its got a 170 billion market cap, but if you were to liquidate the company it would still owe money to creditors and shareholders would get zero
You're taxing people of what other people think the company is worth, not on what the company has.
A good example would be McDonald's, its got a 170 billion market cap, but if you were to liquidate the company it would still owe money to creditors and shareholders would get zero
Taxing the unrealized gains doesn't seem like a good idea, however, taxing stock used as collateral for loans would be appealing since that seems a loophole to access the gains without realizing them for tax purposes.
Isn't the Washington Post owned by Bezos? It's a bit meta they are writing about taxing the rich....
You can't (IMO) reasonably ask someone to pay a cash tax based on a notional value for a transaction that never happened as that notional value will not account for the inevitable execution slippage that will happen if the shares are actually sold later. Let the government eat that slippage.