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PaperclipPerfector  3mo ago (text post)   29425 thread views

Culture War Roundup for the week of August 19, 2024

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How does this even work with a privately traded company?

You're a founder and you (hypothetically) sell an initial 10% stake in your company for 100M, which gives your remaining 90% stake an imputed value of 900M. So now you owe 25% of 900M of this extremely illiquid asset?

Do private company fundraising rounds go down (you'll owe less in taxes) or up (investors cover the tax bill)?

What's even the value of something that's not for sale on any market?

That doesn't really answer the question.

Let's take a concrete example.

Let's say I am Gabe Newell, I own a quarter of Valve, a company that made around $6B in profit last year and which I founded and has never been public. It's clearly worth a lot more than 20% of my considerable net worth, but how much is it worth exactly and who gets to decide that?

Is it worth what capital I originally put in it? Some multiple of how much something else i exchanged a piece of the company is worth? Is it worth how much my bank thinks it's worth when they give me a loan? Is it worth what the IRS just decides it's worth? Is it worth how much I think it's worth? Or what Bloomberg thinks it's worth? Or what some judge thinks it's worth when the government sues me for tax fraud when I fill in any other of these numbers?

Now let's say that tomorrow I decide to announce the release of Half Life 3. The value of the company has clearly changed. Has the value of my unrealized gains changed at all for tax purposes. And by how much?

Well I did expect it would end up being some variation of "a bunch of IRS bureaucrats decide what the value of your shit is", but can we at least apply it to our real world case here.

Valuation events are left unclear, so what is Gabe going to pay on? The value of the company last they changed the cap table multiplied by the Fed rate plus 2 compounded if I'm getting this right?

So it's either going to be since his divorce or the Campo Santo acquisition. And the value is going to be based on how good a lawyer his wife has or how much he wanted some third party developers. Makes perfect sense.

I wouldn't say insane so much as tyrannical. But yes property taxes are tyrannical. Because they're a violation of private property that is not meant to fund public works.

Just taking from people by force of arms because you don't like that they have is something that I think is clearly immoral. Enforcing equality is not a legitimate goal of government and is in fact something that I believe is grounds for armed revolt.

But the subjectivity I'm talking about is that of value. Property taxes as a category are nonsensical because economic value can't be determined without transaction. Hence it just ends up being setting a number you're going to take from people.

The valuation questions become legion. One method people suggested to solve these issues is simply that any value the taxpayer asserts is a value the taxpayer is obligated to accept if a third party asks to buy. Basically each year you set the option price for your company. Maybe the option only stays open for say a month.

But that’s ridiculous per se since there could obviously be liquidity reasons that forces a founder to have a lowish value in their non public shares. But now due to liquidity they give a free option to competitors to buy their interest for 80 cents on the dollars.

I guess if it was a really low percentage, like how the Swiss do property taxes, there may be some sense you could make of this, and it would actually be some incentive to make companies public, which would reinforce the power of the PMC and create a whole bunch of sinecures in the IRS.

But at the rates proposed here it's just straight up confiscation.

Even the famed 79% tax bracket that only applied to Rockefeller was on revenue income, not just straight up stealing from him because he has too much.

Yes, governments engaged in the most destructive war that has ever been do tend to straight up take everything from people. I agree, FDR was basically Mussolini.

He straight up proved you wrong and this is your response? How about a little grace and humility?

I don't respect people who go to WW2 to make arguments about peace time tax policy. Because it's transparently dishonest.

Especially when they accuse me of using the non central fallacy a few seconds before.

Sounds like a cautionary tale with relevance to the instant case, no? Camel, nose, tent, yada yada...

And no one actually paid these famously high tax rates either. There were a million and one loopholes that were closed under Reagan.

When Reagan reduced the headline tax rate (70% under Carter!), he closed the loopholes at the same time. As a result, tax revenues as a percent of GDP stayed level. The wealthy were no longer able to use their preferred tax shelters. Tax avoiders paid more. People who didn't try to game the system paid less. The result was a much fairer system for everyone.

Anyone who tries to use past headline tax rates as an argument simply doesn't understand the reality of the pre-Reagan code, which was inferior in every way. Only suckers or fools ever paid 70%.

It didn’t apply to revenue but income. Revenue would not be an income tax and therefore would be required to be apportioned amongst the states.

Yeah that's what I meant, it's the same word in French which always trips me up.

What's the word for revenue in French, then?

Both income and revenue are revenu, the latter being a loan word from Old French in the first place that means return, comeback.

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