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Another thing, just because a company is privately held, doesn't mean it doesn't have multiple shareowners. Once a company grows to a certain size, infusion of capital, expertise, and other factors often bring new people into a privately held business that helps it grow. If you build a company as a sole owner to over $100 million, bringing in someone as a 1% owner, non-voting member, to your business still would have many benefits if you find someone missing any area of expertise or resources from other related businesses they are a part of.

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1 hour ago, RedDenver said:

I agree there are undesirable parts of a wealth tax, but the question isn't whether they have no down sides, but rather if they are worth it to society. So what are the bad issues and how bad are they really?

 

1 hour ago, deedsker said:

I agree to an extent, but the quoted article is asking for nothing of people valued at $50 million or less. For anyone under $100 million, it would be <1.25% tax which isn't hard to get out of your wealth generating assets. They may be some edge cases where the entire wealth of an individual is tied to a single private company valued at $100 million dollars, but it would help structurally to change the way certain advantages are taken as you go higher up the ladder. Above $1 billion dollars, you get to >4.5% effective tax and there is no way that is tied to a single private company. 

1.25% of $100,000,000 is $1,250,000.  That tax is going to be yearly.  That is a lot of money to suck out of a company.  Also, it is going to be extremely difficult to find someone to invest yearly into a company $1,250,000 when that person has an extreme minority interest in the company.  They would be buying the stock way lower than what it is actually worth.  And, over 10 years, the owner is forced to sell off 12.5% of the company that they have invested their own money and hard work in and probably selling it to someone who doesn't have that personal tie to the company.  Owning a privately held stock is very VERY different than a public stock.  If/when that person wants to sell, once again, there are far fewer buyers willing to then pump a lot of money into a private company without control of it.  

 

This entire scenario is a very very bad idea and can have horrible consequences.  What if they can't find someone who is willing to invest $1,250,000 annually into the company so they can pay the taxes?  Are they then delinquent on the taxes and foreclosed on?  Are they forced to sell a majority of the stock to get a private equity investor involved (which can be absolutely horrible to work with)?  

This is one of those things that sounds great on paper but in reality, it is horrible.

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8 minutes ago, BigRedBuster said:

 

1.25% of $100,000,000 is $1,250,000.  That tax is going to be yearly (article is advocating for a one off, but I will follow).  That is a lot of money to suck out of a company.  Also, it is going to be extremely difficult to find someone to invest yearly into a company $1,250,000 when that person has an extreme minority interest in the company.  They would be buying the stock way lower than what it is actually worth.  And, over 10 years, the owner is forced to sell off 12.5% 11.2% of the company (If it never became worth more) that they have invested their own money and hard work in and probably selling it to someone who doesn't have that personal tie to the company.  Owning a privately held stock is very VERY different than a public stock.  If/when that person wants to sell, once again, there are far fewer buyers willing to then pump a lot of money into a private company without control of it.  

 

This entire scenario is a very very bad idea and can have horrible consequences.  What if they can't find someone who is willing to invest $1,250,000 annually into the company so they can pay the taxes?  Are they then delinquent on the taxes and foreclosed on?  Are they forced to sell a majority of the stock to get a private equity investor involved (which can be absolutely horrible to work with)?  

This is one of those things that sounds great on paper but in reality, it is horrible.

I agree. So if this means someone has to sell 15, 25, 40, or 51% of their business to make it work once to pay the 1.25% tab, they can then reinvest that money anywhere else to make a profit. Heck, they could use their newly found freedom to start other businesses or invest in public companies to diversify their wealth versus being at the whims of a single business in a single market that could go plum in a jiffy. 

 

Sounds like a minor tiff to then make some of the most wealthy actually pay some taxes, don't you think?

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Quote

1.25% of $100,000,000 is $1,250,000. That tax is going to be yearly.  That is a lot of money to suck out of a company.  Also, it is going to be extremely difficult to find someone to invest yearly into a company $1,250,000 when that person has an extreme minority interest in the company.  They would be buying the stock way lower than what it is actually worth.  And, over 10 years, the owner is forced to sell off 12.5% of the company that they have invested their own money and hard work in and probably selling it to someone who doesn't have that personal tie to the company.  Owning a privately held stock is very VERY different than a public stock.  If/when that person wants to sell, once again, there are far fewer buyers willing to then pump a lot of money into a private company without control of it.  

 

This entire scenario is a very very bad idea and can have horrible consequences.  What if they can't find someone who is willing to invest $1,250,000 annually into the company so they can pay the taxes?  Are they then delinquent on the taxes and foreclosed on?  Are they forced to sell a majority of the stock to get a private equity investor involved (which can be absolutely horrible to work with)?  

This is one of those things that sounds great on paper but in reality, it is horrible.

First, it's actually (edit: the actual percentage is 2.5% on the value between $50 million and $100 million, I'll put the corrected math at the end of the post) 1.25% of $100,000,000-$50,000,000, which is $625,000. And the maximum it would draw down would be to the $50,000,000 lower limit, but would never actually reach that limit because it's an asymptote. Continuing the example and assuming the shares don't change in value, that would be $5.9 million paid out in taxes over 10 years (math: 50e6-(50e6*(1-.0125)^10) ). (Which is 11.8%, so slightly less than 12.5% but that's besides the point.) That's slightly less than $6 million for someone worth $100 million spread over an entire decade.

 

Second, the money isn't being sucked out of the company unless the owner wants it to be. An alternative to paying the wealth tax would to be to distribute the shares in the company to the employees such that none have over $50 million in total. And even if the money is sucked out of the company, that's not necessarily a bad thing as there's a lot of private companies that have outside investors.

 

As I already said, we can solve the issue of illiquidity, the simplest of which is that shares could be used to directly pay the tax in specific cases. So that could be implemented to avoid the private equity firm scenario. Plus the equity firm wouldn't get majority of the stock as we're talking about small percentages, so that's not even a real concern.

 

Math edit: 50e6-(50e6*(1-.025)^10) = $11.2 million, which is 22.4% of the $50 million that got taxed or 11.2% of the full $100 million.

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2 minutes ago, deedsker said:

I agree. So if this means someone has to sell 15, 25, 40, or 51% of their business to make it work once to pay the 1.25% tab, they can then reinvest that money anywhere else to make a profit. Heck, they could use their newly found freedom to start other businesses or invest in public companies to diversify their wealth versus being at the whims of a single business in a single market that could go plum in a jiffy. 

 

Sounds like a minor tiff to then make some of the most wealthy actually pay some taxes, don't you think?

If you think forcing someone to do that against their will is a "minor tiff" then I extremely disagree.  I can't express that enough.

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Just now, BigRedBuster said:

If you think forcing someone to do that against their will is a "minor tiff" then I extremely disagree.  I can't express that enough.

No one is forcing you. You could do an infinitely number of things to pay the tax and not sell the company. We are hung up on one narrow case of an edge case of an edge case as to why not do something good for the whole.

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2 minutes ago, RedDenver said:

Second, the money isn't being sucked out of the company unless the owner wants it to be. An alternative to paying the wealth tax would to be to distribute the shares in the company to the employees such that none have over $50 million in total. And even if the money is sucked out of the company, that's not necessarily a bad thing as there's a lot of private companies that have outside investors.

How is the money not sucked out of the company?  The investor buys the stock so that the money can go to the government.  The money doesn't stay with the company.  It's paid in taxes.

 

Just because it works great for employees to be distributed shares in some companies, doesn't mean it is the right thing to be FORCED upon all companies once they reach a certain size.

4 minutes ago, RedDenver said:

As I already said, we can solve the issue of illiquidity, the simplest of which is that shares could be used to directly pay the tax in specific cases. So that could be implemented to avoid the private equity firm scenario. Plus the equity firm wouldn't get majority of the stock as we're talking about small percentages, so that's not even a real concern.

The equity firm is NOT going to invest in a company that they don't have controlling interest in.  That is simply not how they work.  Once they have control of the previously owned family business, they are ruthless and many times, if the company has the slightest problem with profitability, the company is liquidated.  

This whole idea sucks and it seems like the people who think it's great don't see the other side.

4 minutes ago, deedsker said:

No one is forcing you. You could do an infinitely number of things to pay the tax and not sell the company. We are hung up on one narrow case of an edge case of an edge case as to why not do something good for the whole.

Like what?

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Use your current liquidity, take a loan, increase your salary, start changing pay structures to include ESOP to lower equity in the firm, rob a bank /s, sell the whole company to avoid the problem in the future. Get creative, you have a company worth millions and you can't find anyone to help you solve a financial issue?

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3 minutes ago, BigRedBuster said:

How is the money not sucked out of the company?

Literally in my post you quoted: "An alternative to paying the wealth tax would to be to distribute the shares in the company to the employees such that none have over $50 million in total."

3 minutes ago, BigRedBuster said:

 

Just because it works great for employees to be distributed shares in some companies, doesn't mean it is the right thing to be FORCED upon all companies once they reach a certain size.

It's not the size of the company but rather the value of the shares of any individual.

3 minutes ago, BigRedBuster said:

The equity firm is NOT going to invest in a company that they don't have controlling interest in.  That is simply not how they work.  Once they have control of the previously owned family business, they are ruthless and many times, if the company has the slightest problem with profitability, the company is liquidated.  

Then it'll create an opportunity for those that will. Or we could make additional changes in the law for either the government to hold those shares or a special new category of shares that are publicly-held shares of a private company. We can write the laws however we want, so we could make the wealth-tax shares of private companies non-voting shares (maybe those shares are non-voting and threefore cannot get control of the company).

 

3 minutes ago, BigRedBuster said:

This whole idea sucks and it seems like the people who think it's great don't see the other side.

Pot meet kettle. Seems like you're focused on opposing this instead of trying to find solutions to the potential problems that you see.

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3 minutes ago, RedDenver said:

Literally in my post you quoted: "An alternative to paying the wealth tax would to be to distribute the shares in the company to the employees such that none have over $50 million in total."

And, I absolutely disagree with forcing someone to do that just to pay taxes.

 

4 minutes ago, RedDenver said:

It's not the size of the company but rather the value of the shares of any individual.

That changes nothing.

 

4 minutes ago, RedDenver said:

Then it'll create an opportunity for those that will. Or we could make additional changes in the law for either the government to hold those shares or a special new category of shares that are publicly-held shares of a private company. We can write the laws however we want, so we could make the wealth-tax shares of private companies non-voting shares (maybe those shares are non-voting and threefore cannot get control of the company).

:facepalm:

 

5 minutes ago, RedDenver said:

Pot meet kettle. Seems like you're focused on opposing this instead of trying to find solutions to the potential problems that you see.

I'm all for finding solutions to problems of funding out government through various forms of taxes.  But, that doesn't mean I have to agree with all of them.  Some suck...like this one.  This is nothing more than people saying...."ahhhh.....you have a lot and we want it".  

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3 minutes ago, BigRedBuster said:

And, I absolutely disagree with forcing someone to do that just to pay taxes.

 

That changes nothing.

 

:facepalm:

 

I'm all for finding solutions to problems of funding out government through various forms of taxes.  But, that doesn't mean I have to agree with all of them.  Some suck...like this one.  This is nothing more than people saying...."ahhhh.....you have a lot and we want it".  

Question for “the other side” ( not you Buster).  Does the individual get paid back the money he paid in the following year if his paper wealth then declines below the threshold?   I’m sure everyone realizes that there were many paper wight figure millionaires and billionaires in the late 1990’s who lost darn near everything.  Same in the 2001 crash and the 2007/8 crash. 

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