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Comment by imgabe | Hacker News Reader

Short term capital gains are taxed as ordinary income. Long term are taxed lower, but for capital gains of any kind you have to risk capital, which was already taxed when you earned it the first time.

Capital gains are not only the result of "gambling". If you found a company and later sell it, that is a capital gain. The shares are virtually worthless when you start the company, and later become valuable when you sell it.

Do you consider founding a successful company that provides a useful product and employs many people doing nothing productive?

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As you say, capital gains are not "only" due to speculation, but just sometimes. You also assumed that your risk capital was originally "earned" implying that you paid full tax rates on it. Unless your original earnings were from investment or, ahem, luck of birth (I mean, inheritance).

Do you consider being lucky enough to be born into a wealthy family to be doing something productive?

Inheritance taxes could remove that factor without also removing the incentive for entrepreneurs to take risks.

If your problem is with inheritance, tax inheritance. Don't tax capital gains, which are only sometimes related to inheritance and also affect people who don't inherit anything.

You are right. But a successful company that would put you in the 1% or 10% from bottom is very much like a lottery and is highly controlled by external factors (funding, environment, family background, early education, culture, luck etc which you don't have control over as much). In that case, should we encourage such behaviour at the cost of making lives of many people worse?

How many poor people have you seen working on a startup and reaching 10% bracket? How many of those startups failed? Should we really bend the rules to satisfy a cautious 2% outcome?

I don't think people here have much problem with "self made" millionaires. I think what they don't like is how not everyone gets the opportunity to try to become one or how billionaires are exceptions and compromising system based on exception for the rest of us is not a good idea.

Beside, tech is becoming like oil industry with cartels you need to satisfy before you even have a chance at competiting fairly. It happened to many industries before and they stopped progressing and stagnated. They have one or two big names now with nothing else.

> In that case, should we encourage such behaviour at the cost of making lives of many people worse?

What behavior are we encouraging? Founding companies? Why shouldn't we encourage that?

No, it's encouraging investors and previously founders to dip into unfair taxable holes.

But the way things are setup, you can't easily do that.

I have thought of a few systems -

- Tax VC funding on non essential problems and use that to fund non-profit competing startups. The essential word here is problematic to agree on.

- Force people to sell some percentages of their shares every year and tax that on the same level as income.

- Press a soft limit on time to create taxable profit. It will be set by industries differently but at some point, if your revenue is huge and you aren't creating profit, you will start getting taxed on 20% of the total revenue or similar share.

- Tax hedge schemes. So if Mark Zuckerberg uses his wealth to create more social media companies, he should give up some share of the company to the government. He won't have to do that if he tries something else than a social media company.

Encouraging founding companies is important but when a few players hog all the opportunities to do that. That might become net negative.

> Tax VC funding on non essential problems and use that to fund non-profit competing startups. The essential word here is problematic to agree on.

Not only are people going to disagree what is essential, as you say, but many things that later become essential do not start out that way. Personal computers were expensive toys for hobbyists. Google was a research project by a couple of grad students. An online bookstore? Why would we need that? Just go buy a book at Borders. And so on.

>> use that to fund non-profit competing startups.

Research is another matter entirely. I am only leaning towards taxing when someone has already thrown a product in the market for commercial interest.

If google is making profit or big enough revenue and taking VC funding to grow, then it will be taxed on the funds granted to create another non-profit search competitor.

That way, initial funding is not taxed but hacks to growth are.

So once a company starts to succeed, you take its revenue and use it to fund a nonprofit competitor? That is supposed to be more fair?

> If google is making profit or big enough revenue and taking VC funding to grow

That's not what I am saying. Growth hacks are not fair to the market and people. How is developing a situation where monopolies will be created better? It will be unfair to everyone that comes after.

Who is going to decide if they're making "enough" revenue or profit? A company simply being large does not make it a monopoly. We already have laws against monopolies that fo mostly unenforced.

What percentage of total capital gains are paid out to founders of new ventures?

Don't forget the qualified small business stock exemption — 50% tax break on founder stock held for more than 5 years, or you can roll it over into another qualifying small business and defer the gains even further. I believe you can do this as an angel investor also — it doesn't have to go into your own next startup.

Considering the most successful founders have billions of capital gains each, I'd say it's probably significant. Not to mention that paid to all the employees via stock options.

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