> Why would a person who founded a startup, and put countless unpaid hours into building it, then have to pay for the sale as if it were employee income? What would be the incentive for them to have done anything more than be someone else's employee?

I would expect the incentive is the massive payout (even after tax).

If a startup founder would be better off as an employee because they have to pay the same amount of tax then it sounds like it was a bad idea to begin with.

Getting your income through a corporation instead of as a salaried employee is not inherently more valuable for society. We don’t want more startups for the sake of having more startups!