I think you made a very good point on why Paul Graham’s example in itself is not as strong as it may seem: there are already investors and founders who are paying something similar in the form of inflation and capital gains tax.
I think you also made a not entirely fair comparison: founders of companies and stock investors are not in the same position.
For a stock investor it might not be a such a great difference if you pay your tax in one portion after 15 years or if you pay the same distributed to 15 distinct tax years.*
However, for a founder of a not-yet-public-company this is not the case. Imagine if you own 10% of a startup after you receive venture capital of 100 M USD for 50% of all stocks. That gets your 10% valued at 10 M. Still, it is entirely possible that you have hardly any cashflow and and can barely make ends meet, yet now with a 0,5% wealth tax you owe 50,000 a year to IRS. You have to get that 50k for each year until your company goes public and you can actually sell your shares, which might be 5-10 years down the road, if you ever get there.
*of course, even as a public market investor you would face additional transaction costs of converting your assets to cash when tax payment is due.
If everyone knew that this was how things worked, then in raising money from investors the startup founders would put aside a small amount of the investment round to pay wealth taxes. VCs would not object, because unlike a startup founder pulling a massive salary, this isn’t any sort of bad sign.
I think you made a very good point on why Paul Graham’s example in itself is not as strong as it may seem: there are already investors and founders who are paying something similar in the form of inflation and capital gains tax.
I think you also made a not entirely fair comparison: founders of companies and stock investors are not in the same position.
For a stock investor it might not be a such a great difference if you pay your tax in one portion after 15 years or if you pay the same distributed to 15 distinct tax years.*
However, for a founder of a not-yet-public-company this is not the case. Imagine if you own 10% of a startup after you receive venture capital of 100 M USD for 50% of all stocks. That gets your 10% valued at 10 M. Still, it is entirely possible that you have hardly any cashflow and and can barely make ends meet, yet now with a 0,5% wealth tax you owe 50,000 a year to IRS. You have to get that 50k for each year until your company goes public and you can actually sell your shares, which might be 5-10 years down the road, if you ever get there.
*of course, even as a public market investor you would face additional transaction costs of converting your assets to cash when tax payment is due.
If everyone knew that this was how things worked, then in raising money from investors the startup founders would put aside a small amount of the investment round to pay wealth taxes. VCs would not object, because unlike a startup founder pulling a massive salary, this isn’t any sort of bad sign.
It sounds like you create a dynamic where a startup is less likely to be able to skip rounds because it has it’s own revenue.