Prominent Silicon Valley billionaire and investor David Stewart tweeted President Joe Biden’s capital gains tax, proposed to be raised about 20 percent, would make it harder for startups to recruit because “the tax system will punish their employees.”
“If Biden increases the long-term capital gains tax rate from the current 23.8% up to a new cap of 43.4%, it could neuter America’s entrepreneurial ecosystem,” Stewart explained. Capital gains rates apply when an asset is for gain after being held a year.
Stewart said he “ran the numbers” and determined an employee working at Google earning $400,000 per year in California “pays 38 percent of income over 10 years in taxes.”
I ran the numbers. A Googler earning $400k/yr in CA pays 38% of income over 10 years in taxes. Today, the startup founder pays 36% of her $3.9m 10-year income. Under Biden’s plan, the Googler’s taxes don’t change but the founder’s rate shoots to 46%! (4/6) https://t.co/Z9tMsJ6nFZ
— David Stewart (@davidstewartNY) April 22, 2021
By contrast, Stewart believes a startup founder pays 36 percent of her $3.9 million 10-year income. But under “Biden’s plan,” Stewart continued, “the Googler’s taxes don’t change but the founder’s rate shoots to 46%!”
Stewart further explained raising taxes on businesses dis-incentivizes businesses to take risks:
Founders and early employees shoulder pay cuts and increased risk when they leave an established company for a startup. They do this in part because there is the potential for a big payday at the end, at an advantageous capital gains tax rate.
It will be harder for startups to recruit bc the tax system will punish their employees. A Googler making $400k/yr for 10 years will pay less tax vs a startup employee making $100k/year for 9 yrs, plus a $3m payday at year 10, despite the Googler earning more total income.
Today’s tax code effectively incentivizes people to take pay cuts and risks associated with building the next generation of companies. If entrepreneurs start to take home less of their total income vs salaried workers at mature companies, the startup ecosystem will suffer.
This is compounded by highly graduated income tax rates in states like CA, which make no distinction between cap gains and ordinary income. Founders with lumpy income (“exit” years interspersed with lean years) have long paid higher state tax rates vs salaried employees.
But big tech disagrees with the venture capital investor.
Adam Kovacevich, founder and CEO of Chamber of Progress, said in an interview with CNBC on Wednesday, “The [tax] plan speaks to a lot of goals that I think many people in the tech industry have wanted to see for a long time.”
Companies who are associated with the Chamber of Progress are Automattic, Doordash, Getaround, Grubhub, Instacart, Lime, Twitter, Uber, Waymo, Wing, and Zillow.
“From my experience in the tech industry, this is a deal that most tech companies can live with,” he continued regarding Biden’s tax hike.
It is worth noting if Biden succeeds in raising taxes on income and capital gains, the disparity of Biden’s tax plan would be diminished.
“The current capital gains tax rates are 0 percent for a married couple earning less than $80,000, 15 percent for couples earning more than $80,000 and less than $496,000, or 20 percent for wealthier households,” Breitbart News’ John Carney reported.