Yes, this is why I don’t quite understand this part of Sam’s post:
If he’s held the stock for more than a year, AIUI, then he only pays long-term capital gains tax on it, at a maximum rate of 20%. That’s definitely not the same tax rate that the feds would charge on ordinary income for people in the high tax brackets.
Heck, even li’l ol’ proletarian me has a marginal tax rate higher than the 20% that Bezos would pay on realizing billions of dollars worth of stock assets, although my effective tax rate is considerably lower.
I’m open to the idea of taxing capital gains as income. Lower income people would pay less tax on those gains, and higher income people more.
But if we’re going to do that, we’d also have to index it to inflation, because the gain may happen over many years. The other problem with taxing capital gains as income is that capital gains carry a lot more risk than income does, and risk requires some kind of premium. Institutional investors don’t care, as they have offsetting losses. But entrepreneurs selling the one shot at capital gains don’t have this advantage, so higher capital gains taxes will depress small business investment more than institutional investment.
Imagine if your income was paid to you in a lump sum every five years. You’d pay no tax for four years, then a huge whack of taxes in a high bracket, even if the income per year was barely above the poverty line. That’s clearly unfair. Capital gains taxes have the same problem.
Checking my records, it looks like I never quite hit 30%, but I came close (28%). If you divide by income that I didn’t pay in state tax, it’s >30%. And of course my marginal rate was >30%, and my total fed+state tax was nearly 40%.
Hmmmmm. So we mustn’t tax Bezos on his unrealized stock gains because the gains prior to realization don’t really exist yet, since the stock value could collapse and leave him with nothing. We should only tax him on the income he gets from realizing the gains when he actually sells the assets.
But on the other hand, we need to tax him less on his realized stock gains because the gains “may happen over many years”. In other words, the gains did really exist back in the years when we weren’t taxing him on them because they were still unrealized. Well, well.
Nah, I don’t think Bezos is entitled to have it both ways here. If the capital gains that accrue in the years before he realizes his assets are considered real, then he should be taxed on them during those years. If they’re not considered real and hence not taxable, then what’s real is the income he obtains when he actually cashes them in, so he should be taxed on that at that time.
I was leaning towards Stone’s side, but I think you’ve convinced me otherwise. A taxpayer can always choose to pay taxes on their gains in a given year, raising the cost basis to match. This might be smart if they think inflation will massively increase, causing future capital gains to be in excess of the “natural” amount. There’s no reason why investors should be automatically be given the lower of the two possible tax values. If they want to wait, they can, at the risk of inflation eating their gains. Otherwise they can pay their tax now.
I think there’s good reason for capital gains rates to be lower than ordinary income, but not to the current extreme. The difference becomes more at higher income levels, even though the point is to be an incentive, and higher income investors need less incentive to invest their money even outside of tax rates. So the difference should go down at higher levels, not up.
Getting back to the technical side, this came up today:
And specifically:
Anyone following SpaceX Starship development will note the resemblance to Starship tanks. Ring segments, stainless steel construction, even the use of ordinary construction cranes rather than some expensive assembly building.
A bit of a copy, but hey, more power to them. Bezos apparently started a Skunkworks-like program within Blue Origin to rapidly prototype things, and this is the first public result. If they can make forward progress here in spite of their legal shenanigans, maybe BO has a chance after all.
I don’t know - I just heard that Blue Origin has lost 17 senior engineers in the past few weeks - one report said that Bezos was offering a $10,000 loyalty bonus to get them to stay, and they walked anyway.
Also, I’ve heard that the CEO of Blue is widely derided inside the company.
I suspect there is a big management shakeup coming. They’ve got to do something.
Everyone got the $10k bonus for the first human flight of New Shepard, even the janitors. Wasn’t really intended to encourage people to stay.
You’re right that Bob Smith is derided, and has something like an 18% rating on Glassdoor, so I agree that a shakeup is coming. Bezos holds the purse-strings, and sees what’s going on. Starting a Skunkworks division to operate more like SpaceX is a good start. Firing Bob would also be good. They need to ship the BE-4 engines, speed up New Glenn development, and stanch the exodus of senior engineers. Oh, and stopping the ridiculous lawsuits would help with their image.
I don’t know how likely it is that they can really turn things around, but it’s at least possible. And this test article is a genuine step forward even if it is a copy of Starship.
Yeah, my company is pretty conservative about bonuses for non-managers and yet they’ve offered retention bonuses over the years to critical SMEs. From my personal experience, they were never less than about $75K (back in the late 90’s, yet!) and are more usually in the range of ~$100-200K. (Three year vesting and determined by the stock price at the time they vest).
First, who gets punished here? Day traders and short-term investors do fine. The people that get hammered are ‘buy-and-hold’ investors - typically people saving for retirement or small business owners. Are you expecting small business owners to sell their businesses because inflation is ramping up? And what does this policy do to the price of small businesses during times of inflation?
If people can’t index capital gains for inflation, imagine how that effects a small business owner. Let’s say I buy a business for $100,000. My life savings. I own that business for 20 years, during which inflation runs 3% per year. The taxable value of the business is now $182,000, assuming it didn’t grow at all and has the same worth in constant dollars. So I have to pay a capital gains tax on $82,000, turning a breakeven business into a big loser, and forcing me to pay tax on money I never earned.
Second, inflation worries already depress markets. Imagine what it would be like when any hint of inflation causes a run on stocks.
The chief goal of tax policy, other than revenue raising, should be to make sure that taxes to not distort the economy by preferencjng one type of economic activity over another, when all factors are included including risk premiums, lengths of investment, etc.
My ideal tax policy would, when implemented, cause the least amount of disruption in the mix of economic activities we engage in. Any time someone chooses to do one thing because it appears to be the best way to go, but is forced to choose a different path because of tax implications, the economy gets a little less efficient. And I emphatically do not believe the government is competent enough to pick winners and losers and use tax policy to preferentially help one over the other.
Yeah, they’ll always have a vesting schedule for the real bonuses. $10k is a nice one-time gesture, but a relative pittance compared to the stock grants. We do 4-year vesting at my company, with nothing in the first year. Gotta make sure to lock the golden handcuffs…
I don’t have to imagine anything, since that’s how it works today and it seems to be mostly fine. I’m sure it negatively affects people in some situations, but all policy will hurt somebody. A business owner who operated for 20 years with apparently zero actual income might be one of those people.
Generally we expect growth or at least income to well exceed the rate of inflation. Tax policy should probably be optimized for the common case.
If capital gains tax is indexed to inflation, then CPI (or whatever measure they use) will become even more of a political tool than it already is. You’ve given them yet another lever, and one that’s even easier to manipulate than the IRS.
