

Ask Entrepreneurs: Obama and capital gains tax increases - mpc

The majority of entrepreneurs that I know are big fans of Obama despite the likely tax increases. This also includes a steep increase in capital gains.<p>I'll be the first to admit that I don't follow politics as closely as I should and I'm not trying to use HN for political debating...but I was interested in hearing other entrepreneurial minded people chime in on this.<p>As a hacker at a startup...why do I want a 25%+ capital gains tax if we're successful? It's like being punished for working hard and taking a lot more risk than the average schlep.
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nostrademons
If you're successful, a 25% capital gains tax is not all that onerous. What's
the difference between $20M and $15M? Sure, it's $5M, but what can $20M buy
you that $15M cannot?

Many entrepreneurs are much more concerned with _becoming_ successful, and
having a reasonably tech-friendly politician in the White House like Obama
would help. Net neutrality can generate far more wealth for entrepreneurs than
the capital gains tax will take away.

Of course, then he had to go and nominate _Biden_ for VP...

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byrneseyeview
_If you're successful, a 25% capital gains tax is not all that onerous. What's
the difference between $20M and $15M? Sure, it's $5M, but what can $20M buy
you that $15M cannot?_

After the fact, yes. But a 25% capital gains tax reduces your expected outcome
by 25%, so if you are thinking of starting a business that within a year you
suspect has a 10% chance of being worth $1 million, and a 90% chance of being
worthless, your expected return goes from $100K to $75K -- and that might rule
it out for people who are already making a decent amount of money.

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nostrademons
Only math dorks go by expected returns. ;-) (Which includes myself, since
initially I got into entrepreneurship because I figured "10% chance of $40M,
90% chance of 0 - hey, a $4M expected return for a couple years of work beats
most other professions." Silly me.)

Utility functions aren't linear, and often aren't continuous. For most people,
the increase in utility from $75k to $100k is negligible - it just means you
can buy a fancier car, get a bigger TV, and have a few more lattes. The
increase in utility from $100K to $15M is enormous, because it means you never
have to work again. The increase in utility from $15M to $20M is, again,
negligible.

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byrneseyeview
As far as I know, people act as if they're math dorks, even if they don't make
those explicit calculations (the same way your average basketball player
doesn't know that f = ma, but can still apply f sufficient to give a
particular m the a necessary to make a three-pointer).

 _For most people, the increase in utility from $75k to $100k is negligible_

Well, the savings rate is not variable enough by income for that to be true.
It looks like people ratchet up their consumption nearly as fast as their
income increases, so it is fairly linear. And if you consider utility to be
the optimal bundle of goods, even rapidly diminishing marginal utility doesn't
change the fact that you get exponentially more consumption bundles with more
money, so the best bundle is likely to require a high income.

I still think that talking about the final outcome is not useful, since the
final outcome is hidden behind the probability of failure. You can't talk
about the incentive to play the lottery just by reciting the prizes -- the
odds are important, too.

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ScottWhigham
Here's why: <http://www.paulgraham.com/inequality.html>

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MaysonL
You are rewarded for being born in a country that has a rule of law,
reasonably well-regulated securities markets, little chance of having
governmant thugs take your successful company away from you just because they
can, and you bitch about giving some of it back?

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gaius
It's not about _how much_ tax you pay. It's about how the government uses it.

For example, in most of Scandinavia, the tax rates would make a typical
American's eyes bleed. But what they get for it is: clean streets, low crime,
great public transport, education and healthcare, and so on. Here in the UK
we're taxed almost as much and our government is staggeringly inefficient and
pisses most of it away. Filthy streets, knife crime, falling literacy and
numeracy rates, a healthcare service that is as likely to kill you as cure
you. If I relocated to Sweden or Iceland, I'd have no problems with paying
their taxes. But I bitterly resent every penny that goes to the UK government.

