This tax would not affect the middle class, or even most wealthy
Americans. Nor would it affect small-business owners. It would affect
only individuals who were undeniably, extraordinarily rich. Only
publicly traded stock would be marked to market.
Some would argue that it is inherently unfair to tax “paper gains”
before they are realized — Mr. Zuckerberg won’t receive $28 billion in
cash; he holds only paper. Moreover, markets are inherently volatile;
one year’s paper gains is another’s real losses. However, these
arguments are far less credible when paper losses give rise to real tax
refunds. Moreover, in a downturn, the mark-to-market tax would act as a
fiscal stimulus — the cash refunds would offset a declining stock
market.
This proposal follows the Ronald Reagan model by broadening the “base”
of tax without increasing rates. In fact, Reagan was responsible for the
last major reform of our antiquated realization system when he signed a
law requiring taxpayers to pay a tax on interest that accrued on bonds
but was not paid.
The most profound effect of a mark-to-market tax would be to level the
playing field between wage earners, on one hand, and founders and
investors on the other. Superwealthy holders of publicly traded
securities could no longer escape tax on their vast wealth.
Now leaving aside the sanity of this scheme one should examine the unintended consequences.
Let us assume I start a company. I put say $1 million of my money in it. It gets going. I need more money, and I get a first round of financing at a $9 million pre money valuation and raise say $9 million. My one million is now worth $9 million and I must pay 35% tax on this $8 million gain even though I never saw a penny and am still out $1 million.
So why would I start the business? And if I do a second round at say a $40 million pre money, my first round investor must pay tax on $11 million and of course so do I. Why would he want to invest, his rate of return is destroyed just then and there!
So what will happen, well we will find ways to do start ups in say Mauritania or some other place that does not have this strange way of taxing.
It seems clear to me that this fellow is clueless about the entrepreneur. The money was meant to grow the company, employ people, pay taxes, not give money to the Government. I guess it is now clear why we will be in this mess for a real long time.
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