Trump's Full Court Press on Tax Reform

[Kraken]

The GOP Has Done the Impossible: Make Tax Cuts Unpopular.

I just don't see how this will end well for their party. It'sjust like the healthcare. They are better off with it failing. I fully expect this to get through in some way saddly. I just hope my taxes don't skyrocket.

Sent from my SAMSUNG-SGH-I337 using Tapatalk

I feel like what we're missing here are the exact conversations between GOP leadership and donors. Politically the obvious thing to do would be to cut back the corporate tax cuts a bit - i.e. rather than going from 35% to 20%, go to 25% or 30% - and then use that money to preserve some of the more popular exemptions. That that doesn't seem to be on the table suggests that some critical donors are drawing a firm line on the corporate tax rate (or, I suppose, that Ryan / McConnell are pretty ideologically committed to that part of it).

The insistence on 20% is Trump poisoning the well. He may not contribute much to actual policy-making, but his tantrums and back-stabs can absolutely screw it up for those doing the actual work.

[Pyperkub]

More thoughts on the Tax "Reform" - it is very much based on Kansas - here's a look at Kansas now:

The statement was simple. Factual.

A Kansas spokesperson was acknowledging that the state highway department didn’t have the money to rebuild a dangerous stretch of Interstate 70 that had been the scene of multiple wrecks and a grisly motorcycle fatality caught on video.

“KDOT has lost a lot of money over the last few years,” the spokesperson said. “There’s just no funding at this point.”

Simple, yes. But in Gov. Sam Brownback’s cash-strapped administration, those were fighting words. Days later, the spokesperson was fired.

[Pyperkub]

Ok, let's completely screw up one of the main sectors of the economy driving economic growth with a short-sighted tax plan which isn't appropriately thought through or debated:

A proposed tax that charges people as their startup equity vests instead of when they cash it out and actually have money to pay the taxes could wreck how tech companies recruit talent. And the industry doesn’t have much time to mobilize to get this tax changed.

The U.S. Senate released its proposed tax reform bill late last week under the aggrandized “Tax Cuts and Jobs Act.” It includes a tax on stock options and Restricted Stock Units (RSUs) that applies as they vest, rather than using the existing scheme that taxes stock options when they’re exercised or when the underlying shares are released for RSUs.

As famed VC Fred Wilson of Union Square Ventures explains, “What this would mean is every month, when your equity compensation vests a little bit, you will owe taxes on it even though you can’t do anything with that equity compensation. You can’t spend it, you can’t save it, you can’t invest it. Because you don’t have it yet.”

So yeah, lets tax people on money they don't have yet.

[noxiousdog]

All they have to do is sell the portion necessary to pay their taxes. At a minimum they would have 90 days to do it (Dec 31-April 15).

It's actually a good change, imo.

edit: I see. They are talking about options. The options vest, but the options themselves haven't converted. Meh. Option based compensation is a terrible design anyway and should be regulated out.

[Zarathud]

If you have in-the-money options then you can often borrow against them. For all of the talk of teform, the Republican tax proposals have proven to be ignorant of their unfair consequences. Strains like this will make the bill unpassable.

A new markup of the bill comes out tomorrow apparently. Prepare the sirens for OUTRAGE!

[Pyperkub]

All they have to do is sell the portion necessary to pay their taxes. At a minimum they would have 90 days to do it (Dec 31-April 15).

It's actually a good change, imo.

edit: I see. They are talking about options. The options vest, but the options themselves haven't converted. Meh. Option based compensation is a terrible design anyway and should be regulated out.

To a degree, I agree, however, the fact remains that this change would paralyze the startup businesses and cripple them until they can think of something else. The transitional costs would likely be horrendous.

[noxiousdog]

All they have to do is sell the portion necessary to pay their taxes. At a minimum they would have 90 days to do it (Dec 31-April 15).

It's actually a good change, imo.

edit: I see. They are talking about options. The options vest, but the options themselves haven't converted. Meh. Option based compensation is a terrible design anyway and should be regulated out.

To a degree, I agree, however, the fact remains that this change would paralyze the startup businesses and cripple them until they can think of something else. The transitional costs would likely be horrendous.

I'm sure they can figure something out. They can use real stock rather than options, for example.

[Isgrimnur]

Whose real stock should these startups be using?

[noxiousdog]

Whose real stock should these startups be using?

Their own? You can't have options without stock.

[Isgrimnur]

I wound up with four shares of TravelZoo in the 90s. They went public in 2002. Those 'shares' didn't exist for close to four years.

[noxiousdog]

I wound up with four shares of TravelZoo in the 90s. They went public in 2002. Those 'shares' didn't exist for close to four years.

Right. And you wouldn't have to pay taxes on them until they do in this plan.

[Remus West]

Whose real stock should these startups be using?

Their own? You can't have options without stock.

Uh...yes you can. An option is in fact completely separate from a stock. An option is simply that, the option to buy the stock at a given value regardless of the current actual value.

[noxiousdog]

Whose real stock should these startups be using?

Their own? You can't have options without stock.

Uh...yes you can. An option is in fact completely separate from a stock. An option is simply that, the option to buy the stock at a given value regardless of the current actual value.

The stock has to exist to have an option on it. You don't have to own both pieces, but the underlying stock has to exist.

[noxiousdog]

I wound up with four shares of TravelZoo in the 90s. They went public in 2002. Those 'shares' didn't exist for close to four years.

Right. And you wouldn't have to pay taxes on them until they do in this plan.

One extra piece on this that I thought of, I know there are cases of restricted stock where it is granted and vested but you cannot sell. I would argue (and this would fall into something that you'd need a tax attorney) that until you can sell it, it has no value and hence you couldn't be taxed on it yet.

This would definitely need clarified or excepted.

[LawBeefaroni]

I wound up with four shares of TravelZoo in the 90s. They went public in 2002. Those 'shares' didn't exist for close to four years.

Right. And you wouldn't have to pay taxes on them until they do in this plan.

One extra piece on this that I thought of, I know there are cases of restricted stock where it is granted and vested but you cannot sell. I would argue (and this would fall into something that you'd need a tax attorney) that until you can sell it, it has no value and hence you couldn't be taxed on it yet.

This would definitely need clarified or excepted.

You're taxed when you vest with restricted shares. The full value of the share at the time of vesting. When you vest, it's just like getting regular shares.

[Remus West]

Whose real stock should these startups be using?

Their own? You can't have options without stock.

Uh...yes you can. An option is in fact completely separate from a stock. An option is simply that, the option to buy the stock at a given value regardless of the current actual value.

The stock has to exist to have an option on it. You don't have to own both pieces, but the underlying stock has to exist.

An option is not a piece of stock though. It is simple the option - choice - to buy at a later date of the option holder's choice. Are you going to give people a tax rebate should the price fall below their option level? If I had the option to buy stock in Inc. Inc. at $200/share and the price falls to $50 a share do I get to claim a loss? I didn't purchase or sell anything I'm simply holding the option to over pay for an item. If I take advantage of a sale at the local mall should I pay sales tax on the retail price or the sale price? It's the same concept.

If I hold options to buy 50 shares at $10 each and the price is $20 per share then you're saying that I have essentially $100 but what if I don't have the money to buy those shares - not even a single one? What if I anticipate the price going up to $1000 a share due to work I'm putting in? Why should I be forced to give up my future so you can tax me now rather than when I actually make the money - particularly given it would be a lot more later (and thus more in tax too)?

[Zarathud]

Stock option compensation is often restricted after it vests. There may be limited windows to sell due to securities law or contractual obligations.

In the start up world, stock options are often granted before the stock can be publicly traded. It has an economic value, but you might not be able to realize it for years.

These proposals show Trump and the Republicans do not have their "best and the brightest" working on the tax reform. There is no coherent policy goal or tradeoff. It's political payoff to supporters who demand a return on their investment in the Republican Party. It's crass, it's partisan and it's poorly conceived.

[Chaz]

My company isn't public, but has been granting stock options for about 12 years now. Outside of company sponsored buyback events, which haven't happened in a few years, nobody is able to make any money off those. One person just left the company after four years, had vested options, never had a chance to cash them out, and couldn't afford to exercise them. Suggesting that she should be taxed on those is just bonkers.

[noxiousdog]

I get where you guys are coming from. I just disagree.

It is compensation. Period. End of story. We can argue about the value (if any), but it's compensation. If it had no value, why would you want it? Clearly it does and clearly it's monetary. Ergo, it should be taxed.

Yes, it's a big scam. That's why it's so popular. It works for the corporation, for the employees, against the shareholders and against the tax payers.

[Isgrimnur]

for the employees, against the shareholders

[Zaxxon]

Points for speed on that one, Isg.

[noxiousdog]

Are you serious?

You're alleging that venture capitalists will no longer be able to create businesses due to this propsal, but it's a feature of the present system that the same guys are scammed?

Anyway, read Warren Buffett's feelings about stock options. I got my opinions from him.

[Isgrimnur]

Points for speed on that one, Isg.

[malchior]

Breaking news is that the Senate is aiming for complete failure by repealing the ACA mandate in the tax bill. So they'll collapse the economy of NJ and then the US Healthcare system in one fell swoop. Sounds reasonable.

[El Guapo]

I don't have a conceptual issue with taxing options once they become vested / non-restricted (i.e. once they are received and have actual market value). They're clearly income at that stretch. That said, it seems very likely that there are practical issues that this would create - situations where options are theoretically vested and non-restricted, but not able to be sold for practical reasons, where imposing the tax at that point wouldn't make sense. So, if this tax change was being designed by thoughtful, detail-oriented, fair-minded people, it would probably wind up being a sensible change. I do not, however, have the sense that those are the people in charge of this bill at this point.

[LawBeefaroni]

It is compensation. Period. End of story. We can argue about the value (if any), but it's compensation. If it had no value, why would you want it? Clearly it does and clearly it's monetary. Ergo, it should be taxed.

Yes, it's a big scam. That's why it's so popular. It works for the corporation, for the employees, against the shareholders and against the tax payers.

No not necessarily. Options that are never exercised work in favor of the shareholder. It's a speculative gamble on both sides.

How is it better for other shareholders if actual dilutive shares are issued?



As for the tax issue, if you want to start taxing future value, good luck. Any tax on an option makes an assumption of the specific future value, or even existence, of the underlying stock.

Anyway, read Warren Buffett's feelings about stock options. I got my opinions from him.

They're not always the best option, no pun intended. Doesn't mean we have to do away with them or come up with an impossible tax scheme.

[LawBeefaroni]

I don't have a conceptual issue with taxing options once they become vested / non-restricted (i.e. once they are received and have actual market value). They're clearly income at that stretch.

Many options don't have a market value. There's either no one trading them or the spread is too wide to fairly value them.

You could value them at the strike price somehow I guess but the refund trail would be a mess.

[noxiousdog]

I don't have a conceptual issue with taxing options once they become vested / non-restricted (i.e. once they are received and have actual market value). They're clearly income at that stretch.

Many options don't have a market value. There's either no one trading them or the spread is too wide to fairly value them.

You could value them at the strike price somehow I guess but the refund trail would be a mess.

If you don't know what their value is, how can you either accept or offer them in lieu of salary?

I don't have a conceptual issue with taxing options once they become vested / non-restricted (i.e. once they are received and have actual market value). They're clearly income at that stretch. That said, it seems very likely that there are practical issues that this would create - situations where options are theoretically vested and non-restricted, but not able to be sold for practical reasons, where imposing the tax at that point wouldn't make sense. So, if this tax change was being designed by thoughtful, detail-oriented, fair-minded people, it would probably wind up being a sensible change. I do not, however, have the sense that those are the people in charge of this bill at this point.

That's the response I mean to write to begin with.

[milo]

You guys are nuts.

Stock options are like retail product coupons; you have the option to purchase something at a discounted price at a later date. Except that options are be worse than coupons as you may end up with the option to purchase shares of stock at a higher price than they are trading for. The options themselves cannot be traded under any circumstances.

Do you believe that everyone should be taxed on the income represented by "money mailer" coupons? If I throw out a coupon to BOGO for a brand of laundry detergent I don't even use, do I now owe the government one-third the price of a bottle of Woolite?

[El Guapo]

I don't have a conceptual issue with taxing options once they become vested / non-restricted (i.e. once they are received and have actual market value). They're clearly income at that stretch.

Many options don't have a market value. There's either no one trading them or the spread is too wide to fairly value them.

You could value them at the strike price somehow I guess but the refund trail would be a mess.

This is part of what I'm saying when I say that at a conceptual level it makes some sense to tax vested, saleable options even if the owner has not yet sold them - kind of like how we tax people on the value of a free car won in a sweepstakes, for example - but that it seems like there are a lot of practical aspects that would have to be factored into how that would be done.

[LawBeefaroni]

I don't have a conceptual issue with taxing options once they become vested / non-restricted (i.e. once they are received and have actual market value). They're clearly income at that stretch.

Many options don't have a market value. There's either no one trading them or the spread is too wide to fairly value them.

You could value them at the strike price somehow I guess but the refund trail would be a mess.

If you don't know what their value is, how can you either accept or offer them in lieu of salary?

Because each side is gambling. The employer that the option incentive will yield retention, performance, or whatever the intent is. The employee that the options will have value in the future. And they're usually not in lieu of salary, they are usually a form of (or in lieu of) a bonus.


I get why Buffett doesn't like them, they are a gamble. But that's why start ups (and those they employ) love them.

[Pyperkub]

Breaking news is that the Senate is aiming for complete failure by repealing the ACA mandate in the tax bill. So they'll collapse the economy of NJ and then the US Healthcare system in one fell swoop. Sounds reasonable.

Great, let's fuckup the health care industry at the same time as we fuck up the tech industry. That will do wonders for the economy.

[The Meal]

Do you believe that everyone should be taxed on the income represented by "money mailer" coupons? If I throw out a coupon to BOGO for a brand of laundry detergent I don't even use, do I now owe the government one-third the price of a bottle of Woolite?

I'm on your side of the description of a stock option, however your example is poor. They can be like giving you the option to purchase $10 bills for $5 a piece. (Or $20 each, of course.)

[RunningMn9]

I get where you guys are coming from. I just disagree.

It is compensation. Period. End of story.

What are you talking about?

Being given the option to buy something isn't compensation until you make the decision to do so. Over the years I've dealt with 10s of thousands of options. If I had to pay taxes on the them when they were granted/vested, rather than when they were exercised, it would have been financially crippling.

Giving me the stock? Yes, that's compensation. If my employer gives me 500 shares of stock, that's direct compensation, whether I sell them or not. If my employer lets me buy 500 shares of stock - that isn't compensation. That's me buying 500 shares of stock.

If I then sell those shares of stock, then tax me on the proceeds (or let me deduct the loss). The idea that they are somehow compensation - at the moment they are granted or vest, is stupid.

End of story.

[noxiousdog]

I get where you guys are coming from. I just disagree.

It is compensation. Period. End of story.

What are you talking about?

Being given the option to buy something isn't compensation until you make the decision to do so. Over the years I've dealt with 10s of thousands of options. If I had to pay taxes on the them when they were granted/vested, rather than when they were exercised, it would have been financially crippling.

Giving me the stock? Yes, that's compensation. If my employer gives me 500 shares of stock, that's direct compensation, whether I sell them or not. If my employer lets me buy 500 shares of stock - that isn't compensation. That's me buying 500 shares of stock.

If I then sell those shares of stock, then tax me on the proceeds (or let me deduct the loss). The idea that they are somehow compensation - at the moment they are granted or vest, is stupid.

End of story.

Then why would you accept it in lieu of salary?

[stessier]

Why do people pay for lottery tickets?

[The Meal]

I get where you guys are coming from. I just disagree.

It is compensation. Period. End of story.

Being given the option to buy something isn't compensation ...
End of story.

Then why would you accept it in lieu of salary?

Is this line of argument that everything negotiated in lieu of salary should be taxable?

[El Guapo]

I get where you guys are coming from. I just disagree.

It is compensation. Period. End of story.

What are you talking about?

Being given the option to buy something isn't compensation until you make the decision to do so. Over the years I've dealt with 10s of thousands of options. If I had to pay taxes on the them when they were granted/vested, rather than when they were exercised, it would have been financially crippling.

Giving me the stock? Yes, that's compensation. If my employer gives me 500 shares of stock, that's direct compensation, whether I sell them or not. If my employer lets me buy 500 shares of stock - that isn't compensation. That's me buying 500 shares of stock.

If I then sell those shares of stock, then tax me on the proceeds (or let me deduct the loss). The idea that they are somehow compensation - at the moment they are granted or vest, is stupid.

End of story.

The value of an option is the difference between the price of the option and the market value (current or anticipated) of the underlying stock. If I give you an option to buy 100 shares currently selling for $100/ share at a price of $10/share, I have basically given you $9,000 (minus transaction costs). We tax people all the time on the value of non-cash items received, so conceptually it's not different to tax options pre-sale - it's basically a non-cash item of value (again, assuming that the price on the option is below some measure of the stock's market value).

As I've said, there are all sorts of practical issues raised by taxing them. I do think that there is probably a rational system that could be devised that would provide for pre-sale taxing of options, but again, I wouldn't count on the current crew to do it right.

[Smoove_B]

I'm going to humbly suggest that the people most impacted by the current proposed tax plan reform don't give a crap about stocks, stock options or dividends on imaginary futures.

[RunningMn9]

kind of like how we tax people on the value of a free car won in a sweepstakes, for example - but that it seems like there are a lot of practical aspects that would have to be factored into how that would be done.

But in that case, I've won a car. Like. I have the actual car. In the case of stock options, I've "won" the ability to buy stock at a certain price. I don't have any shares of stock. If the strike price is $10 per share when granted, but $5 per share when vested, do I get to deduct $5 per share from my taxes?

What happens if I don't exercise them until the following year, when they are $15 per share? The strike price was $10, but I got a tax credit for $5, and now I pay capital gains on the $10 in between the $5 and $15, even though I actually only made $5 per share?

That's an asinine system.

If I pay $10 per share to buy the stock, and sell it immediately for $15 per share - then hit me with income tax on the $5 per share that I made on the deal.