Dilution vs. Risk taking: Capital gains taxes and entrepreneurs
11 days ago
- #entrepreneurship
- #capital-gains-tax
- #risk-taking
- Debate on taxing unrealized capital gains or wealth and its impact on entrepreneurship.
- Accrual-based taxation creates two effects: dilution for successful founders and tax credits (insurance) for unsuccessful founders.
- Data shows 84% of founders receive zero exit value, while top 2% capture 80% of total value.
- Switching to accrual-based taxation would reduce founder ownership by 25% but increase positive payoffs from 16% to 47%.
- Founders with no/moderate risk aversion prefer current realization-based taxes; highly risk-averse prefer accrual-based.
- A 2% annual wealth tax causes similar dilution but lacks risk-sharing benefits due to no tax credits in down rounds.