[FoRK] Why do VCs dislike zero tax? (was: The Parable of Joe)

J. Andrew Rogers andrew at ceruleansystems.com
Sun Jul 6 09:18:01 PDT 2008


On Jul 6, 2008, at 5:48 AM, Russell Turpin wrote:
> andrew at ceruleansystems.com:
>> This has the fetid odor of platitude policy that will never
>> meaningfully materialize combined with the probability that any part
>> of it that did get implemented would be a non-constructive regulatory
>> and administrative nightmare. Thanks but no thanks, much better to
>> have very simple set of rules that everyone has to play by.
>
> It's not that hard to imagine fairly simple rules, e.g., purchases of
> original stock up to and including the initial public offering. Yes,  
> of
> course, people buy original stock hoping to resell it to someone who
> isn't. So that secondary market is very important. But I can see the
> argument for a tax differential, especially for a company that isn't
> yet publicly traded.


The problem being that companies are not going public anymore and many  
are going private. It is no longer uncommon for successful startups  
with large revenues to not even consider the public markets. We can  
thank the steaming pile that was Sarbanes-Oxley for that, among many  
other things that have made the public markets unattractive for  
companies. Simultaneously, unregulated private equity markets have  
been experiencing strong growth.

Hell, it was even in the news lately, last quarter was the first in 30  
years with no IPOs and that is really just the culmination of a  
declining trend:

http://www.statesman.com/business/content/business/stories/other/07/02/0702ipos.html

I am sure there are still some who will claim you cannot kill a market  
with excessive regulation, but they seem to be doing a fair job with  
the public securities markets by all appearances and certain  
politicians are clamoring for even *more* of that, as though that will  
fix what is ailing us.  Ironically, and as noted in the article, the  
over-regulation of public markets is mostly hurting investment and  
financing for small- to mid-cap companies, not the startups we  
supposedly need to protect.


This will all ultimately hurt the Average Joe with a retirement  
account as all the decent investments go to the private equity  
markets.  The government is really doing a number on that guy, taxing  
him at 15+% for "retirement" that is rapidly approaching bankruptcy  
with no return while simultaneously destroying the public securities  
markets that would give him a decent return on whatever it is they let  
him keep. All for his benefit and protection, naturally.

J. Andrew Rogers



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