This week: 25% For the Big Guy; Side Hustle Summer; NatalFest

Biden budget calls for 25% tax on unrealized capital gains

Last week, the Biden Administration released their latest budget proposal, which raises the top marginal tax rate on capital gains to 44.6%, and includes a 25% annual minimum tax on unrealized capital gains for anyone with a net worth of over $100M.

For starters, this essentially kills tech investing, since the entire business model depends on a handful of stratospheric wins financing dozens of failed experiments.

It would introduce absurd distortions as companies brace for massive sell-offs every year so that investors can liquidate their portfolios to pay taxes. The act of selling alters the value of the asset — Elon Musk owns “$100B worth” of $TSLA, but he can’t sell it for $100B. Even small insider moves generate big fluctuations in the stock price.

If this rule had applied in 2020 during $TSLA’s massive bull run, Elon would have owed $66 billion in taxes — equivalent to 23% of his ownership stake in the company (assuming he liquidated near the top), and one-third of his current fortune. And that’s just the bill for a single year.

And it doesn’t even touch the complexities of startups and other assets that have never been sold and therefore have no objective valuation. Enforcing a tax on unrealized gains would mean empowering the IRS to investigate and make creative judgments about gains that are (by definition) not grounded in any market reality.

Imagine having to fight the county assessor over your home value every year, only its the feds, and it’s everything you own.

It gets even crazier when you think about ownership and executive control at startups.

Many tech founders hold a 51% stake in their startups to ensure they retain executive control — but investors often insist on the right of first refusal (to buy your stock before you sell it on the open market).

If your startup goes 100X, and you suddenly owe a tax bill 25 times greater than the total value of the company a year prior, congratulations — you are now a 38% shareholder-employee.

The proposal is so insane and destructive that I keep re-reading it, assuming I must have missed something. Every year, you have to give them a quarter of anything you build. And there’s no rebate if you lose your shirt the following year.

The administration’s justification for this is that too many investors are “inefficiently lock[ing] in portfolios of assets and hold[ing] them primarily for the purpose of avoiding capital gains tax on the appreciation, rather than reinvesting the capital in more economically productive investments.”

In other words: as the dollar collapses, they can’t have you holding capital and only paying rapidly-inflated USD taxes on rapidly-inflated USD revenues. They need the people who own productive assets to liquidate their actual, real-world shit and hand it over.

As usual, this is framed as a way of protecting ordinary people from tax increases by getting the rich to “pay their fair share”.

That’s probably how it is received by most ordinary voters, if they hear about it at all — but the proposal genuinely seems to have radicalized the reactionary-curious tech money.

You could argue that this is a public signal that the Democrats want to Get Serious about the deficit — but even if they could expropriate the total collective fortunes of America’s billionaires, it would only close the deficit for a year or two. There is no “getting serious about the deficit” at this point — the condition is terminal.

Instead, it seems like another opportunity for selective appraisal and auditing. Not to save the dollar (she don’t want to be saved, she belongs to the streets), but simply to surveil and threaten the tech moguls — the last remaining uncooperative power center in the United States.

For ordinary people, it's not a near-term crisis, but it's another warning light.

This provision of the president’s budget is very unlikely to make it through a divided Congress — but if Trump is unable to take control of the government in November, all bets are off.

Mainstream progressive think tanks are explicitly highlighting this proposal as a feature of Biden’s policy agenda, and there has been no intra-party dissent to speak of — so we can take this as a serious statement of the regime’s medium-term intentions.

If you believe in a long, slow decline, you should factor this into your predictions. The state intends to expropriate its most powerful citizens. There is no plausible scenario in which this does not trigger an economic collapse.

The ensuing immiseration and chaos will not only justify, but actually require further expropriations if they want to maintain power.

Unless you think a crisis of this magnitude will lead our managerial class at long last to humility and repentance and retirement to a life of contemplation, there's nothing to arrest this process once it has begun.

Under those conditions, your security will be a question of possessing types of capital that can't be expropriated.

For 20th century populations in such conditions, the most valuable assets were marketable skills, strong networks of well-placed friends, access to safer jurisdictions, and the ability to move physical capital.

Of course, people with these advantages tend to do well in good times, too — so if you think we're headed for the sunlit uplands of a Trump Restoration, the prescription is the same: build your network, learn transferable skills, and hold your own capital. Get started with us at exitgroup.us.

EXIT News

• On this week’s full group call, we discussed our plans for NatalCon 2024:

  • We are asking pronatalist academics what research topics they might like to present on, and what topics they would pursue if they had additional funding. Reach out if you have recommendations for aligned researchers to participate.

  • Feedback from last year was that the conference was a great place to meet founders, funders, experts, and influencers — but families and singles looking to connect with like-minded people were priced out. So, in addition to the closed-door symposium, NatalCon 2024 will include a festival. We want to keep it simple, low-cost, earnest, and vital — encouraging men and women to set aside the gender wars and rediscover what is beautiful and admirable in the other.

• We also discussed Side Hustle Summer:

  • Starting June 1 through Labor Day, we’ll hold a competition to see which of the guys can bring in the most revenue on the side

  • Has to be something you’re starting new, but teams are encouraged and bonus points for roping your kids into it

  • A few ideas we’ve discussed: flipping storage units, selling seedlings, selling eggs and milk, breeding mutant pitbulls, flipping broken lawnmowers, helping boomers fix their computers, selling books on Amazon, driving for Uber, chillhop Twitch stream with llamas in pastoral scenes, racist energy drink

• Wife is scouting houses in the Austin/San Antonio area this week — if you are a praying man, pray for us that we will find the right place to set up EXIT HQ

• Cocktail hour RSVP links for New York City (6/21) and Columbus (7/19) below the fold for paid subscribers. (Boston meetup has been cancelled.) These are a great opportunity to meet your local guys, and see if the full group is a good fit for you. Invites to the members-only portion of the meetup will be sent via email.