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E30: Ramifications of Biden's proposed capital gains tax hike, founder psychology & more
- Federal capital gains tax rates for individuals earning over $1 million could rise to 39.6%, with combined state and federal rates potentially reaching 43.4% nationally, 52.22% in New York, and 56.7% in California, aiming to generate $370 billion over a decade.
- While a full enactment of proposed hikes is considered unlikely, a diluted version may pass as part of a rebranded "human infrastructure" bill, potentially causing a significant increase in effective tax rates regardless of the specific percentage.
- Capital formation is predicted to diminish over the next five to ten years, with risk capital pools shifting outside the US, fewer venture funds deploying capital, and a reduction in the number of companies funded or capital per company if rates double from 20% to 40%.
- High-tax states like New York and California face increased outmigration to low-tax jurisdictions including Texas, Florida, Utah, and Wyoming if federal rates reach 40%, while wealthy individuals may shift capital to charitable vehicles to invest tax-free.
- Economic behavior is expected to shift toward consumption over investment due to diminished after-tax returns, potentially driving inflation, reducing entrepreneurship due to lowered risk tolerance, and forcing investors to liquidate gains at higher income tax rates.
- The US government is projected to permanently maintain federal outlays at 30% of GDP, similar to wartime levels, failing to measure ROI, lack accountability in dollar flows, and relying on massive debt issuance and quantitative easing that may depreciate the dollar.
- Political dynamics suggest the Democratic Party will continue shifting left, dragging the President toward the activist base, with proposed tax hikes serving as a political tool or "sacrificial lamb" that could benefit Donald Trump if campaigned against.
- Regulatory changes are expected in the SPAC market where warrants will be reclassified as liabilities by the SEC, requiring sponsors to commit more capital ("skin in the game") and driving warrant coverage toward zero.
- Media coverage is forecast to continue focusing on isolated incidents, fear-based narratives, and vaccine side effects, potentially inciting further fear or violence, while unique viral variants in India are predicted to number between 100 and 200.
- Vaccination rates are expected to decline from four million to three or three-and-a-half million doses daily due to missed appointments, and the Johnson & Johnson vaccine safety issues may be exaggerated by media despite low actual mortality.
- The "opportunity society" driven by risk capital is viewed as the only functioning part of the American system, yet it faces threats from punitive taxation, a lack of school choice, and a government unable to reduce spending, deficit, or debt.
- Founders are expected to require a maturation process to manage aggressiveness and avoid self-destruction, while the WeWork collapse is attributed to a "cult of personality" and a lack of adult oversight.
- Future economic policy is suggested to require a bipartisan return to moderate tax rates and investment incentives similar to the Reagan-Clinton era, though the current trajectory points toward continued taxing of the wealthy without achieving progressive wish-list items.