Less worrying about staying insured if you quit your job to found a company, which is a huge barrier for a lot of people (especially with dependents).
More wanking over "oh noes I might not invest in your startup now that my payday would be taxed slightly more", followed by handwringing about a perceived slide into socialism, but nearly no change in investment behavior. Maybe a few people cash out earlier than they would have to avoid the tax increase.
Wanking is a good word for it. I've never understood how people looking for upside measured in the hundreds to thousands of percent can complain about a 3.8% tax with a straight face.
If you invest $100k in a startup, it goes well and you walk away with a million ($900k profit), are you really going to cry when the tax man comes and gets his $34,200? I guess you might, but it didn't suddenly make the investment not worth it.
Then again, those people aren't likely the ones complaining. It's the people who have a hypothetical model in their head of what "investors" are like and want to use it as a talking point to attack health care reform.
Let me start by saying that I am not opposed to the proposed healthcare reform, since I don't know enough about it to have any opinion, and I suspect that if I did invest the time and learned the facts I would be in favor of the reform.
With this out of the way, your argument seems completely wrong to me. In reality nobody can consistently get 1000% returns, or anywhere near it, from the startups they invest in. (If that was possible, everyone would want to invest in startups and the valuations would go up until the returns got more in line with other investment vehicles with the same risk profile.) In reality, for every startup where you invested $100k and walked away with $1M, there are many where you invested $100k and walked away with zero. On average the returns can't be much different from what you get elsewhere, I'm guessing I won't be off by much if I say 10% before tax and before inflation. And 4% difference in tax burden will also mean about the same it means for other investments, which is to say it's not insignificant. Think of the lenghts people go to in order to put a little more money in a tax sheltered part of their portfolios. Or, think of the risks many people with stock options grants took to convert their short term capital gains into long term (and many of them got burnt very badly when the dot com bubble burst).
I totally agree with you in aggregate. If you take the entirety of the VC/Angel scene and figure out the overall return, it's probably not that much different than other investment vehicles (it's probably a bit higher, since there are barriers to entry, which prevents everyone from getting into the game).
But my point was for those upper echelon's of VC/Angels who actually make money. PG has pointed out in the past that there really are only a handful of VC/Angels that actually consistently make money (and more importantly in the case of VCs make money for their investors). You're right that my case was idealized, but investment losses can also be used to offset gains for tax purposes, and this is an industry of lawyers, so I doubt the tax effects are as clear cut as either of us paints them to be. And I still maintain my overall point that 3.8% isn't going to suddenly kill the startup scene. If it was that tax sensitive, it wouldn't be in California to begin with.
Good point. However you forget that those who make $1m in profit also know how to raise a stink, how to call their congressman, how to post a letter on the Internet. Just see how much debate there is around the estate tax issue. It affects very few but there is a lot of hoopla around it. That is because it affects lots of rich people.
Assuming a 15% long term cap gains rate you'd write a check for $135k. You now have 765k--not bad, but how many years did it take? Now, what if the tax rate was 34% (as will be in a few years under this plan in CA): you write a check for $306k and you're left with 594k. If this exist took you three years you just averaged a 200k/year salary--great job. Unfortunately, you'd have been better off working for Cisco because of the amount of risk you likely took to achieve that outcome. Anything that the government does to minimize the reward for taking risk will, undoubtedly, also minimize the amount of innovation.
Please save this and come back and read it after you write a check (one or multiple) to the US government for millions of dollars after you struggle for 5+ years and literally risk everything you have to make a business successful.
A day-long argument between otherwise very intelligent Hacker News denizens on different sides of the political aisle, who would otherwise be arguing about 37signals vs. Mahalo or JSON vs. XML.
It may be because I am currently dealing with a tax error that's causing a nightmare from a previous startup, but I feel like the government keeps saying to me through all these complicated tax rules and increases, "Please don't do another startup. Please don't build things for people or create jobs. Yeah, we'll let you, but we'll make your life a huge annoyance if you try."
I like to hack and I like building things for customers, but last week I spent most of the week filling out government forms. Another 3.8% on investment income (plus the proposed 5% cap gains increase for a total of 8.8%) won't kill me, but it's starting to feel like the straw the broke the camel's back. I'll probably do the next startup. At the same time, I angel invest in 3-4 companies a year. I like to find kids who were like me at some university labs, invest in their ideas, and what them create cool companies. I may give that up.
Since this isn't a political forum, I won't say which side I'm for. But I will say that I'm angry at both sides for the $1T giveaway to the investment bankers and now to the way the CBO numbers have been gamed.
(tmp acct, b/c I don't want to discuss my tax issues under the regular acct)
I build startups. So far, pretty small, but I've created 16 jobs so far in my career (approximately--it's hard to track what happens to your org after acquisition). I'm proud of that.
I also angel invest. Thus far, those companies aren't that old, but my marginal contribution is worth at least several jobs.
When they make it a hassle to create startups and to invest, I spend less time building startups and more time chilling at home. When they make it more expensive, I do less angel investing. It's hard to quantify--I can't tell you how much impact it has on me personally (though it definitely has some). But when instead of looking at me individually, you look at the expected values across aggregates, economists show real, substantial effects.
And, time many, many hours I've wasted on forms, letters, arguments, etc recently are all time that could have been spent coding or with customers.
First, this is not a "woe is me" tale. My life is pretty good. If I do less is startups, I've done pretty well. We're very far from socialism.
This one was actually pretty simple. An acquirer filed a 1099 in the incorrect category. We submitted an amended one, but the IRS wants to tax at teh higher rate. And, with giants penalties and interest. You basically have to a) pay the amount they incorrectly claim you owe plus the interest and penalties up-front. Then beg for your money back and b) pay lawyers to try to get them to actually respond. Once the IRS has your money, it's pretty much impossible to contact them and argue. The actual form we filled out, the 843, is pretty simple.
[As an unrelated point, if you're in CA, the current cap gains rate is 15% federal + 9.3 CA income + 1% CA mental health=25.3%. If if goes to the proposed 20% federal + 3.8% medicare + 9.3% CA income + 1% CA mental mental health=34.1%, that's a 34% increase on the taxes on startups in the course of a year... Granted, I care more about the hassle, but it's made me think.]
The health care bill would seem to increase demand for healthcare services without actually increasing supply for healthcare.
Doctors takes years to train, drug trial are still expensive, amongst other thing.
All what we're doing is adding million of individuals into the healthcare system without balancing the supply side equation.
It would also seem to treat health care insurance as a sugar daddy of healthcare, instead of being treated as a mechanism that reduce risks through incentive and such. This make insurance companies big juicy targets for healthcare providers. If people were to spend their money on the daily cost of healthcare, they would be more conscious of the cost, thus use it only as neccesary. Insurances would only be used in high cost emergency measures such as cancer and other diseases, which are preventable and can be reduced by individuals.
This reduce the demand for healthcare and give people incentives to lower their cost their healthcare cost through insurance's discounts, thus less strain on the supply of healthcare.
The taxation scheme also rob people incentive of saving for emergency measures, an alternative or complement to insurance spending, which may have the side effect of impacting long run productive growth or simply maintenance of current productive capacity(Capitals need to be maintained or replaced), as saving are in effect fund the production of capitals, which eventually lead to consumer goods and services.
Those millions of individuals are already in the health care system. The primary impact of the bill seems to be whether their contact with the system bankrupts them or not. Either way, the hospital isn't getting $3,500 for the MRI they just ran.
Your concerns all seem very reasonable. In particular, the distortion of the concept of "insurance". But, two things.
First, that distortion already took place. Providers and insurers have spent the last two decades colluding on pricing and process in ways that transformed Blue Cross from an insurer to a poorly-regulated utility.
Second, your concerns are orthogonal to the debate. We should train more doctors, and we should create more tiers of service (nurse practitioner clinics in particular). That has little to do with whether we should allow de facto monopolies to lock consumers out of the healthcare market.
First, that distortion already took place. Providers and insurers have spent the last two decades colluding on pricing and process in ways that transformed Blue Cross from an insurer to a poorly-regulated utility.
The health care bill takes this to a whole new level, and then sets it in stone.
Insurance and health care delivery was already a mess in the U.S. But prior to this bill, we might have evolved or legislated some solution that was not a stupendous giveaway to Blue Cross and Aetna. Too late now. They will never give up the privileges they get today. They get to be toll collectors on our outrageously overpriced health care system forever.
Meanwhile, I read articles with people celebrating because they think this bill protects them from the health insurance industry. It's all just too depressing.
I agree with your sentiment. But from what I can tell, the likelihood that we were ever going to disentangle the insurers from the system was nil. It would have taken a climactic reshaping of health care, like single-payer.
When I look at the well-intentioned reform ideas coming from the opposition, I see things like "deregulate and sell across state lines". These ideas don't weaken the grip of BCBS and Aetna; they encourage consolidation and push us further in the direction of the Citigroup-izing of health insurance.
What's on the table will, on paper at least, ensure that startup entrepreneurs like me can actually buy insurance on the private market. We didn't have that ability before, at all. That's a win, from what I can see. Would I prefer not to have BCBS and United be the vehicles for that win? Of course. But what does that have to do with anything?
You're right, we probably weren't going to disentangle the insurers. That is not an argument for handing them the keys to the nation for the sake of "doing something". Doing nothing would have been better. At a guess, doing nothing would have resulted in attempts to reform at the state level, like Massachusetts. I'd have preferred that outcome by a long way.
What's on the table will, on paper at least, ensure that startup entrepreneurs like me can actually buy insurance on the private market. We didn't have that ability before, at all. That's a win, from what I can see.
I do not have employer provided insurance. I buy private insurance on the market today. It costs me about $6000 a year to insure my family of four. I expect the cost of insurance, post-reform, to converge on the national average, which is around $13000. That's a loss of $7000 a year for us. Maybe somewhat less because of subsidies (we won't get much there). Maybe more, if the cost of insurance rises post-reform as it did in Massachusetts under their similar reform.
It is not out of the question that we will actually give up health insurance altogether and pay the penalty instead. This would not be a win for us.
If you aren't able to get individual coverage for around $6000/year now (national average), and would like to, then this bill will indeed be a win for you. Of course, if you don't like the coverage you get at that price, pay it anyway or get fined.
This is getting too long, but does it seem thinkable to you that this reform might accelerate the increase in health care costs? I think it quite likely myself. If it does, too bad for everyone. We're locked in now.
It would have cost $14,000 to insure my family of four (adults in our 30s, kids in single-digits, no pre-existing conditions). I say "would have" because dollar figures didn't come into it: we were flatly denied coverage, first for our daughter, who had been hospitalized several years earlier for a freak seizure, and then for my wife.
(Note: we tried to obtain coverage ourselves, using the Internet and a telephone. When that failed, we worked with an insurance broker friend of the family. Neither worked.)
There was no dollar amount that would have bought us private insurance. We got around it first by getting Erin a job that offered group coverage, and then by setting up group health insurance at Matasano. I'm happy to say we now subsidize coverage for all our employees.
The numbers are a red herring. COBRA vs. private health insurance costs are not the issue that should be scaring entrepreneurs. The possibility of getting stranded with no possible coverage option is what should be scaring them.
The numbers are a red herring. COBRA vs. private health insurance costs are not the issue that should be scaring entrepreneurs.
Thousands of dollars a year in new expenses is not a red herring and is plenty scary. It's not what's important to you, but it is going to be important to a lot of other people.
People who have chosen catastrophic coverage, or who chose to go without health insurance to save money are going to get hit hard by this bill. My guess is a disproportionate number of self-employed people fall into this category.
People will go out of business because of this bill.
I don't think you're correct. I've read the Senate bill, though perhaps not as carefully as you have. I don't see where it says high-deductable plans don't qualify as health insurance for the purpose of satisfying the mandate.
I don't care about the people who choose to go without health insurance to save money. I wind up paying for them when they get hit by a car, when their appendix bursts, when they have a freak aneuryism, or when they fall down their stairs.
The same arguments suggest that people who drive infrequently and carefully should be allowed to forgo car insurance. After all, you can always sue them when something goes wrong with their plan!
And now we will wind up paying for you because your family has medical issues and couldn't previously get covered. The burden has simply been shifted. Good? Bad? Shrug, depends on which side of the line you sit on.
I sit on the side of the line that favors less and smaller federal government. One of the beautiful results of the power we give to States to govern is that as a country we end up with 50 solutions. Our diverse populous can then choose which one fits best with their ideals and personal circumstances--and we get this while still maintaining ourselves as a cohesive country.
Unfortunately, this time the government has chosen to white wall a solution across all citizens rather than to let the fundamental action of our country (States rights) do the work which would have resulted in a better solution, IMO.
In one set of circumstances, a family that could not obtain coverage now can, and contributes premium payments every months to compensate for that coverage.
In the other set of circumstances, the family can't obtain coverage. Something bad happens. Now, instead of having insurance cover it, they go bankrupt. We are all still paying the bills. The only difference that I can see is that in this set of circumstances, the family (a) didn't pay insurance premiums, and (b) was driven into bankruptcy.
I have not heard that catastrophic coverage is banned by the bill, but the end of this sort of insurance is implied because of adverse selection. Either "insurers cannot refuse coverage" will have exceptions, or reduced cost/reduced benefit programs have to go. Maybe it will take a year or two before the "quality standards" get enacted, but I can't see it not happening.
I don't care about the people who choose to go without health insurance to save money. I wind up paying for them when they get hit by a car, when their appendix bursts, when they have a freak aneuryism, or when they fall down their stairs.
People go without health insurance because it is incredibly expensive. For a lot of people it is a crappy deal, or just flat out unaffordable.
It is interesting how people who thought they couldn't afford health insurance used to be portrayed as victims. Now they're the bad guys, they broke the system for everyone else, and you don't need to care about them. What a difference two years makes.
I don't understand how your logic follows. There are no rules in the Senate bill that cap premiums, or establish floors for the premiums of high deductable insurance. Won't adverse selection drive down the cost of high-deductable insurance as it becomes a proxy for "insurance for 20-30 year olds unlikely to make claims"?
If you can afford health insurance, and health insurance is available to you, and you decide not to buy it because you're 25 and you don't think you'll need it, you don't deserve my sympathy. If you can't afford health insurance, you deserve whatever we can do to make health insurance affordable to you. Please don't try to drag me into identity politics. This isn't a "rich vs. poor" issue.
If the rule is cannot deny coverage, high risk people will buy the cheap policy and then switch when they need the expensive benefits. For that matter low risk people will switch if they roll snake-eyes and need to schedule something expensive like reconstructive surgery. This is essentially the same adverse selection logic that justifies the mandate.
*
People choosing to buy or not buy insurance has gotten reframed, and I find it interesting to see how effectively the switch took place.
In 2008, your hypothetical 25 year old would have been portrayed as a victim, if anything. Screwed over by the greedy health insurance companies who make it impossible to get decent coverage at a reasonable price.
In 2010, he's the bad guy. It's his fault the system is broken. He is morally obligated to buy that health insurance now, and if he argues that he's getting a crappy deal for what he is paying, it's him who is being selfish and greedy.
There are certainly identity politics tangled up in health care reform, but I was talking about the reframing of an issue and fickle public opinion.
In fairness: at that rate, even in Wichita, he's probably talking about high-deductable coverage. I like high deductable coverage. I like HSAs. They're a good idea. But they're irrelevant if all the insurers in your state refuse to cover your family.
I have deliberately not followed this debate because I feel like it would take a lot of reading to really form a nuanced and correct opinion on it, which would then be useless because in most arguments you'd be facing a talking-points opinion (from either side).
With that being said, it seems to me that it's not increasing demand, but helping meet unmet demand. I'm a really high risk for skin cancer. If getting insured incentivizes me to get more regualar checks at a dermatologist, that's likely to save the system money over the long run. This isn't me falling to moral hazard.
The moral hazard in the system is for doctors and hospitals. My dad is a doctor (opposed to the bill, btw) but his main complaint is always about other doctors coding things like nasal congestion up to an unscrupulous level to pad their take from insurance companies. And don't get him started on hospitals.
Maybe that's something opponents of the bill are aware of and opposing. Maybe the bill does nothing to fix that. But don't blame patients for making rational choices regarding healthcare based on whatever system they find themselves in. Anyway, there's my uninformed opinion without much of a point :-P
With that being said, it seems to me that it's not increasing demand, but helping meet unmet demand. I'm a really high risk for skin cancer. If getting insured incentivizes me to get more regualar checks at a dermatologist, that's likely to save the system money over the long run. This isn't me falling to moral hazard.
Insurance companies, when not treated as healthcare sugardaddies, do not like paying for high healthcare as they want to make more money. They may give you discounts for going to more check up more, to reduce demand for their service later. If you can detect cancer earlier, than you may able to avoid higher cost cancer treatment later as well continue to be a source of revenues to the insurance company. Insurance companies don't make money off dead people, I think.
Again: you use this word "sugar daddies" as if the role was foisted onto the insurers. It wasn't.
The insurers colluded with the providers to set artificial, market-oblivious standard prices for procedures on a region by region, hospital by hospital basis. From what I understand, prices were often set by allocation schemes negotiated between the payers and the providers, with no apparent regard to the actual cost, supply, or demand for the procedures. At the same time, even as they managed to drastically distort the pricing of health care, insurers apparently negotiated special payment processes directly with providers, thus creating not one but two artificial tiers of pricing.
It's meaningful to talk of "sugar daddies" and "insurance" only when there's a real market for health insurance. But no such market exists. For mainstream medical procedures, for the standard of care that Americans expect (a visit to a doctor, completion of the lab work the doctor requests, some form of radiology, and then a procedure or perscription to resolve whatever comes out of that diagnostic work), unless you are either willing to play chicken with the providers and say "no" when they try to collect debts, or willing to pay incredibly, drastically inflated prices for basic procedures, there is no way to get care without involving your insurer.
This is going to hurt startups. (the health care part is theoretically nice, but offset by the tax implications)
Short-term capital gains will be 15% (Fed) + 5% (Fed Increase in 2011) + 3.8% (this) + 10.3% (California). 34.1% capital gains!
This does not compare favorably to anywhere else in the world. For a CA startup founder, capital gains are going to be 1.5-3x higher than most countries.
This is an issue primarily because (half?) of US startups are founded by immigrants. At some point, it becomes more attractive for an immigrant to go to Vancouver, BC (21.5% tax rate, much easier immigration process, better quality of life than SFBA) or even to remain in India or China. The tax advantages might also push for Hong Kong or Singapore startups, with 0% capital gains and very low income tax.
A big number minus 34.1% is still better for an exit than a much smaller number minus a small percentage, but California is definitely not the only place to do a startup.
Do you see this hurting startups in some way other than reducing immigration?
I think it will help startups, by allowing small shops to bootstrap without having to surrender health insurance for themselves and for their families.
I think the combined CA + US tax burden might reduce marginal angel investments. It probably won't affect VC investments, but doubling my tax burden on a win means I'd need to double the odds of a win, or the size of the wins, and that might not be feasible as an angel, who could otherwise spend the money on a new boat.
I am unconvinced the health care result of this will be good enough for someone with a family to be comfortable going on relatively inexpensive insurance.
As a healthy, single, 20-40 year old guy with no risk of children, I'm fine with an $80/mo catastrophic plan, and I suspect a lot of people starting startups are the same, or have health care from a spouse's job. A single parent is not in a great position to do a startup for a lot of reasons, and someone with a lot of chronic health issues requiring expensive medical care probably isn't either.
It doesn't take ongoing chronic health issues to become uninsurable. For instance, having an unexplained seizure when you're 4 appears to do the trick, as does having a functioning female reproductive system.
I think there's a lot of room for reasonable people to disagree about whether this bill will help or hurt startups. But I don't think there's room to disagree about whether the status quo retards entrepreneurship. It does. Health insurance could have screwed me out of my company. Health insurance kept at least 3 candidates I can name off the top of my head from accepting a role with us in the early days of the company. There's no countervailing argument about how the status quo encouraged someone to start a company.
The status quo of health care definitely retards entrepreneurship. Increased taxes also retard entrepreneurship (in a historically well documented way, although maybe the effect between 15-23.8% isn't a well tested range).
I am not sure which has a larger effect here.
I definitely would like to see some health insurance changes, just not the ones in this bill, and not by taxing capital to pay for services to individuals. Actually reducing costs would be my #1 approach -- politically unpopular, but I'd be fine with subsidized or free basic care for everyone, but no free advanced care for those without private insurance. Private insurance purchased by individuals, with or without a tax deduction, and totally decoupled from employers.
I sent you long email describing. Basically I'd like to see public subsidized or free health care at the NHS level (i.e. kind of crap, but good enough), with available free relatively-unregulated private insurance and private care. I figure it would cost $1-2k/person/yr for the public side (excluding old people in medicare, which is another huge problem), which is a lot less than is spent now covering marginally insured people, overhead of medicaid, etc. I'd get employers totally out of the insurance game.
This is politically unpopular (some people WILL get lower quality free care under this plan than they get today, and some people might get lower quality care than under employer-provided care, if they choose to spend the savings on something else like food or education, which might be rational!) Also, I think the US Government is possibly more incompetent in running healthcare (I work in DoD healthcare, so I see this firsthand...) than the UK or Canadians or French.
Your email was great. You should click "edit" on your post and paste the email over your comment. I'll do the same with mine.
In the meantime, my response was: a totally standard appendectomy for a friend of mine cost tens of thousands of dollars. That isn't a quality of care issue, it isn't a freak incident, it doesn't involve preventative care or externalities. Nobody is comfortable starting a company where they will be instantly bankrupt if their kid's appendix bursts.
And for me this bill will allow me to keep holding off college to develop my startup and still keep my parent's health insurance (which I just lost coverage from).
WA kind of sucks for tech businesses due to the B&O tax, which is a gross receipts tax. This doesn't hurt you until you have revenue, but if you're a low-margin business with huge revenue, it means you suffer, even if you're not profitable. (it's something like 0.5% on gross revenue).
NV is probably the best somewhat-viable-for-startup state (Las Vegas or Reno), but I'd rather live in Seattle, Portland, or SF if in the USA.
I kind of prefer Vancouver, WA for a tech startup, too, because then you can take advantage of the huge unemployed market of early-20s developers who moved to Portland, OR for lifestyle reasons, plus all the HP/Intel/etc. talent.
There are a lot of factors other than taxes which affect an individual startup, but taxes affect new business creation in aggregate.
LT Capital Gains are taxed at 34.1% in California once this bill passes. 15% + 5% 2010 increase + 9.3% CA + 1% CA Mental Health + 3.8% Health Care capital gains.
ST Capital Gains will be taxed at 39.6% top income bracket + 5% surcharge + 9.3% + 1% + 3.8% once this bill passes. 58.7%. (A $20m sale of a startup in less than 12 months start to finish is kind of unrealistic, but you could easily be a mezzanine investor, or could have operated a business for a long time before formally doing stock, so it is possible, if not likely for an actual entrepreneur)
The correct thing in both of these cases is probably to hold and write options or something against stock, to avoid realizing the gain, and hope that somehow tax rates rationalize in the future.
20-25% all-in capital gains is probably the limit before it seriously disincents investment.
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[ 125 ms ] story [ 3397 ms ] threadMore wanking over "oh noes I might not invest in your startup now that my payday would be taxed slightly more", followed by handwringing about a perceived slide into socialism, but nearly no change in investment behavior. Maybe a few people cash out earlier than they would have to avoid the tax increase.
If you invest $100k in a startup, it goes well and you walk away with a million ($900k profit), are you really going to cry when the tax man comes and gets his $34,200? I guess you might, but it didn't suddenly make the investment not worth it.
Then again, those people aren't likely the ones complaining. It's the people who have a hypothetical model in their head of what "investors" are like and want to use it as a talking point to attack health care reform.
With this out of the way, your argument seems completely wrong to me. In reality nobody can consistently get 1000% returns, or anywhere near it, from the startups they invest in. (If that was possible, everyone would want to invest in startups and the valuations would go up until the returns got more in line with other investment vehicles with the same risk profile.) In reality, for every startup where you invested $100k and walked away with $1M, there are many where you invested $100k and walked away with zero. On average the returns can't be much different from what you get elsewhere, I'm guessing I won't be off by much if I say 10% before tax and before inflation. And 4% difference in tax burden will also mean about the same it means for other investments, which is to say it's not insignificant. Think of the lenghts people go to in order to put a little more money in a tax sheltered part of their portfolios. Or, think of the risks many people with stock options grants took to convert their short term capital gains into long term (and many of them got burnt very badly when the dot com bubble burst).
But my point was for those upper echelon's of VC/Angels who actually make money. PG has pointed out in the past that there really are only a handful of VC/Angels that actually consistently make money (and more importantly in the case of VCs make money for their investors). You're right that my case was idealized, but investment losses can also be used to offset gains for tax purposes, and this is an industry of lawyers, so I doubt the tax effects are as clear cut as either of us paints them to be. And I still maintain my overall point that 3.8% isn't going to suddenly kill the startup scene. If it was that tax sensitive, it wouldn't be in California to begin with.
Please save this and come back and read it after you write a check (one or multiple) to the US government for millions of dollars after you struggle for 5+ years and literally risk everything you have to make a business successful.
I like to hack and I like building things for customers, but last week I spent most of the week filling out government forms. Another 3.8% on investment income (plus the proposed 5% cap gains increase for a total of 8.8%) won't kill me, but it's starting to feel like the straw the broke the camel's back. I'll probably do the next startup. At the same time, I angel invest in 3-4 companies a year. I like to find kids who were like me at some university labs, invest in their ideas, and what them create cool companies. I may give that up.
Since this isn't a political forum, I won't say which side I'm for. But I will say that I'm angry at both sides for the $1T giveaway to the investment bankers and now to the way the CBO numbers have been gamed.
(tmp acct, b/c I don't want to discuss my tax issues under the regular acct)
I also angel invest. Thus far, those companies aren't that old, but my marginal contribution is worth at least several jobs.
When they make it a hassle to create startups and to invest, I spend less time building startups and more time chilling at home. When they make it more expensive, I do less angel investing. It's hard to quantify--I can't tell you how much impact it has on me personally (though it definitely has some). But when instead of looking at me individually, you look at the expected values across aggregates, economists show real, substantial effects.
And, time many, many hours I've wasted on forms, letters, arguments, etc recently are all time that could have been spent coding or with customers.
This one was actually pretty simple. An acquirer filed a 1099 in the incorrect category. We submitted an amended one, but the IRS wants to tax at teh higher rate. And, with giants penalties and interest. You basically have to a) pay the amount they incorrectly claim you owe plus the interest and penalties up-front. Then beg for your money back and b) pay lawyers to try to get them to actually respond. Once the IRS has your money, it's pretty much impossible to contact them and argue. The actual form we filled out, the 843, is pretty simple.
[As an unrelated point, if you're in CA, the current cap gains rate is 15% federal + 9.3 CA income + 1% CA mental health=25.3%. If if goes to the proposed 20% federal + 3.8% medicare + 9.3% CA income + 1% CA mental mental health=34.1%, that's a 34% increase on the taxes on startups in the course of a year... Granted, I care more about the hassle, but it's made me think.]
Doctors takes years to train, drug trial are still expensive, amongst other thing.
All what we're doing is adding million of individuals into the healthcare system without balancing the supply side equation.
It would also seem to treat health care insurance as a sugar daddy of healthcare, instead of being treated as a mechanism that reduce risks through incentive and such. This make insurance companies big juicy targets for healthcare providers. If people were to spend their money on the daily cost of healthcare, they would be more conscious of the cost, thus use it only as neccesary. Insurances would only be used in high cost emergency measures such as cancer and other diseases, which are preventable and can be reduced by individuals.
This reduce the demand for healthcare and give people incentives to lower their cost their healthcare cost through insurance's discounts, thus less strain on the supply of healthcare.
The taxation scheme also rob people incentive of saving for emergency measures, an alternative or complement to insurance spending, which may have the side effect of impacting long run productive growth or simply maintenance of current productive capacity(Capitals need to be maintained or replaced), as saving are in effect fund the production of capitals, which eventually lead to consumer goods and services.
Your concerns all seem very reasonable. In particular, the distortion of the concept of "insurance". But, two things.
First, that distortion already took place. Providers and insurers have spent the last two decades colluding on pricing and process in ways that transformed Blue Cross from an insurer to a poorly-regulated utility.
Second, your concerns are orthogonal to the debate. We should train more doctors, and we should create more tiers of service (nurse practitioner clinics in particular). That has little to do with whether we should allow de facto monopolies to lock consumers out of the healthcare market.
The health care bill takes this to a whole new level, and then sets it in stone.
Insurance and health care delivery was already a mess in the U.S. But prior to this bill, we might have evolved or legislated some solution that was not a stupendous giveaway to Blue Cross and Aetna. Too late now. They will never give up the privileges they get today. They get to be toll collectors on our outrageously overpriced health care system forever.
Meanwhile, I read articles with people celebrating because they think this bill protects them from the health insurance industry. It's all just too depressing.
When I look at the well-intentioned reform ideas coming from the opposition, I see things like "deregulate and sell across state lines". These ideas don't weaken the grip of BCBS and Aetna; they encourage consolidation and push us further in the direction of the Citigroup-izing of health insurance.
What's on the table will, on paper at least, ensure that startup entrepreneurs like me can actually buy insurance on the private market. We didn't have that ability before, at all. That's a win, from what I can see. Would I prefer not to have BCBS and United be the vehicles for that win? Of course. But what does that have to do with anything?
What's on the table will, on paper at least, ensure that startup entrepreneurs like me can actually buy insurance on the private market. We didn't have that ability before, at all. That's a win, from what I can see.
I do not have employer provided insurance. I buy private insurance on the market today. It costs me about $6000 a year to insure my family of four. I expect the cost of insurance, post-reform, to converge on the national average, which is around $13000. That's a loss of $7000 a year for us. Maybe somewhat less because of subsidies (we won't get much there). Maybe more, if the cost of insurance rises post-reform as it did in Massachusetts under their similar reform.
It is not out of the question that we will actually give up health insurance altogether and pay the penalty instead. This would not be a win for us.
If you aren't able to get individual coverage for around $6000/year now (national average), and would like to, then this bill will indeed be a win for you. Of course, if you don't like the coverage you get at that price, pay it anyway or get fined.
This is getting too long, but does it seem thinkable to you that this reform might accelerate the increase in health care costs? I think it quite likely myself. If it does, too bad for everyone. We're locked in now.
(Note: we tried to obtain coverage ourselves, using the Internet and a telephone. When that failed, we worked with an insurance broker friend of the family. Neither worked.)
There was no dollar amount that would have bought us private insurance. We got around it first by getting Erin a job that offered group coverage, and then by setting up group health insurance at Matasano. I'm happy to say we now subsidize coverage for all our employees.
The numbers are a red herring. COBRA vs. private health insurance costs are not the issue that should be scaring entrepreneurs. The possibility of getting stranded with no possible coverage option is what should be scaring them.
Thousands of dollars a year in new expenses is not a red herring and is plenty scary. It's not what's important to you, but it is going to be important to a lot of other people.
People who have chosen catastrophic coverage, or who chose to go without health insurance to save money are going to get hit hard by this bill. My guess is a disproportionate number of self-employed people fall into this category.
People will go out of business because of this bill.
I don't care about the people who choose to go without health insurance to save money. I wind up paying for them when they get hit by a car, when their appendix bursts, when they have a freak aneuryism, or when they fall down their stairs.
The same arguments suggest that people who drive infrequently and carefully should be allowed to forgo car insurance. After all, you can always sue them when something goes wrong with their plan!
I sit on the side of the line that favors less and smaller federal government. One of the beautiful results of the power we give to States to govern is that as a country we end up with 50 solutions. Our diverse populous can then choose which one fits best with their ideals and personal circumstances--and we get this while still maintaining ourselves as a cohesive country.
Unfortunately, this time the government has chosen to white wall a solution across all citizens rather than to let the fundamental action of our country (States rights) do the work which would have resulted in a better solution, IMO.
In the other set of circumstances, the family can't obtain coverage. Something bad happens. Now, instead of having insurance cover it, they go bankrupt. We are all still paying the bills. The only difference that I can see is that in this set of circumstances, the family (a) didn't pay insurance premiums, and (b) was driven into bankruptcy.
What's the win you see in the second scenario?
I don't care about the people who choose to go without health insurance to save money. I wind up paying for them when they get hit by a car, when their appendix bursts, when they have a freak aneuryism, or when they fall down their stairs.
People go without health insurance because it is incredibly expensive. For a lot of people it is a crappy deal, or just flat out unaffordable.
It is interesting how people who thought they couldn't afford health insurance used to be portrayed as victims. Now they're the bad guys, they broke the system for everyone else, and you don't need to care about them. What a difference two years makes.
If you can afford health insurance, and health insurance is available to you, and you decide not to buy it because you're 25 and you don't think you'll need it, you don't deserve my sympathy. If you can't afford health insurance, you deserve whatever we can do to make health insurance affordable to you. Please don't try to drag me into identity politics. This isn't a "rich vs. poor" issue.
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People choosing to buy or not buy insurance has gotten reframed, and I find it interesting to see how effectively the switch took place.
In 2008, your hypothetical 25 year old would have been portrayed as a victim, if anything. Screwed over by the greedy health insurance companies who make it impossible to get decent coverage at a reasonable price.
In 2010, he's the bad guy. It's his fault the system is broken. He is morally obligated to buy that health insurance now, and if he argues that he's getting a crappy deal for what he is paying, it's him who is being selfish and greedy.
There are certainly identity politics tangled up in health care reform, but I was talking about the reframing of an issue and fickle public opinion.
With that being said, it seems to me that it's not increasing demand, but helping meet unmet demand. I'm a really high risk for skin cancer. If getting insured incentivizes me to get more regualar checks at a dermatologist, that's likely to save the system money over the long run. This isn't me falling to moral hazard.
The moral hazard in the system is for doctors and hospitals. My dad is a doctor (opposed to the bill, btw) but his main complaint is always about other doctors coding things like nasal congestion up to an unscrupulous level to pad their take from insurance companies. And don't get him started on hospitals.
Maybe that's something opponents of the bill are aware of and opposing. Maybe the bill does nothing to fix that. But don't blame patients for making rational choices regarding healthcare based on whatever system they find themselves in. Anyway, there's my uninformed opinion without much of a point :-P
Insurance companies, when not treated as healthcare sugardaddies, do not like paying for high healthcare as they want to make more money. They may give you discounts for going to more check up more, to reduce demand for their service later. If you can detect cancer earlier, than you may able to avoid higher cost cancer treatment later as well continue to be a source of revenues to the insurance company. Insurance companies don't make money off dead people, I think.
The insurers colluded with the providers to set artificial, market-oblivious standard prices for procedures on a region by region, hospital by hospital basis. From what I understand, prices were often set by allocation schemes negotiated between the payers and the providers, with no apparent regard to the actual cost, supply, or demand for the procedures. At the same time, even as they managed to drastically distort the pricing of health care, insurers apparently negotiated special payment processes directly with providers, thus creating not one but two artificial tiers of pricing.
It's meaningful to talk of "sugar daddies" and "insurance" only when there's a real market for health insurance. But no such market exists. For mainstream medical procedures, for the standard of care that Americans expect (a visit to a doctor, completion of the lab work the doctor requests, some form of radiology, and then a procedure or perscription to resolve whatever comes out of that diagnostic work), unless you are either willing to play chicken with the providers and say "no" when they try to collect debts, or willing to pay incredibly, drastically inflated prices for basic procedures, there is no way to get care without involving your insurer.
Short-term capital gains will be 15% (Fed) + 5% (Fed Increase in 2011) + 3.8% (this) + 10.3% (California). 34.1% capital gains!
This does not compare favorably to anywhere else in the world. For a CA startup founder, capital gains are going to be 1.5-3x higher than most countries.
This is an issue primarily because (half?) of US startups are founded by immigrants. At some point, it becomes more attractive for an immigrant to go to Vancouver, BC (21.5% tax rate, much easier immigration process, better quality of life than SFBA) or even to remain in India or China. The tax advantages might also push for Hong Kong or Singapore startups, with 0% capital gains and very low income tax.
A big number minus 34.1% is still better for an exit than a much smaller number minus a small percentage, but California is definitely not the only place to do a startup.
I think it will help startups, by allowing small shops to bootstrap without having to surrender health insurance for themselves and for their families.
I am unconvinced the health care result of this will be good enough for someone with a family to be comfortable going on relatively inexpensive insurance.
As a healthy, single, 20-40 year old guy with no risk of children, I'm fine with an $80/mo catastrophic plan, and I suspect a lot of people starting startups are the same, or have health care from a spouse's job. A single parent is not in a great position to do a startup for a lot of reasons, and someone with a lot of chronic health issues requiring expensive medical care probably isn't either.
I think there's a lot of room for reasonable people to disagree about whether this bill will help or hurt startups. But I don't think there's room to disagree about whether the status quo retards entrepreneurship. It does. Health insurance could have screwed me out of my company. Health insurance kept at least 3 candidates I can name off the top of my head from accepting a role with us in the early days of the company. There's no countervailing argument about how the status quo encouraged someone to start a company.
I am not sure which has a larger effect here.
I definitely would like to see some health insurance changes, just not the ones in this bill, and not by taxing capital to pay for services to individuals. Actually reducing costs would be my #1 approach -- politically unpopular, but I'd be fine with subsidized or free basic care for everyone, but no free advanced care for those without private insurance. Private insurance purchased by individuals, with or without a tax deduction, and totally decoupled from employers.
This is politically unpopular (some people WILL get lower quality free care under this plan than they get today, and some people might get lower quality care than under employer-provided care, if they choose to spend the savings on something else like food or education, which might be rational!) Also, I think the US Government is possibly more incompetent in running healthcare (I work in DoD healthcare, so I see this firsthand...) than the UK or Canadians or French.
In the meantime, my response was: a totally standard appendectomy for a friend of mine cost tens of thousands of dollars. That isn't a quality of care issue, it isn't a freak incident, it doesn't involve preventative care or externalities. Nobody is comfortable starting a company where they will be instantly bankrupt if their kid's appendix bursts.
WA kind of sucks for tech businesses due to the B&O tax, which is a gross receipts tax. This doesn't hurt you until you have revenue, but if you're a low-margin business with huge revenue, it means you suffer, even if you're not profitable. (it's something like 0.5% on gross revenue).
NV is probably the best somewhat-viable-for-startup state (Las Vegas or Reno), but I'd rather live in Seattle, Portland, or SF if in the USA.
I kind of prefer Vancouver, WA for a tech startup, too, because then you can take advantage of the huge unemployed market of early-20s developers who moved to Portland, OR for lifestyle reasons, plus all the HP/Intel/etc. talent.
There are a lot of factors other than taxes which affect an individual startup, but taxes affect new business creation in aggregate.
ST Capital Gains will be taxed at 39.6% top income bracket + 5% surcharge + 9.3% + 1% + 3.8% once this bill passes. 58.7%. (A $20m sale of a startup in less than 12 months start to finish is kind of unrealistic, but you could easily be a mezzanine investor, or could have operated a business for a long time before formally doing stock, so it is possible, if not likely for an actual entrepreneur)
The correct thing in both of these cases is probably to hold and write options or something against stock, to avoid realizing the gain, and hope that somehow tax rates rationalize in the future.
20-25% all-in capital gains is probably the limit before it seriously disincents investment.