Kamala's Unrealized Gains Tax Proposal Makes Silicon Valley Freak Out

welcome to the masaya podcast where we discuss issues of personal finance investment and Entrepreneurship thank you to everybody that has been uh supporting this channel if you this is your first time please do hit the like button please do subscribe uh do comment do let us know what your thoughts are right so um today we have a very interesting episode and this was derived from a conversation that I had with a cousin of mine in terms of my ideologies I'm pretty much on the right because I come from a country that's further on the left and I've seen how leftist policies can sometimes limit the creation of opportunities in the economy and this cousin of mine is more on the left in ter in terms of his ideology and he's someone that does present a very logical explanation as to why and I really respect it we have uh conversations about it and it ends up being informative to me even though I have a different view I do believe that it is possible uh despite the tension and polarization during the presidential race that's occurring in the United States it's possible to have you know a very civil conversation between people at different views without insults without labeling and you end up learning on both ends so we're talking about the issue the proposal by Kamala Harris to possibly tax unrealized gains and funny enough after I addressed my preliminary concerns when I got into YouTube I did see a video from CNBC where the very same concern was addressed and the headline did state that Silicon Valley freaked out when they heard that announcement right so let's listen to this snippet from uh CNBC that we're going to come back and react to that let's talk more about this now what it could all mean for the economy and markets Andy blocker is global head of public policy and strategic Partnerships at Invesco and Dan primac is business editor at axio Dan let me just start with you what are you hearing um in terms of how this would exactly work and hit maybe Silicon Valley or startup uh culture in particular um and and just kind of anything else that that people think would be impactful yeah I mean for starters when we refer to this as the Harris economic plan it's the Biden economic plan all the details that Robert just mentioned were all in the White House's fiscal 24 and fiscal 25 budgets neither of which they fought terribly hard for in Congress and and I understand the Trump tax cuts are going to expire in a year so so things will change a bit but Harris herself hasn't come out with anything new on capital gains her campaign has simply said we agree with what the White House had proposed previously uh silicon Valley's gotten really freaked out about this unrealized capital gains tax which you can understand right a lot of them own a good deal of stock in private companies uh one thing to note though in addition to the $100 million in wealth which is where this kicks in you have to be over 80% liquid for it to kick in in other words if you are worth a $100 million but almost all of that is because of your startups stock you would not apply for this at least immediately there's kind of some deferrals that get kicked in and Andy a lot of people have suggested well could this apply to home equity uh for instance if your house has gone up in value but that as current policy homes are often excluded obviously this would only apply to people under over hundred million but to Dan's point about the slippery slope once you start taxing unrealized capital gains does that open the door pave the way for that to kind of go more mainstream in future years no I think you're honest something there Kelly I mean look the these are these are very U aggressive policies um there's a there's a discussion about can you really tax unrealized gains when you can and when you can't and look you definitely have to have that 80% liquidity requirement because you can't have people having to sell property to pay their taxes right so on that sense um we'll have to be dealt with on the details I think Dan there's often a lot of confusion around this in some part generated by the media because we often cover pay packages of Executives whose pay might not actually be realized it might be a lot of unrealized gains for instance but it's often treated as oh so and so has this many hundreds of million dollars this many billions of dollars and do we need to start making a distinction between unrealized and realized gains or I don't know it's just I I think it's all playing into this idea of how much sort of liquid money or cash people really have it does and then you have the secondary piece where obviously people can take out loans and what does that mean because that's debt is that actually considered an asset as far as the IRS or the white house would be concerned but again you know it goes back to these are proposals that have been around for over two years they haven't really gotten anywhere with a democratic White House they came from a democratic White House I think kind of what I'm hoping for and Iman kind of mentioned is we're not going to get any specific economic policies tonight from KLA Harris that it's not what this speech is for but do we get some kind of anything new that comes out in the next week or two which differs her economic policy and tax policy from the current White House outside of the price gouging stuff and you know being a little bit tougher on certain mergers although the current White House is suing to stop the Kroger Alberton merger already yeah Andy I'm also curious about uh that what's going to happen with the expected to expire tax cut package that Trump had passed um in particular things like salt now Schumer I thought had indicated that perhaps he was going to find some way of restoring those deductions which could amount to quite a big savings for wealthier individuals as well under her Administration no I think definitely Senator Schumer and a lot of the New York New Jersey Del delegation and a lot of the states where this is really impactful they're going to be pushing hard to make sure they restore some of that those tax breaks under salt um but it costs a lot of money and if you were going to extend all the tax cuts or um for the Trump tax cuts would be about 4.5 ion dollar so it's a lot of money and um we know Trump would try to do that or most of it well um vice president KLA Harris heard thing is anyone making over $400,000 she doesn't want to extend those tax cuts corporations she's always said going from 21 to 28% but at the end of the day on this it's it's too early to kind of tell here you're going to have to have full control of Congress the House and Senate and the presidency to enact your plan so we're we're waiting here to see how this election kind of goes out but the the process and the make up of the entire government is a big has a big impact on what can and cannot happen absolutely uh these are kind of wish list as they always have been in budget uh budgetary exercises and so forth but these are uh where the rubber hits the road depending on how big the gains are for either uh party who takes the White House guys thank you both for now we'll leave it there we appreciate it Andy blocker and Dan primac so we heard the interview on CNBC by Andy blocker and Dan PRC where they were question around taxes on unrealized gains right and a lined up with my initial concerns so they did also raise the issue of whether um home equity was going to be taxed as well because that would imply people in dire Financial situations or people are kind of financially stretched having to sell property to pay tax which is which is H really crazy right but here's my primary concern it's more around Silicon Valley and and the the impact of uh venture capital investment and just investment in general in startups and emerging businesses so so when you look at the statistics of venture capital investment in the United States in 2021 Venture capitals invested a total of 100 billion to the whole value chain and and silicon value right in 2022 that number went down to $62 billion in 2023 the number went further down to $44 billion the economy obviously hasn't been better so that does kind of um affect the appetite for investment when you invest in a startup idea that has a potential to be a disruptor and an innovator in the market you're funding an entrepreneur and enabling them to make that dream a reality that's going to be generating Revenue in the economy it's going to be creating employment because more people are going to get jobs and it's just a really good thing we've also seen that small businesses that employ below 500 people in the United States do contribute to plus minus 44% of the GDP in the United States so we're talking 44% of 26 27 trillion dollar and second we're seeing a segment that does contribute to 64% of the jobs created on average so whenever the government announces that you know in this quarter we've generated this many jobs plus minus 64% of that is created by small businesses right so what is my concern a lot of us know shows like Shark Tank right where we see the likes of Mark Cuban U Mr Wonderful Kevin oir and you know the founder of FUBU I forgot his name I always get it get it wrong so I want to avoid the risk of uh saying it wrong cuz it's a very common name so anyways whenever so if you're going to tax unrealized Gams what does it mean for them so let's say we do watch the um Shark Tank a lot of people unfortunately don't get um you know any interest from those uh investors to invest in their businesses and then you find a lot of businesses that end up do end up closing a deal and you know they do get investment Capital right a lot of those businesses fail but a lot of businesses make really good returns so let's say someone like Mark Cuban invests $100,000 in the business and that business increases its value like 10 times 20 times 50 times in the next five years he is going to make uh Returns on investment that are quite amazing right but during the time that um you know he's not getting the returns during the time that he's not cashing out his money right he is generating something called unreal his gains right because he invested let's say $100,000 and the value of that money is growing as the business grows because as the business grows and generates more Revenue the valuation of the business increases right so that means that currently as the United States is Mark cuin is not going to be taxed annually on the gains on the money that he's put in because he hasn't cashed it out it's un realized gains now if they Implement a policy where they tax a realized gains all of a sudden Mark hubin is gonna have to do an annual evaluation of that particular business that he invested in and they're gonna have to do an estimate of how much the $100,000 is worth and he's going to have to pay a percentage of that money as tax per year so what is that going to do next time when he sees a business that's promising he's going to think twice it's going to hurt his appetite to invest now you multiply that by billions of dollars in the United States we're going to see a collapse in investment in Silicon Valley that is the reason why silicon Valley's been nervous sa as the Bible says look at the stock market I haven't really done research to find out how much capital is invested in stock market but we have seen companies such as Nvidia increasing in value and being above $3 trillion in value and obviously earlier this week we have seen that the market cap of Nvidia has gone down due to economic situations and you know concerns about the future now imagine if every owner of stocks of Nvidia were taxing and realized gains per an them imagine how many people will pull back an investing Nvidia wouldn't even be near $3 trillion of market cap you know they even compared the market cap of Nvidia to the GDP of India that's how massive it is it's going to cause huge harm in the United States I'm not even going to talk about the issue that was addressed in CNBC on the concerns around home equity uh Capital uh unrealized games uh taxes you know um because that's still not certain because it is kind of assumed from that interview that just on a high level the policy was announced but they didn't really get to the details in the specifics this whole concern did emerge around the time when uh Elon Musk acquired X that was around 2022 at the time x was known as Twitter um some people still referred to it as Twitter even though it's officially rebranded to X during the acquisition I believe the value was $44 billion I don't know why I have that value in my head I might be wrong I'm going to have to double check that Elon Musk when he wanted to acquire it obviously didn't just pour cash into it he's worth $200 billion do but you got to be very efficient with capital so what he did is according to Trevor Noah he actually criticized it on The Daily Show he went to the bank and got a loan for it and as collateral as security he presented the stocks and the shares that he owns in his own company Tesla as security for that and on the back of that security he got a loan and he was able to eventually close that transaction and you know Trevor no is also criticizing him because he wasn't taxed on that and this is unrealized gains right but I mean in general I'm not just going to talk about the Twitter Venture but let's look at let's say the opportunity C caused to the United States of having someone like Elon Musk versus not having him in right this person is worth $200 billion I get it that's a lot of wealth but look at how many jobs he's created through his Ventures not only you know X not only only SpaceX and Tesla and neuralink but even his previous Ventures like x.com he really contributed to PayPal being what it is today it's it um enhances efficent efficiency in the financial sector um it offers really efficient uh services to Consumers I use it myself even though the commissions are kind of high and they employ a whole bunch of people now you subtract someone like that that's a whole lot less employment you know I do understand that he is Elite but he is Elite because he uses Brilliance in hard work and dedication over decades to build that wealth he is not somebody that acquired that wealth you know like other markets where it's through political connections or pure political connections he's someone that didn't really come for money yeah his father was wealthy but he had up ups and downs and his mother wasn't very wealthy and he built that Empire from scratch if you read his Story Once Upon a Time Elon Musk used to sleep in his office he paid office rent and he didn't have a place to stay and eventually he built the empire but we don't see the sacrifices he made to get there so many um CEOs and founders of really great companies didn't even pay themselves a salary for the first couple of years imagine the hell that Jeff Bezos went through you know when you look at the financials of um Amazon for the first couple of years it didn't make money for a very long time in the very first year he made $52,000 losses in '94 he didn't have any revenue and 95 Revenue went up to like $500,000 and he made huge losses and hundreds of thousands of dollars the following year in 96 he made revenue of $15 million Amazon and the losses were also I think over 100 uh over $10 million and in 1997 he made revenue of $147 million but I believe it was over $100 million of losses he was under immense pressure from investors and Venture capitals and you know life was really hell for him for a couple of years and eventually he had a turnaround plan eventually a WS did positively contribute to the margins of Amazon and we have the Empire as it is today as much as it is an oligarch as much as it is uh an elite billionaire that's Mak a lot of money if you live in the United States and anywhere in the world you're going to see Amazon trucks and Amazon goods and services being delivered to people and it's so convenient and convenience is what the brand does sell people you know even for for musari we use Amazon web services and they do offer affordable packages for you know small businesses like mine that are in development you know I mean it's it's it's very valuable these guys actually create value to the economy you know we did see from one of the previous DEC uh episodes that you know in the US economy small businesses are classified as those that employ less than 500 people we've seen that small businesses contribute to to 44 uh% of the GDP of the United States we're talking about 44% of 26 27 trillion we've seen that you know whenever the government makes announcements of quarterly jobs being created in the economy on average plusus 60% of those jobs are created by small businesses in the United States and I think the last thing we want to do to make the United States great is you know taxing the very owners of the capital that um finance a lot of these small businesses to grow and change the world so here's my last thought and here's my last cons consideration right I did participate in uh a seminar by Andrew Cal that's really informative I do advise anybody to join the money is seminar and it really explains how the taxfree laws work in the United States and it kind of like explain you how to legally structure these taxfree accounts right so basically what happens is um plus minus 70% of the people that become billionaires in the United States obtain the wealth through private equity which is investment in businesses or real estate right so from the 70% I believe uh 42% comes from private equity and 28% comes from Real Estate right so when they invest in property with money coming from these taxpayer accounts um they don't get taxed on their rent and they don't get taxed on the sales proceeds from that right and when people also invest in businesses and the the capital is coming from these tax fa accounts they don't get taxed um on the returns that they make right so people might criticize that but on the other hand imagine if we did a breakdown of how many jobs were created imagine if we did a breakdown of how much the supply of Housing and property in the United States has gone up as a result of these tax cuts how many jobs were created in the process because if you're taxing people who are investing in real estate less right what's going to happen is in the long run these people are there's going to be more supply of property in the United States and it's going to avoid you know housing prices to be super inflated this means that if there's more capital available to invest in businesses when you invest in businesses it's more Capital available um to employ people to deliver goods and services it's more Capital available to acquire fixed assets and acquire goods and services for the business and money just circulates and trickle downs and trickles down the economy the reality is that a lot of the billionaires and the elites actually Lobby you know to have bills and laws that do favor them right because the tax code is very complex on the other hand some people can say on one hand people can say that look man this is just favoring the elites but on the other hand I look at the benefit to the economy what makes the United States what it is today the reality is so many people are migrating to the United States even with its problems there is a migration issue a migration crisis in the United States it's the the fact that even though different states in the country do VAR in the spectrum of left wing versus right wing generally it's a free market capitalist economy and as a result are that this economy presents a lot of opportunities a lot of people from different countries have great business ideas but they're unable to implement them in their in their own countries because of how the policy is because of how the systems are and as a result the system creates less opportunities they come to United States a lot of people do really well you know I did see stats that on average I believe plus plus minus a million companies are registered per anom even more than that and almost 30 40 to 50% % of those companies that are registered are from immigrants a lot of people come here to create Enterprises and create Commerce and as a result they even employ people in the United States so I think it's really really important to kind of look at things from that prism I hope at least one person is kind of challenged in terms of um the way of thinking and more than anything I just hope that this blesses somebody you know so once again please do like share and subscribe thanks for joining in this episode and um you know next time we'll we'll connect [Music] peace the way is over the kingdom has come Creations going to cast ground and we can live forever right now and nothing's going to take us out in one nation under God it's the Royal touchdown down down one nation God everybody sing it out rap man I'm cast the crowns I call up the Royal touchdown I'm reaching out to them tough crowds that's right here what's up now now creation God's version of Wang or duck down we live forever the world just go go Bust or shut down hope you got it still got hope out so high was struck down been through hell and came back God got me so tough now one nation one guard ain't got a choice got to go hard stand before it just like the moon I'm glorifying the Superstar get started and some of us going to get marted homie got to rep till we departed big shout out to the Braveheart man got to keep the fire don't let it cool got to fight the fight like it's after school cuz the represent the world that Christ rules I'mma spit it out God got the right tools huh think about it man don't chase the world to lose your soul he rules everything around me and that's how we roll me and K Divine be on the ground with one mind it's one nation under God life redefine the way is over the kingdom has Creations going to cast ground and we could live forever right now and nothing's going to take us in one nation under [Music] God down down down one [Music] nation I've only got eight bars to brag about him about the King of Kings who left the Splender of Heaven he came and sett us down L like the rest of us no complains about the St or the position he was in one nation under God no Gentiles or Jews white or black no race no CL not even the religion we choose Jesus is the sender rob it all I hope you'll get it go I just got a lot to say but homie you know that I got to