⚡️ A Tax on Tech-quity
Why we should wealth tax corporations, not individuals
This week, we’re sharing something a bit different: a tax policy proposal from AI policy aficionado, Kernel Magazine author, and Reboot community member Chris Painter. While this essay seems more economics than technology, we think it gets to the heart of debates over how to ensure technological advancement benefits everyone — not just the biggest corporate shareholders.
(P.S. On Monday at 4pm PT, Reboot members Jasmine Sun and Anh Pham are hosting a Q&A with Design Justice author Dr. Sasha Costanza-Chock for Stanford Design Week! You can RSVP for free here.)
📈 a tax on tech-quity: why we should wealth tax corporations, not individuals
As technologies like AI and robotics digitize the economy, large portions of the American workforce may see their negotiating power decrease. The employment instability that these technologies usher in may be “transitory” — though we need to be careful with that word, given it was also being applied to inflation — but in the long run, much of what Americans do for work today can be automated. This may lead to a tremendous increase in already high wealth inequality.
The U.S. needs a tax regime that simultaneously addresses the sources of inequality present today and prepares for the changes that low-cost software, advanced AI, and robotics will bring. We have an imperative to ensure that the benefits of advanced AI accrue to all Americans, not just those who own the technology companies building these advances.
However, everyone getting what they need depends on economic growth. Pure redistribution of today’s economy is politically dangerous and might leave people less well off than if we left our economic growth engine chugging along. Many proposals to tax the fortunes made in the digital economy today risk killing the geese laying our golden eggs.
There’s an idea for how we might tax enormous concentrations of wealth without dis-incentivizing investment that I think should get more attention: a corporate wealth tax, denominated in ownership equity of the companies being taxed.
what’s wrong with current wealth tax proposals?
Automation has the power to catalyze tremendous economic growth, bringing down costs for vast numbers of goods and services. However, they also threaten (but by no means ensure) persistently lower employment, even if the jobs that still exist see their wages rise. We need a tax system and an economy that provides a safety net for those trying to retrain in this quick-shifting world. Furthermore, as it becomes harder for people to contribute to the economy in traditional ways, we need a country where an individual’s survival does not depend on holding down a formal job.
Several proposals for preventing egregious inequality and funding an expanded social safety net have gained traction. One is a wealth tax levied on affluent individuals at a percentage of their net worth. Another alternative being advanced by Senate Democrats would tax unrealized capital gains as though they were income.
However, I’d argue that these proposals have serious flaws:
These approaches apply to illiquid assets, like real estate, art, and privately held corporations, all of which may be very difficult to sell “just a slice” of, unlike publicly traded companies. Since taxes need to be paid each year, the owner of an appreciating illiquid asset would have a large cash bill due that might be difficult or impossible to pay without selling the entire illiquid asset.
Mr. Whale @CryptoWhaleUS Treasury Secretary, Janet Yellen, suggests imposing a tax on unrealized capital gains. This means stock gains will be taxed even when they have not been sold. It also means that taxes will be owed when the value of a home appreciates, even though it has not been sold. https://t.co/H4ObEgZURe
Illiquid assets are much harder to value, since they sometimes are only sold once every couple of decades, making it difficult for the IRS to discern how much they are actually worth. Obscuring the true value of illiquid assets would become a massive source of tax evasion.
Taxes levied on individuals encourage capital flight and offshoring. The extremely wealthy might simply leave the U.S. to avoid paying the tax.
accountants HATE him: the case for corporate equity taxes
We should instead attempt a “corporate equity tax”: taxing corporations in dilutive new shares of stock, as opposed to taxing them in dollars measured against their profits.
Rather than increasing taxes on corporations’ gross income, corporations can be taxed through a requirement that they annually issue new shares to the U.S. government or, more speculatively, to Americans directly.
For example, if a corporation is valued at $2 trillion across 20 billion shares, this tax might require that the corporation creates 300 million (1.5%) in dilutive new shares in the following year and pay them to the IRS.
This proposal has several advantages over the existing wealth tax options:
Taxing shares instead of profits aligns the incentives of existing investors with tax recipients. Diluted ownership means that corporations will no longer be incentivized to hide or delay formal profits to minimize taxes. Everyone still wants the stock price to go up.
Taxing through dilutive equity ownership removes the need to correctly value private or illiquid assets, since it’s possible to issue equity without knowing the true value of that equity. The tax can apply to both privately held and publicly traded companies, and it requires fewer accountants, since companies won’t detailed books on expenses and profits. They can dilute ownership directly.
The tax can be implemented so as not to encourage offshoring. For example, companies could be subject to the tax if a certain percentage or gross volume of their sales come from within the U.S. — no matter where the company is legally domiciled. This would be much easier to measure than the location of a private individual’s wealth.
The final, and strongest, argument for a share-denominated corporate tax is the hardest to quantify: if every American has a direct stake in in our country’s largest companies, everyone will tangibly share in the upside that capitalism creates. The feedback loop from corporate innovation to economic benefit to all Americans will be much tighter, making it harder to scapegoat those who are actually growing our economy, and easier to draw the connection between growth and everyone’s well-being.
the fine print: implementation details
As exciting as this is, the details might influence the political support and legislative success of a tax policy like this:
The size at which corporations become subject to the tax would need to be determined. The equity tax could apply to all corporations, but it might be more feasible to apply it above some threshold of market share or valuation.
Equity taxation would create at least a small incentive for corporations to return value to existing shareholders as opposed to reinvesting in growth, because, like any tax on assets, they increase an investor’s discount rate.
Once the equity is collected by the IRS, there’s still a question of who receives it, in what form, and when.
Corporate equity taxes cannot easily be extended to non-equity assets, especially land. Diluting individuals’ ownership of land directly would risk massive political backlash, as the political base of voters who own majority stakes in plots of land is much larger and less wealthy than that of major stockholders in corporations. Ultimately, it’d be fairest to implement the equity tax across all asset types.
Although the full implementation of corporate equity taxation will take time, we can incrementally build towards this future today. For instance, the IRS could begin by allowing corporations to pay their taxes in dilutive equity and providing an incentive to do so. For now, the IRS could also be required to liquidate these shares upon receipt.
Allowing tax payment in stock will establish an important piece of the infrastructure for a corporate equity tax today and lay the groundwork for evenly distributing the benefits of advanced AI tomorrow.
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Chris Painter is a Technology and National Security Fellow at the National Security Innovation Network. He's formerly worked as a machine learning engineering in the Bay Area at 4Catalyzer, as well as on AI alignment projects at OpenAI and the Centre for Effective Altruism. You can find him on Twitter or his Substack.
How did you initially get into exploring (wealth) tax policy, and what was the process of arriving at this proposal like?
I first saw the idea of a corporate equity tax in Moore's Law for Everything, a blog post about distributing the economic benefits of AI from a group of authors at OpenAI. The idea of a tax on unrealized capital gains has come up often lately, since it was at one point the proposed funding mechanism for the Democrats' spending bills. Implementing a wealth tax on corporations seems strictly better to me: it's much harder to hide concentrations of wealth that are inside corporations, and it's way less of an imposition individual rights. It also ties a direct knot between the well-being of everyday people, our country's ability to pay for critical services, and the success of our largest corporations.
What surprised you during your research process?
I'm at risk of someone pointing out a counter-example, but I was surprised how hard it was to find a documented version of this idea before Sam Altman and his co-authors. As far as I can tell, nothing like this has been implemented before.
One interesting comparison that came up was outright nationalization of fossil fuel companies. Of course, a corporate equity tax is much more gradual. The analogy is politically unflattering, but when I dug into how this has worked out for the Nordic countries, where equity in fossil fuel companies has been directly redistributed into a kind of 401k for residents, it seems like it's going quite well.
What else should we be reading?
Lately, I've been reading Seeing Like a State. A lot of what I worry about with sudden advances in AI is a big, hard-to-interpret system optimizing for a metric that we think we want it to improve, but causing all these harmful side effects we didn’t anticipate. In important ways, this already happens with entirely human systems: Seeing Like a State feels like a documentary of how this has happened with governments, and in particular, economic planners and census-takers.
Listen to this podcast to hear Ezra Klein interview (and thoughtfully push back on!) Sam Altman, cofounder of OpenAI and originator of this tax proposal.
Hot off the press: two TikTok takes from three Reboot community members! Read Nikhil Sethi’s reflection on having multiple TikTok accounts for Dirt, then Lucas Gelfond and Anabelle Johnston’s essay on the algorithmic surveillance of gay TikTok for Logic.
Griefbacon essays always hit — here’s her latest dose of secondhand nostalgia.
The Verge unveils a truly stunning array of tech PR ridiculousness. One highlight: “A major car company’s head of communications told us an April Fools’ joke was actually real on background. The joke was not real.”
Verses, a project involving several Reboot community members, “forked” John Perry Barlow’s cypherpunk manifesto to write The Declaration of the Interdependence of Cyberspace. You can read and sign it here.
💝 a closing note
We had a lot of fun reading your replies to Take Back the Future, and would love to inspire some more good faith debate on here.
If you have a response or rebuttal to today’s essay on corporate equity taxes, we’d love for you to leave a comment or reply to this email with a short paragraph sharing your thoughts! We’d love to publish them in the next newsletter.
Feel free to introduce yourself alongside your response or request to be anonymous. Agreement, addition, and debate are all welcome — just keep it respectful :)