San Francisco’s Board of Supervisors introduced a payroll tax of 1.12% on stock compensation geared toward companies who conduct an Initial Public Offering.
IPO’s are major liquidity events, and proponents suggest that it could raise significant revenue for local municipalities. In San Francisco, the tax would generate $100 to $200 million in the first two years.
From taxes to other wealth redistribution mechanisms, the equity economy is centered in conversations around wealth inequality. Privately held equity assets, in the form of equity investments into real estate, venture capital, and private equity firms, account for substantial wealth creation in the American economy. The global managed real estate market is estimated at $8.5 trillion in 2018.
Tax incentives for privately held equity include the Federal Government’s recently introduced Opportunity Zones, a tax incentive facilitating reinvestment of capital gains into distressed communities.
Liquidity events could become more frequent and occur in regions beyond the San Francisco Bay Area as equity crowdfunding portals launch secondary trading.
Policymakers see a liquidity event as a good time to apply wealth redistribution to those who exemplify wealth inequality.
During this phase of rapid “paper” growth, there may be fewer constraints when applying redistribution. Proponents of equity redistribution identify sovereign wealth funds as a tool that preserves market integrity and the role of finance while helping to decrease wealth inequality. Wealth funds hold equity on behalf of the public redistributing capital gains as a dividend to taxpayers.
We’re not advocating for or against taxes here but look for more examples of the startup tax as equity finance plays a larger role in local economies.