I was thinking about the unrealized gains tax after Taylor Swift’s endorsement today and I think I see a new problem that is different from what you and Alex have raised so far. Maybe someone else has brought this up, but I thought I’d write the idea down and see what you think.
I think there is a huge problem of unrealized revenue in terms of IP.
Most IP is monetized through licenses and long-term benefits such as royalties that may go up or down based on other market conditions that can directly affect the value of the asset in addition to the growth in revenue from the asset.
Example of Taylor Swift:
He is expected to make 200M+ from his music streaming.
His music rights will likely be considered property. These music rights are likely to be considered as perpetual value or cash flow/discount rate. Freak reported a 5-10% range as normal in the entertainment business meaning Taylor’s current streaming rights are valued between 2B and 4B. (200M/.1 and 200M/.05).
If Spotify/YouTube gets better at selling ads and increases their return rate by 10% then Taylor would earn 220M next year and the song collection would grow to between 2.2B and 4.4B with an unrealized profit. 200M to 400M.
Taylor will owe 25% tax on this profit or between 50-100M whichever is greater than his additional 20M profit.
What makes this doubly ironic is, will the federal government force Taylor to sell the rights to his music to pay the cap profits tax?
One thing I forgot to mention is what part of patents in the medical field + copiers have that kind of payment structure? Where they get a license for a certain amount of future payments. If the series of payments increases what happens to the unrealized capital gains tax?
There was that baseball player who got paid with that big future contract. Is that a legacy too?
From Stephen Jonesyoung.
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