Proposed Senate tax plan won't impede incumbent companies but would severely handicap startups moving forward, which may explain lack of pushback from big firms
a bargain at $10/mo. or $100/year. pic.twitter.com/CJ7PupxM9z Dan McCarthy / @d_mccar : Interesting thoughts on relationship between network effects and CAC re @stitchfix / @Uber / @BoxHQ : https://stratechery.com/... Mike Dudas / @mdudas : More great analysis from @benthompson — the huge downsides of taxing options and RSUs at vesting. http://stratechery.com/... http://twitter.com/... Myles Udland / @mylesudland : There's a lot going on in this @benthompson article, but this bit on Stitch Fix and why it's Actually Good is interesting. http://bit.ly/2ig9cjQ pic.twitter.com/XmLAV55lhd
Context & Ripple Effects
Ben Thompson's argument lands on the day the Senate Tax Reform Bill was being finalized: taxing stock options and RSUs at vesting, he notes, costs incumbents little because their equity grants are a minor slice of compensation, while it forces cash-strapped startups to pay tax on paper gains. The pushback never materialized from big firms precisely because the burden was asymmetric — and indeed the vesting-tax provision was dropped from the bill the same day.
The episode fits a recurring pattern in the corpus: equity-heavy compensation is where startup economics live, and tax treatment of it keeps swinging. Six years later, Stripe raised $6B partly so early employees could afford to exercise their RSUs, and the lapse of full R&D expensing left software firms with large surprise tax bills — both reminders that how the code treats unexercised or expensed growth shapes who can compete.
First-order effects
- Startups hiring on options and RSUs would owe cash taxes at vesting on value employees haven't received, turning equity compensation from a cheap currency into a working-capital liability, while incumbents' largely cash-based pay structures are untouched.
Second-order effects
- Late-stage private companies would need dedicated liquidity mechanisms — the kind Stripe later built via its $6B raise for employee RSU exercises — and investors would price the added dilution or cash drag into every round.
Third-order effects
- If tax changes keep landing asymmetrically on equity-funded growth — the vesting proposal, the R&D expensing lapse, the narrow windows like QSBS and the sub-$50M loophole — the tax code itself becomes a moat favoring scaled incumbents and pushing startups toward earlier exits or deeper dependence on late-stage capital.
The trend: US tax policy is emerging as an asymmetric burden on equity-compensated startups, quietly tilting competitive structure toward incumbents whenever provisions like vesting taxation or R&D expensing come up for revision.