Silicon Valley bigwigs like Marc Andreessen and Elon Musk have 100 million reasons to back Trump
An unrealized capital-gains tax may have been the final straw that turned many of Silicon Valley's biggest names into Trump donors.
Over the last two election cycles, the number of Trump supporters in Silicon Valley not named “Peter Thiel” was approximately zero. According to Vox, Bay Area residents donated $163 million and $199 million to democrats in 2016 and 2020 respectively, dwarfing the $22 million raised for Trump in 2020.
This year, however, there has been a change of tune among many of Silicon Valley’s biggest names. Palantir co-founder Joe Lonsdale, the Winklevoss twins, Sequoia partner Shaun Maguire, Valor Equity founder Antonio Gracias, Tesla CEO Elon Musk, and a16z founders Marc Andreessen and Ben Horowitz have all reportedly donated or are planning to donate to the Trump campaign.
Andreessen gave some clues as to why we’ve seen this shift, per TechCrunch (emphasis ours):
The pair (Andreessen and Horowitz) listed several reasons they believe the Biden administration is stifling startups through overregulation and potentially needless taxation, while Trump would help innovation flourish. Among other things, the co-founders explained that they don’t agree with the current White House plan to “overregulate” artificial intelligence.
“Any limitations we put [on] ourselves are going to disadvantage the U.S. versus the rest of the World,” Andreessen said.
They also discussed Trump’s view on AI at a recent dinner they had with the former president. “What he said to us is, ‘[AI] is very scary, but we absolutely have to win because if we don’t win, China wins,’” Horowitz said. Additionally, Andreessen said that, unlike the Biden administration, Trump’s crypto regulation plan is “a flat-out blanket endorsement of the entire space.”
But Biden’s proposal to tax unrealized capital gains is what Andreessen called “the final straw” that forced him to switch from supporting the current president to voting for Trump. If the unrealized capital gains tax goes into effect, startups may have to pay taxes on valuation increases. (Private companies’ appreciation is not liquid. However, the U.S. government collects tax in dollars.)
“If you’re a venture firm, you’re getting strips of your portfolio pulled away from you every year. You’re out of business,” Andreessen said. “This makes startups completely implausible.”
This last point, in particular, should command a lot of attention. President Biden reintroduced a proposal for a 25% unrealized capital gains tax on households with a net worth greater than $100 million. Many of the biggest names in venture capital, such as Marc Andreessen, are, in fact, worth more than $100 million, and much of their wealth comes from illiquid stakes in private companies, making them especially vulnerable to an unrealized capital gains tax.
Imagine, for example, that you invested $10 million in a startup at a $100 million valuation, and a few years later, that startup raised new funding at a $1 billion valuation. Great! Assuming no dilution, your $10 million investment is now worth $100 million. With a 25% tax on unrealized capital gains, you would owe the government $22 million in taxes on your $90 million gain. But that “gain” is illiquid; good luck selling part of your stake to cover your taxes.
In the public markets, millions of shares of stock change hands each day, giving investors the opportunity to buy and sell as they wish. Private markets don’t have that luxury: those shares are generally locked up (excluding the occasional secondary sale) until the company is acquired or goes public.
An unrealized capital gains tax would wreak havoc on the entire venture ecosystem, so it shouldn’t be a surprise that some of the biggest names in venture capital are now backing Trump: they have 100 million reasons (and counting) to do so.
