IP and unrealized capital gains (from my email)

 [[{“value”:”I was thinking about the unrealized cap gains tax after Taylor Swift’s endorsement today and I think I see a new problem distinct from those you and Alex have raised so far. Maybe someone else has pointed this out, but I figured I’d write out the logic and see what you think. I think there
The post IP and unrealized capital gains (from my email) appeared first on Marginal REVOLUTION.”}]] 

I was thinking about the unrealized cap gains tax after Taylor Swift’s endorsement today and I think I see a new problem distinct from those you and Alex have raised so far. Maybe someone else has pointed this out, but I figured I’d write out the logic and see what you think.

I think there is a big problem of unrealized capital gains in terms of IP.

Much IP is monetized via licenses and royalties that have long term perpetuity like payments that could go up or down based on other market conditions which would directly affect the value of the asset for more than the income growth from the asset.

An example by way of Taylor Swift:

She is expected to make 200M+ off the streaming of her music.

Her music rights would likely be considered an asset. These music rights would likely be valued as a perpetuity or cash flows/ discount rate. Perplexity reported a range of 5-10% as common in the entertainment business meaning Taylor’s current streaming rights are currently worth between 2B and 4B. (200M/.1 and 200M/.05).

If Spotify/Youtube get better at selling ads and increase their reimbursement rate by 10% then Taylor would receive 220M next year and song collection would grow to be worth between 2.2B and 4.4B for an unrealized gain of 200M to 400M.

Taylor would owe 25% tax on this gain or between 50-100M which would be greater than her additional earnings of 20M.

What makes this doubly ironic is, would the federal government force Taylor to sell the rights to her music to pay the cap gains tax?

One thing I forgot to mention is what share of patents in the medical field + copywriters have that sort of payment structure? Where they get a license for a certain future amount of payments. If the stream of payments increases what happens to the unrealized capital gains tax?

There was that baseball player that got paid with that comically large future contract. Is that an asset too?

From Stephen Jonesyoung.

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 Economics, Law, Uncategorized