Earned, Not Inherited

QSBS is the only tax break that requires you to have created something from nothing. New York wants to eliminate it. Here's why that should matter to everyone, not just founders.

The tax code has a hundred ways to protect wealth you were born into. Only one protects wealth you created. New York wants to eliminate it.

Right now, the New York State Senate is advancing a proposal to eliminate QSBS at the state level, taxing startup exits at full state and city rates, 10-13% on gains that are tax-free at the federal level and in nearly every other state. They want to make it retroactive to January 2025. People who already sold, already made decisions based on the existing rules, would now owe taxes they had no way to anticipate. The projected revenue: $152 million a year against a $240 billion state budget. That’s 0.06%. For a rounding error, Albany is about to tell every founder in the state that building here was the wrong call.

Think about how this actually hits in practice. A kid from the Bronx, daughter of a public school teacher. Studies computer science. Graduates with debt. Gets offers from Google and a startup nobody’s heard of. She takes the startup. Below-market pay for seven years. Her friends at Google are making twice what she makes and vesting liquid stock every quarter. She bets on herself. The company works. It sells. Her shares are worth $2 million. After seven years of risk, seven years of below-market pay, seven years of choosing the hard path over the safe one, she has the first real wealth her family has ever seen.

In the year of that exit, the tax data calls her a “millionaire.” Albany looks at that and sees a rich person who needs to pay more. But that’s not a rich person. That’s someone who earned it the hardest way possible, by building something. Take away the incentive and she takes the Google offer. Every time.

You can inherit a billion dollars in appreciated stock in this country and pay zero capital gains tax. Nobody built anything to get that. Nobody hired anyone. Nobody risked anything. QSBS is the one piece of the tax code that says: we’re going to give you a break because you created something that didn’t exist before. Eliminate it and the family office is fine. The trust fund is fine. The heir who’s never worked a day is fine. The person you actually hurt is the one who built something from nothing.

The retroactive piece makes it indefensible. The whole deal is that you commit years of your life to something uncertain, plan around the rules as they exist, and trust the state to honor that commitment. Changing the rules after the fact isn’t reform. It’s the state breaking its own promise. If New York can change the rules after the game is played, why would anyone play here?

And people will stop playing here. Over the last decade, New York lost $111 billion in adjusted gross income to interstate migration. The first recommendation from the law firm that analyzed this proposal was: consider relocating. A founder who leaves doesn’t just take the gain. They take the next company they build, the employees they hire, the entire economic ecosystem that grows around them. New York’s startup ecosystem supports 809,000 jobs, generates $291 billion in economic output, and already produces $3.63 billion in direct tax revenue for the city and state. Albany is putting all of that at risk to chase $152 million. Change the incentives and the founders don’t stop building. They just build somewhere else.

If you’re progressive, you should want a tax code that rewards creation over inheritance. QSBS does exactly that. If you’re a founder, you should want a state that honors its commitments to the people who build things. If you’re a New Yorker, you should want your city to keep the momentum that turned it into one of the great tech ecosystems in the world. For $152 million that probably won’t materialize anyway, Albany is about to put all of it at risk.

The budget vote is weeks away. Sign the TechNYC open letter. Call your state legislators. Share this. This isn’t a niche tax issue. It’s a question of whether we reward the people who build things or punish them for it.