The other is how the tax system works when people receive options / equity.
The problem with 'receiving' equity is that 1) Current laws treat equity as if it was cash - but it's not. 2) Whether employees should be compensated and recognised for their potential opportunity costs - essentially given a similar deal to investors.
Keep in mind that many startups will offer equity in lieu of the salary that they would otherwise command.
Also, if you're offered a significant portion of equity in a startup, then taxes currently make a large disincentive for people to accept and join the startup.
Could you elaborate on (2) on what you mean by "given a similar deal to investors"?
At the very least, I think tax shouldn't apply until you cash out - this just makes sense.
Perhaps the system could also offer a tax incentive for lower returns for non-investor shareholders to recognise sacrificed opportunity cost as well.
If capital is scarce and valuable, it makes sense for a system to be designed to reward and protect capital risk.
But the "standard terms" haven't changed much since the 80's and capital is definitely more abundant today than it was before. Valuations for early companies are ~10x what they used to be decades ago. Founders give up a fraction of ownership compared to what they used to.
The question is where the right balance point is given current parameters.
Also, wages have never been higher for tech employees. I'm happy to have a 2x wage level conspared to 15 years ago rather than have the same wage but 2x equity (obviously a simplification), so something's at least working well here wrt labor gaining some ground on capital.