Slashdot Mirror
The Zuckerberg Tax
Hugh Pickens writes "David S. Miller writes that when Facebook goes public later this year, Mark Zuckerberg plans to exercise stock options worth $5 billion of the $28 billion that his ownership stake will be worth and since the $5 billion he will receive will be treated as salary, Zuckerberg will have a tax bill of more than $2 billion making him, quite possibly, the largest taxpayer in history. But how much income tax will Zuckerberg pay on the rest of his stock that he won't immediately sell? Nothing, nada, zilch. He can simply use his stock as collateral to borrow against his tremendous wealth and avoid all tax. That's what Lawrence J. Ellison, the chief executive of Oracle, did, reportedly borrowing more than a billion dollars against his Oracle shares to buy one of the most expensive yachts in the world. Or consider the case of Steven P. Jobs who never sold a single share of Apple after he rejoined the company in 1997, and therefore never paying a penny of tax on the over $2 billion of Apple stock he held at his death. Now Jobs' widow can sell those shares without paying any income tax on the appreciation before his death — only on the increase in value from the time of his death to the time of the sale — because our tax system is based on the concept of "realization." Individuals are not taxed until they actually sell property and realize their gains and the solution to the problem is called mark-to-market taxation. According to Miller, mark-to-market would only affect individuals who were undeniably, extraordinarily rich, only publicly traded stock would be marked to market, and a mark-to-market system of taxation on the top one-tenth of 1 percent would raise hundreds of billions of dollars of new revenue over the next 10 years."
and are uniformly shot down as a tax on wealth rather than income. And that is correct: it is, after all, an income tax, not a wealth tax. The author of this piece wishes us to ignore his sleight of hand. That is, this is not a bug, but a feature.
Dog is my co-pilot.
I'll bet Steve Jobs' wife didn't pay any inheritance tax, either. Sometimes I think our system is broken in ways that only a revolution will fix. I'll be shocked if Zuckerberg actually pays that tax bill, versus finding a way around it.
Have you read my blog lately?
1. The rich always have it better.
2. If you try to change rule no. 1, you just make things worse.
In this case, if the tax system were based on something other than realization the middle class people with small capital gains would probably get screwed over with tax bills they can't pay and/or tricky tax filings that would increase the already severe time and money problem of complying with our complex tax codes. Meanwhile, the rich would only pay a small portion of their wealth to find accounting methods to optimize their taxation under the new regime.
Also, nice try at stirring up class warfare on Slashdot.
For all intensive purposes, "whom" is no longer a word. That begs the question, "who cares"?
because our tax system is based on the concept of "realization." Individuals are not taxed until they actually sell property and realize their gains
But if you win a non-monetary prize (like, say, a trip to space), you do have to pay taxes on it?
Calling this "mark to market" is horribly misleading, not only for the reason I cited above (it's actually a wealth tax, not an income tax) but also because a wealth tax would demand a substantial fraction of assets would have to be shed each year, thus diluting the market for that asset class. It becomes an Heisenbergian problem.
A wealth tax assumes liquidity: for instruments such as REITs where the underlying asset is not itself terribly liquid (imagine, for instance, owning a shopping mall outright), how does one go about liquidating such a thing in part? Finding another partner? And then the next year, when the same thing has to happen again?
Finally, the issue remains of incentives. France has a wealth tax, and the net result of this is that while it has collected $2.6 billion (equivalent), it has resulted in $125 billion in capital flight since 1998.
Dog is my co-pilot.
you should be used to it in the usa by now, its been in place for some time. you can in part thank the millionaires in congress for this, passing laws to protect their own ass(ets). and of course some of the current crop of candidates want to make the system even more regressive, so that the poorest of us can pay even more for roads, schools, police, fire, and other basic amenities that are considered important to the function of a society.
three comments and I am forever at terrible karma
...as long as it is taxed upon "realization" at the same rate it otherwise would have been. I'm sorry, but this 15% capital gains vs. 30% (when including social security & Medicare) payroll is just insane. Bump capital gains to equal payroll, including taking cuts for social security and Medicare.
Another non-functioning site was "uncertainty.microsoft.com."
The purpose of that site was not known.
That's a lie, meant to make people give up on a difficult but feasible task.
Changes to the tax code to tax the "rich", actually work some of the time. If they are designed sufficiently lawyer-proof which requires determination and will.
One thing that works is personal criminal penalties: notice how many people who defrauded the government out of money they owed (in Swiss banks) are coming back now that the pressure
"If I was facing a $2 Billion tax bite, you better damn well believe I'd spend some fraction of that money to find a way to get out of paying the rest."
So since the rich are powerful, we should be nice to them and instead tax the poor shlubs who can't outsource a few thousand hours of professional fees?
(note that when there's a national debt, not taxing rich means that either present or future poorer workers are being taxed)
How about a tax code that doesn't have a whole bunch of legal workarounds and so people actually pay up?
"Even the so-called "Buffet Tax" isn't actually designed to go after the places Mr Buffet himself actually hides his cash from the taxman, it's just a feelgood measure to stir up populist votes while screwing those middle class folks who suddenly find themselves "rich" but don't have enough cash to pay for the accountants needed to skate."
How does that work exactly? If, for instance, the income tax rate was equalized for all forms of income, AND, the payroll tax was eliminated, both sides (worker and employee), and its required revenue transferred to the income tax, Mr Buffet and people of his wealth and without his ethics will be paying more and virtually all of us will be paying less (when you include lower deficit/debts). Of course there will be attempts to exploit loopholes but that doesn't mean at all that every one of these people can eliminate 50% of their tax.
The solution to this problem is to fix the problem to begin with not add more loopholes and rules to close loopholes. Capital gains and business taxes constitute the largest double taxation and loophole in the US code. Do away with business taxes COMPLETELY, then tax all gains, capital, income, inheritance, etc as INCOME and tax it on the same progressive tax system.
This is what Huntsman suggested and god damn if everyone didn't attack him. Taxing a business, then taxing the gains paid out to people is double taxation and it's EVIIIIIL. Business should be able to operate without taxation as long as NONE of the money is directed into the pockets of a single individual. As soon as there is a transfer of wealth from the business to a person, be that salary or capital gains it should be taxed at the income rate because this artificial rate separation of income and capital gains is nothing more than an attempted plug to the double taxation which then creates the biggest single loophole in the tax system. It's why Romney and the Richest Americans who survive on investment return have tax rates that not even minimum wage earners can touch. The fix isn't bizarre arcane rules that Congress will alter next year to punch a dozen holes through, its to simplify the tax system drastically.
Wanna fix the tax system and provide incentive to US business?
1. Eliminate corporate taxes.
2. Make all income, regardless of source (investment, salary, inheritance, etc) taxable at the same rate.
3. Establish a progressive income tax very similar to the existing without any deductions of any kind. (taxes need to stop being used for social change).
a. $0 - $24,0000 (1%)
b. $24,0000 - $35,000 (10%)
c. $35K - $50K (20%)
d. $50K - $100K (30%)
e. $100K - $Infinite (40%)
4. No marriage penalty, no jointly filing. Everyone should be judged as an individual regardless of relationship. All the joint filing BS does is allow people with a spouse that don't work (these days that's the richest among us, with the exception of certain groups of people) to pay fewer taxes by filing jointly.
5. No deductions. Again, it's not right to have the government give you a lower tax rate because you have a kid, or buy a car or put solar panels on your home.
6. User taxes and fee's not only remain, they go up to their ACTUAL cost. This means all the defense money that's used to protect oil deliveries should go into the cost of gasoline in the form of a dramatically increased per gallon tax. These user taxes should completely support the function of government they were created for and they should be indexed against some metric like inflation so they remain constant in real dollars.
7. Extra spending such as War and millitary adventure-ism should be required to be passed on to the American people in the form of an excise tax that lasts the length of the expenditure. This country would be far less willing to engage in foreign wars were the people required to pay for it on cash rather than credit. Yes that means there should be a line item on your tax return for the war in Afghanistan that costs x% of your income.
8. Finally the BS that's been in place on social security and medicare for the last 30 years needs to STOP. That means the tax rate matches expenditures. Social security alone has run a 2 Trillion dollar surplus over the last 30 years that congress has promptly spent (and not counted in the deficit to hide it).
a. I think people should be given the option to opt out of Social security (but not the full tax) and it should be illegal for them to be re-admitted later for any reason (including disability). My guess is less than 1% of Americans would even opt out, even the most vocal critics are likely to not opt out.
b. Two, if there are ANY cuts to social security those cuts should be enacted against anyone from the age of
Its not a wealth tax. You are never taxed on the value of your assets or how much you own. If you owned a farm but it never gained in value, you would not have to pay tax of this type on it. Your taxed on the *gain* of the value of your assets, which is usually a percentage of the profits. You are not taxed while you own it, you only have to pay that tax when you realize that value gain e.g. you've made a profit. For a house, this would be when you sell it.
There are pro's and con's (we had this debate recently in New Zealand) but its undeniably true that a lot of people and organizations currently make an *income* which is currently not taxed based purely because they benefit from this loophole. While others that make their profits through sales, wages, or salaries do pay.
It seems a bit ridiculous to complain about this. If you had six hundred dollars worth of collateral that you could use to borrow the hundred dollars you paid in capital gains tax, I'm sure you could do it too. It may not be for the same interest rate, but it's still doable.
The only thing is, when you're borrowing that little, it's fairly pointless and not really worth anybody's time, be it yours, your accountant's, or the bank's. It takes time and money to process a loan application, irrespective of who the borrower is. That time adds up to costing about as much as or more than the amount you're borrowing.
What the wealthy have over the middle class is economies of scale. They can borrow several million or billion to cover their millions in paid taxes all in one go, which would actually be worthwhile for all parties. They pay the same flat amount as the middle class person would to apply for the loan, but their ROI is millions. The low interest rate is just icing on the cake. The bank can afford this not necessarily because of connections, but because when the loan is a billion dollars, the bank is still making a million dollars even the your interest rate is 0.1%.
"If a nation expects to be ignorant and free in a state of civilization, it expects what never was and never will be."