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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."
If he has to pay taxes, how is he going to create jobs?
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?
And it is one of the reasons that our tax laws are such a mess.
But I also don't think that we can have a discussion about it without various political agendas derailing it.
...would raise hundreds of billions of dollars of new revenue over the next 10 years.
No, it would mean the excessively rich exploit a different loophole instead.
I will write a glowing tweet about him on twitter.
He'll probably just buy twitter if he wants that.
The AMT was only supposed to affect the rich as well... Look how that turned out(and continues to turn out every year). Look, I'm cool with taxing these people, but all these cute little plans ultimately only bite one group of people in the ass, and it's those that are neither rich nor poor.
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?
Don't see anything in the basic concept that makes it apply just to "undeniably extraordinarily rich" individuals. It looks like it would apply to anyone who owned stock.
Then there's the problem that it would encourage stock manipulation, since it would pretty much require that stock be valued at some specific time every year. And if you're not smart enough to make sure your stock is valued low that day, you prolly don't deserve to be rich.
"I do not agree with what you say, but I will defend to the death your right to say it"
Before you get excited about mark to market, mark to market accounting was one of the causes behind the banking melting down we just had and it has since been repealed. Mark to market can easily cause phantom gains. Phantom gains happen when the market crashes like it did in 2001. If you got marked to market in 2000 and then your stock crashed in early 2001 you could have ended up owing more in taxes that your stock is currently worth. That usually results in instant bankruptcy (or bank failure).
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.
So the stock market has been doing ok, so it's time to consider mark-to-market taxation? This guy has a really short memory.
So during recessions (I think we had one of those recently), the rich will get to mark down their holdings, and pay nothing on any of their earnings. Might even get to report a loss they can use to offset future earnings.
So right at the moment when the federal budget will be the worse, the rich will get to stop contributing. And when things start to improve, they'll get to use their loss from previous years.. then, when everything is ok (at the very top of the bubble), they'll get to start contributing.
I'm sure that will go over really well with everyone else.
For years and years we read news stories about the amazing and complicated hoops accountants jump through to keep their wealth clients from paying money. Now we find out that all their doing is borrowing money at below market rates against untaxable assets. Nothing too complex, and it relies on a good 'ole boy network to approve the ultra low interest loans that make it all possible (I, for example, can't borrow at a rate low enough to get away with this).
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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
That depends upon how you define "income".
He can take out a loan against his stock and buy a house in France.
Obviously he needs money ("income") to buy that house.
But that money will not be taxed as "income" because it does not meet the USofA's TAX definition of "income" at this time.
Assume this year there is a stock market bubble, and I pay a huge tax this year. Next year there is a stock market crash, and I lose all my previous years gain. So what happens ? Government refunds me my tax ? What about interest on that tax ? Government pays it too ?
Next problem, how do I pay this tax ? If my money is tied up in investments, how do I generate the cash to pay my tax ? Should we start paying our taxes using equity shares ?
...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.
I think some people are missing the mark on the taxes issue. Some people (myself being one of them) are simply not interested in raising government revenue. We want less government, less taxes, less handouts. For that belief, we are derided as bigoted, racist, and downright stupid, when it has nothing to do with race. That's my 2 cents.
So, he gets a loan with the collateral of said loan is his stock.
He's going to have to pay off that loan some how. If he forfeits the stock, it's counted as sold and he owes taxes on that. If he pays off the loan with other money he likely has already paid taxes on that. So I'm not seeing the huge issue here.
What a jerk, just 2 billion in taxes this year?
Got Code?
You can't claim a loss on shares that go tits up, so you shoudn't pay tax on them when they're held.
I run: Windows, OS X, Linux, FreeBSD. Just because you have a hammer, doesn't mean everything is a nail.
Why is anyone concerned with Mark's soon to be personal fortune and the taxes that stem from it?
Let me get this straight, you want me to seriously think of a guy who is about to be worth 28 BILLION dollars, who is going to cash in 5 BILLION dollars of it and then get stuck paying 2 BILLION dollars in taxes? Let me note, 500 MILLION of that goes to California, my beloved home state.
We're not talking thousands or millions of dollars, but BILLIONS of dollars. Mark should just be happy he lives in a country and society that he can take a "stupid little idea" like Facebook and turn it into a 100 BILLION dollar company.
For many many generations, the Zuckerburg's Family will be beyond fantastically wealthy. He should just pay it, not sleaze his way out of paying those taxes and be happy he lives somewhere he could make Facebook.
Linux O Muerte!
Even if never sell the stock, you can take out a loan against the value of that stock.
Well, you can't. You don't have enough stock to make it attractive to the institution making the loan. But if you did have enough (as was shown in TFA) then you could take out such loans.
And such loans are not taxed as "income" or "capital gains" from stock.
Holy crap. His Income Tax payment will be double the entire budget of the Small Business Administration........
Another non-functioning site was "uncertainty.microsoft.com."
The purpose of that site was not known.
This is unlikely to go anywhere. Tax law has around a century's worth of precedent on only taxing assets at the time of disposal, or deemed disposal. Any transfer of ownership for instance.
If you try and change this there are a couple of problems over and above mere precedent.
1). Many people, even the very rich, can be considered asset rich but cash poor. If you mark to market, the tax code can sometimes create a liability far beyond what the owner can pay out of pocket;
2). Assets do not only increase in value, they can decrease as well. When you mark these to market, does the owner get a refund? A tax credit?
There are answers to these issues of course and I don't want to create the impression that nothing can be done. The biggest barrier I would suggest, would be the precedent. Most citizens have a general idea of how the tax system works. This would be a major departure. Some people have positioned their asset structure around these rules and have created systems literally designed to last for a lifetime. Mark to market would be viewed as an assault by such people, I'm sure.
Capital gains is a tax on the INCREASE in value. The BASE is not taxed a second time.
If you invest $100 and you realize a gain of $50 on that, then the $50 is taxed as capital gains but the $100 is not taxed a second time.
Alternatively, anything that allows the wealthiest to dodge their tax obligations should be looked at as a bug, not a feature.
The middle class does this exact sort of thing too. When a retired blue collar worker leaves his house to his kids, the kids only pay taxes on the appreciation from the date of death.
So, you're proposing ... what? That rich people are taxed more, and that will solve the problem? You could take people like Zuckerberg ... hell, everyone that makes even just a million dollars a year or more ... and tax then at a rate of 100%, seizing all of their income. And all of that cash? Wouldn't even pay for the budget deficit through the middle of April this year. To say nothing of the rest of the year's deficit, and to really say nothing of the rapidly expanding debt. And you're asking for more spending. Really?
This is possibly the dumbest thing I've ever seen posted on /. (and since I recall Taco's upgrade from ISDN to T1, that's saying something)! OMG Ponies was at least a April Fools joke!
And it is, so far, largely accompanied by equally dumb comments.
Say, you bought a house Las Vegas in 2001, would you want to pay income tax on it's value through 2007? Of course not and if you don't understand why, think about what that house would be worth today. The same applies for shares. Apple has crashed before, and it can certainly crash again (and likely will).
And Mrs. Jobs SHOULDN'T pay taxes on those shares because she was MARRIED to Mr. Jobs, and as such their property was JOINT, in other words, those shares BELONGED TO HER, they weren't inherited. That's the absolute basis of any civil union.
"I don't think software should necessarily be free
See here's the problem: You start taxing wealth, then you start taxing all kinds of shit. Your house would now not only have a property tax, it'd have a wealth tax. It goes up in value, you have to pay tax on there. You don't realize any of that gain, of course, but it still increased in value, at least in theory, and thus you owe money. Now imagine that during the real estate boom. You suddenly owe income tax on an additional $100,000 because our "wealth" increased that much in theory because your house went up.
That's the thing is that having assets, having wealth, doesn't magically kick in at some number. Most of the middle class has some, just less than the rich. If you own any asset that appreciates in value, like a house, a retirement fund, etc, you have wealth. Maybe not much, but you have some. So anything that places a tax on having it is something that you'll be paying.
Have to be careful of unintended consequences.
And the effective tax rate on Billionaires is in the single digits.
Heck, most corporations pay less than 8 percent effective tax, due to exemptions and loopholes.
It's why Greece is going broke - everyone who isn't a millionaire or a corpoation has to pay taxes, but not the Rich or the Corporations.
(caveat - my tax rate is incredibly low too - legally - cause I know about these nutso loopholes and exemptions)
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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.
Was when funds had to have massive amounts of losses on the books because there was no market for what they had at the moment. If something has to be marked to market, and the market is frozen at the moment, that gives it zero value, even if there is real value (like it is property or something). That can then create a feedback cycle of "Oh shit this is worthless!" and so on.
I'm not saying mark to market is never of any value, but there are serious downfalls and we saw them both on the phantom gains and phantom losses side with the recent financial shit.
Why should we be looking to give the US government more money when they've proven incapable of wisely spending the money they already get?
Ok, I'm a middle class person, I have 50k invested in a 401k, said 401k goes up 20% this year... creating a gain of 10k and I get taxed at say 25%.. so I now need to sell $2500 in my retirement account to pay the tax... It gets even crazier if say I'm close to retirement and I have 500-600k or something in said account... now I have a $25000 tax bill on income I didn't make... and I have to sell investments just to pay the tax man... And next year the market could drop 20% and I'll just be out the 25k in taxes plus the 100k in investment losses...
I thought everyone was agreed we needed to simplify the tax code not make it insanely more complicated.
I don't begrudge Jobs or Zuckerberg their stock profits. Jobs took no salary and gambled that he could make the stock worth a bunch. He created a lot of employment and happy investors along the way.
But I do think billion-dollar estates should be taxed--a lot. The wife and kids (if any) did not create wealth. They deserve money, but so do we. Otherwise, we pay their taxes for them. The government has to get money from somewhere.
Half a billion is a nice inheritance. If it's not enough for the heirs, they could consider drastic measures, like getting a job.
Zuckerberg will still be a rich man when he dies, and the government will still need money. The place for the taxpayers to catch up with him is from his estate.
It's worth mentioning, too, that Zuckerberg has already made an eye-popping gift to New Jersey schools. Tax-deductible, no doubt, but still a praiseworthy act.
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.
We've heard these bogus "It will only affect the super rich (who are evil and deserve to be punished)" lies almost every time new taxes are created, then once they're on the books, they're expanded to cover everyone else. Income tax in the US is a fantastic example of this - it was sold to the people as only affecting the top earners in the US and that it would only be a tax of around 3% of their income. I think it's safe to say we all know how that turned out.
As for why you only pay taxes on the gains? Because you already paid tax on the income used to buy the investment and you only actually gain anything when you sell it. If you want to make borrowing against stock without selling said stock illegal, go for it - but don't alter the system to screw over everyone who owns investments (which includes most pensions and private retirement funds).
"The tree of liberty must be refreshed from time to time with the blood of patriots and tyrants." ~Thomas Jefferson
Except that the pro-tax people will claim that the FairTax's method of refunding (actually it's done in advance - so it's a "prefund") taxes on necessities (to eliminate any tax burden on the poor) and not ramping up the percentage to ass-rape the successful are "punishing the poor". Yea, I know, the people who are truly poor will pay no taxes and used items (again, bought by the poor) aren't taxes, but somehow this is punishing them.
"The tree of liberty must be refreshed from time to time with the blood of patriots and tyrants." ~Thomas Jefferson
"Why not scrap all the other taxes for a consumption-based tax? After all, that's what the people hate, right?"
Because it deters consumption of products, such as boats, made by blue-collar workers.
"This post is an artistic work of fiction and falsehood. Only a fool would take anything posted here as fact."
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.
Property tax is assessed based on the valuation of your home so there is no appreciable difference.
That's the thing is that having assets, having wealth, doesn't magically kick in at some number.
If you have enough to scrape by for your entire adult life, then you have wealth. For example, the U.S. life expectancy is 78 years, or 60 adult years. The Department of Health and Human Services defines a "poverty line" representing the annual cost of basic food, shelter, and clothing. For example, this value for a family of four is $22,350 per year, so if a family has more than $22,350 per year times 60 years or $1.34 million, it has wealth.
"Why do people seem happy to take every deduction they are allowed, and then rant about the deductions other people get?"
Because the rich write the rules, write them in their favor, and then say "I played by the rules!"
Of course the rest of us grab the crumbs we can rather than starve, but when the King says "Rules are King gets the food, peasants get the crumbs" he can't claim to be moral for following the rules he wrote.
"Solution to the problem"?
What problem? Letting people keep the wealth they earned?
Figuring out how to transform your envy and covetousness over other people's wealth into actual appropriation of it isn't a "solution to a problem" (or "closing loopholes" or whatever other euphemism happens to be en vogue today). It's theft, plain and simple.
Liberty in your lifetime
I don't understand how that works. So Ellison took out a huge loan to pay for a boat using his stock as collateral. He still had to pay the loan back somehow. If he paid it back by selling his stock it would have been taxed. If he paid it back with income he got some other way, it was also taxed.
Where’s the loophole?
Maybe. But probably not. Not if you have enough stock. You can take out another loan to pay off the first loan.
That's the point. If you have enough wealth, you CAN just keep taking out loans to pay off the other loans. Eventually you die and some of your assets go to the institutions that have been providing you the money over the years.
And there are a LOT of other financial tools like that that you can use to spend money that is not "income" or "capital gains". If you have the investments to support them.
Some result in no taxes being paid.
Others result in tax rates 10 percentage points lower than equivalent taxes would be on income for non-wealthy people.
Once the company sells the stock, as long as the company is still viable, the stock price is independent of the company.
It is all based upon the price that the person holding the stock is willing to sell it for ... and whether he can find a buyer at that price.
Which is why companies that have never turned a profit and which do not appear to be have a business plan that will show a profit in the next 5 years STILL have IPO's where their total stock is valued at billions of dollars.
hm I bet the taxes on that enabled someone to buy 1 billion dollar boat would buy some fucking paper towels, and where did I ever ask for more spending? you flew off on a tangent like I wrote a fucking propesition numbnuts
its just a comment, dont worry your pretty little head over it, I will continue paying the deficit you can still get a new jet this time with teak insead of mahognony
No theoretical difference, but look at the difference in the tax rate: 35% for income, 1-5% for property (varies by jurisdiction). US values, of course, since this is a Zberg tax, but I suspect it's about the same most places around the world.
Infuriate left and right
People get rich, others get angry because it's not them. The world keeps turning.
~theCzar
Breaking up conglomerates is the solution.
To reduce the concentration of wealth to so few, you don't tax them more. They'll find a way around it. The fix is simple: Corporations are not people and they can and should be limited in what they are allowed to do.
There's no practical reason Newscorp should be allowed to own TV, radio and print. The big banks should not be all-in-one financial centers. The only benefit these situations provide is allowing a few folks to make insane amounts of money.
And because I know people will be all: That's telling people how to live! It isn't. What experience or freedom in life would Rupert Murdoch miss out on if, instead of being worth billions amassed through a media empire that owns TV, radio, print... he were merely worth millions from TV alone?
On the flip side, consolidation has cost people jobs, has effectively enslaved people in countries with low wages and unsafe working environments, has cut people's access to social programs... All to reduce redundancy, increase profits and put more money into already insanely wealthy people's pockets.
A free society does not serve rich masters. A free society tells rich masters "Fuck off. You've had your fill."
No sig for you!!
Anyone who takes out a home equity loan (which is equally a loan on assets you've got) takes the money without paying income tax on it. When you sell the house, you don't pay tax on the gains either, in most scenarios.
So the people bitching about it have probably done it themselves before.
Money that comes in and goes out is not wealth. Wealth is money set aside which can be cashed in later
But if you have enough set aside to cash it in while living above the poverty line for the rest of your life, don't you have wealth? That's why you multiply by 60.
My house has increased in value over the last 10 years. In Mexico, we pay taxes for all of our real estate - And the tax for my house increased quite a bit (way more than the percentage of appreciation - Yes, it has some brackets on which it jumps). Of course I didn't like it, but of course I believe it is fair.
Once again, an article written by someone that simply assumes that someone else, not paying enough in taxes, is a bad thing. It's not. PAYING TAXES IS A BAD THING. Yes, in our present system, with our present technology, we need a tax system... but that's unfortunate. It's not wrong, evil or unpatriotic to pay less in taxes. We should all pay less. There is no entity on earth less adept at managing money than a government. Much like an aquarium, a government operates at its most efficient and is healthiest when it's starved of food/money. Given more and more food/money, it eventually pollutes the water and makes the entire system unhealthy. Unfortunately for us, politicians generally just move to a new tank once they've ruined ours.
Except that many areas place limits on property tax increases for your primary residence. Usually it's doesn't rise more than a couple percent or the rate of inflation.
"The fears of the opposition are unfounded! This tax will only ever apply to the extraordinarily wealthiest Americans that can most afford to contribute to the general welfare of the country. There is absolutely no reason for any to oppose this modest Income Tax amendment!"
"Somebody has to do something. It's just incredibly pathetic it has to be us."
--- Jerry Garcia
Most of the founding fathers were themselves very wealthy, and they didn't pass any kind of progressive taxes, much less taxes aimed at equalizing wealth. A few of them waxed eloquent on the dangers of a landed hereditary aristocracy, but by and large these men were the landed hereditary aristocracy. The one who waxed most eloquent on the dangers of concentrated and inherited wealth and the need to spread the wealth around was Jefferson, who inherited a 3000 acre plantation and dozens of slaves and was wealthier than any other president except Washington (more than an order of magnitude wealthier than either Bush). He would not have been able to dedicate his energies to politics without that inheritance and that wealth, and his will provides a counterpoint to his arguments against the right of inheritance.
The founding fathers who actually did something about changing America's economic model and taxation structure- Alexander Hamilton and his allies- were staunchly capitalist and fairly lassiez-faire.
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
Let's be pretend that it's 999 billion dollars over 10 years (the upper margin of hundreds). That's 100bn/year. Deficit is close to 100bn *a month*... I'm not sure that tax is going to do better than encourage the government to spend more. I humbly propose that a tad more attention be put on lowering spending rather than increasing taxes.
Mind the frickin' laser...
I believe that such is why certain groups use the term "death tax" instead of "inheritance tax".
Taxes are a VERY complex subject. And always will be. And every tax is SOME form of social engineering. Unless you agree with it. Then it's not. Only the taxes that you don't agree with are social engineering. And badly done at that. (sarcasm, but not aimed at you)
And the moment you commit a new tax law to paper you create an opportunity for some tax lawyer to find a way around it.
And if it is a tax on the wealthy, that can be tens of millions of dollars in incentives for that tax lawyer. Or more.
And I'm not even addressing globalization. Can assets be moved to a different country where they can be cashed in under a different tax model?
Or can I make tax-free contributions to a charity that pays for things I want that is run by my family?
Not to mention that when you get rich enough, you can hire lobbyists to help Congress Critters write the tax laws that are more favourable to specific situation.
And so on and so forth.
Borrowing money does not avoid the tax - it delays the tax.
Or, to put it another way, taxes are triggered by a taxable event - such as selling the stock. Borrowing the money just shifts this discussion to a buy now, pay latter. Z probably wants to delay the sale of stock because 1. He thinks FB stock will go up in value faster than the interest rate on the loan (see compounded interest, and leverage) and 2. He wants to keep voting control of the company so he is willing to take the risk. i.e., if FB goes to zero he still has to pay back the loan.
By the way, a wealth tax has the opposite affect of a sales tax. Sales taxes are meant to discourage consumer purchases and encourage investment. Wealth taxes discourages investing in long term capital goods.
I thought I had made it clear enough. I guess I did not.
How long would you live off of a loan against your house? A year? Two? Five? Ten? More? How many people own a house that is worth more money than they can earn in 20 years?
With sufficient investments, you can live for a hundred years or more off of loans against them. Without paying a cent in taxes.
So saying that the loan must be repaid and that taxation will happen at that point is ignoring the reality of the situation.
Shareholders get limited liability by investing in a corporation. It would seem like they should pay a little extra for that benefit.
A little.
I have actually seen something that said George Washington was the richest man ever in America. i.e. If rich = (wealth / nations GNP). He was a land speculator and thus had a lot of land.
Whatever dude.
You're suggesting that investors be taxed on money they've not earned? On the *potential* money they don't earn? When the market value of their shares dips in price, will they then get a refund? Or perhaps they could claim it as a loss in the next year's income taxes? (Because *that* wouldn't get abused...)
I could even see raising the capital gains tax to be the same as income tax - a proposition that would make "the rich" squirm mightily. But taxing on unrealized income? Paying money for something that may or may not have the same value in a week? How does that make sense in any reasonable world?
and periodically send out refund checks for all the stocks that lost value which people hold in hopes of a rebound?
In Jobs' case, its a simple matter of potentially altering the code around wills. Make capital gains measured from the first time they were obtained by a party until they are sold. Leave giving in a will or as a gift (with annual limits) alone. Simple.
In Zuckeberg's case, if someone wishes to use unrealized gains as collateral, then it's up to them to take on that risk. They still face the possibility that the company will collapse, that he'll declare bankruptcy, and the loan won't be repaid.
And that's what we need: the equivalent of the housing bubble in the stock market. The government starts relying on taxes from housing and stocks, then when the economy turns sour, or one of the bubbles burst, they won't be able to cope. Most municipalities and even states almost collapsed simply because housing collapsed and their tax revenue disappeared. So yeah, keep setting yourself up for government shutdowns, then blame "the rich."
Let's consider a state that has a wealth tax of 2% and you have 10 million dollars to invest.
You could invest the 10 million dollars into a factory. It will be 5 years before you know if it's a success. (buy land, build buildings, trains people - then see if you can actually market the stuff.). You will pay 1 million in taxes even if you are a failure.
Or you could invest in some type of short term investment. Say government bonds. So much more predicable.
Studies show that countries that tax wealth people invest less in long term capital goods. The returns are much lower because of the wealth tax.
I am not saying the rich should not pay their share. I am saying that we want to structure the tax code to encourage investment - not discourage it.
So, when I worked at Sun and had 20000 stock options that were rising 8% or more *per week*, I should have paid taxes on that "wealth?" That would have been pretty brutal, since by the time most of them were vested they had gone from $126 to about $4 per share. Bitching that some get wealth and some get the shaft is a time-honored tradition on /., but don't confuse your argument with more than bitching. Keep your day job.
Organization? You must be joking..
It's called a margin loan. Anybody would has more than $2,000 in a taxable account can do it.
There's no credit check, the rates tend to be low, no monthly payments, and the interest may be tax deductible. The only downside is if your stock falls you will get a margin call. And going on margin will leverage up your portfolio - so you are playing with fire.
Point is, you can do the same thing as Z. Maybe not at his scale - but you can do the exact same thing.
However bond payments are a expense, so a lot of companies load up on debt as a "debt shield" - which leads to more bankruptcies - but that's a different story.
it 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
I still don't get where the loophole is. So I had a share that was worth $10 a week ago, now it's worth $20. Until I sell it, I don't make any actual income, no money I can spend on something.
TFS talks about borrowing money using that value of $20 as a collateral. Fine, I do that, now I have the cash. But I also have a debt which I will have to repay later - with more cash. So eventually I'll still have to sell my share, and I'll pay the tax then.
Where's the catch?
would raise hundreds of billions of dollars of new revenue over the next 10 years
...all of which the government would piss away on dumb wars, dumb social programs, and corruption.
The problem is not lack of revenue. The problem is that idiots are elected by idiots.
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It doesn't matter how much the corporation is taxed.
YOU are not taxed twice for same money.
By your "logic", you would never have to pay taxes on anything because someone, somewhere, at sometime had already paid taxes on every dollar in circulation.
Exactly as I said. Every dollar in circulation has been taxed at least once. Therefore, no one should be taxed because it would all be "double taxation" by your "logic".
Except that it is not "double taxation" because YOU are being taxed on the money YOU receive.
The money does not owe taxes. YOU owe taxes.
It doesn't matter if someone else paid taxes on that dollar when they received it.
No. It's because poor people have bad lobbyists. And a lack of understanding of how the tax system works.
And if your boss pays you in space trips, or cars, or reduced company stock - they still have to be taxed at the value it's worth.
I remember one boss who paid his employees in American Gold Eagles (1 oz gold, face value of $50.00) and tried to claim he was only paying his employees $50 per coin instead of market value.
Should we use Book Value instead? You know that caused Japan's banking crisis?
Both have strengths and weaknesses.
Mark to Market let's you recognize phantom gains, Book Value allows you to ignore expected losses. Japan's banks were able to ignore failed companies because they could always make the next loan payment - even if they had to borrow it from the bank itself. Lots of zombie companies back then.
Like on the iSteve estate - eventually it will be taxed when the wife dies. As to not taking salary and taking loans against the shares - it is not entirely free as you must pay interest and in Ahboracles case, the stock did tank large thus reducing the amounts which could be borrowed and potentially resulting in margin calls at least in the 2008 timeframe. And unless you are able to roll the loan over forever, you will eventually need to sell shares to pay the loan off and thus pay some tax. Either way, the top 1% pay 30% of the tax burden and the wealthy in the US also pay more both in $ and % of the total tax burden than do their equals in Euroland.
So if your stocks go down in price, are you going to get a tax refund? You can't just tax someone because their assets have become more valuable. If diamonds suddenly skyrocketed in price you can't go hunting down everyone who owns diamonds and ask for money. Are you going to tell them to sell their diamonds so they can pay your tax?
You are assuming that you have limited control.
I know a lot of people who run LLC corporations to protect them from liability and have full control over their company. Most tend to be small, some are partnerships (who partner's are large private equity companies) etc.
The owner's of these LLC have a choice - they can either pay themselves a income (with payroll tax) or pay themselves a dividend (No taxes if it's QDI).
They chose the dividend because of the lower rate and that drive me nuts. I am for low, simple, fair taxes. But dodges like this drive me nuts.
The problems we face today exist because the people who work for a living are outnumbered by those who vote for a living
Thanks to file sharing, I purchase more CDs
Thanks to the RIAA, I buy them used...
Mark to market can't just be for stocks it would have to be for any kind of investment property, at the very least. Otherwise, you simply create incentives for stocks to convert their capital gains off, like converting it into bond interest or acting as a derivative against a bond risk. We could safely have laws avoiding mark to market on primary residence, though honestly it might make sense to apply it there as well.
Anyway in general I think it is a great idea for making the tax system far more fair.
"Taxing" wealth in the US would most likely be found to be a 5th Amendment violation. I'm not sure about most slashdotters, but I don't think congress passing a law is considered "due process". Aren't trials required for "due process" to be satisfied? At least that is the general view from those opposing holding people in Gitmo and such.
Now Jobs' widow can sell those shares without paying any income tax on the appreciation before his death
That's because if those shares are all in Jobs' estate, they will count against Jobs' estate tax exclusion, once the tax excluded amount is exceeded, all the rest of the value of the estate is subject to estate tax, even if there was no appreciation on it.
why should you be able to barrow against unrealised income? it may or may not have the same value in a week, its really just bullshit and fluff and should not be allowed to be leaned on, or its real and taxable. I dont care either way sounds fine to me
ugh
Let us go back to the top. From TFA (emboldening is all mine):
So what he proposes is a wealth tax, full stop.
Dog is my co-pilot.
This is a corner case in the tax argument. No matter what you propose to solve this alleged injustice it makes no difference in the huge Federal deficit. We Americans just aren't making enough Zuckerbergs to rely on for a redistribution solution.
Sorry, but nobody in this thread noticed the obvious. It's a good 'ole boy network at work. When you have that much money you go to the bank and your buddy loans you at 1%. So yes, the loans have to be *quote* paid back *unquote*, but only in the academic sense. It's a very simple, very effective tax dodge that's only allowed because it's being done by the ruling class. It's a bit of fundamental corruption in our economic system. This, folks, is why capitalism doesn't work. It gets broken by stuff like this. You know what's the worst thing? They don't even hide what they're doing. It's all out in the open for everyone to see, and while we're blathering on about economic principles they're laughing all the way to the bank.
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No matter how rich you are you can't buy enough Royal's Royces to drive our economy. Just tax the high end like crazy stuff. Private jets, $100k cars, etc, etc. That solves the regressive problem, It's easy to enforce because there just aren't than many people buying private jets who aren't Carly Fiorina, and it won't stop consumption. There. I just solved our tax problem. Now good luck getting our rulers to approve it.
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Short answer yes - it does create a tax liability.
Here is the order of events.
1. Deposit stock at a brokerage company.
2. Borrow 50% of the value of the stock (margin loan)
3. Stock price falls and your loan to stock value is under 25%
4. Get a margin call - i.e. broker asks you to pay up to get to the 25% in 3 days.
5. You don't.
6. Broker sells your stock to you back to 25%
6a. In fast moving markets the broker may not sell you stock fast enough to cover the loan. So you end up with no stock plus a loan - which you are still on the hook for. If you can't pay it in full the broker might write off a part of the loan. If it does, it treated as taxable income.
7. Broker reports sale to IRS. Depending on your tax basis you may or may not owe taxes.
8. Tax time - pay the taxes you owe. Don't have the money? Good news, debtors prison is now closed. Bad news, the IRS still has a lot of tools in it's tool kit.
what? what use does Steve have for the money he earned now that he is dead? perhaps direct family members should be able to split a poverty line income with each other, and the rest goes back to the government.
How/why did Steve get rich? it wasn't just him using the infrastructure, it was apple, it was the people he employed, it was FOXXCON being able to use our ports to ship iThings etc, there is a lot of ripple use that really should be placed on Steve's ledger.
All of the above was encrypted with a Quad ROT-13 method. Unauthorized decryption is in violation of the DMCA.
that the wealthy are making a tremendous amount of money on those assets, and using a few simple accounting tricks, are paying little or nothing in taxes? That shopping mall is making it's owner tremendously rich. That wealth is largely a by product of society, not the owners inherent genius (no matter what Ayn Rand told you), and society at large (meaning me and you) want something fair in return. I think Malcolm Gladwell said it best: We're saying 2 million dollars a year is enough.
As for France, that's an easy solution. Let all other countries enact similar laws, and problem solved. Didn't Carl Marx say something about capital going where labor was cheapest in a never ending race to the bottom? Oh, I forgot, all anyone can ever remember about him is that a few fascists used his books for rhetoric.
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But it's not tax free. Just because the broker sold the underlying does not mean you don't owe the tax. The sale triggers the capital gain - it does not matter if you or the bank pulled the trigger.
And the only way to default on the loan is when you are at 75% loan to value and you fail to top up the loan. They sell the stock and you get the remaining 25% left in cash.
to tax income & investments higher and real land less? You know, we can do what we like with our tax law. It's ours. We don't have to try and fit it into silly preconceived notions of what is and isn't "property".
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but I get 100%, absolute protection from rabid elephants. The same as Mitt Romney. It's called an Ocean, dumb ass. There is no credible threat to US security. We do not have to devote 50% of our GDP to the military. And yes, the police do predominately patrol and respond to crime in wealthy neighborhoods. I live in a shit neighborhood, and the only time the cops showed is for a Murder, and even then they just kinda hung out and let events take it's course. Move to inner city Detroit and tell me the cops don't pick and choose.
And while we're on the fsckin' subject, our entire national infrastructure is crumbling. There've already been a few high profile bridge collapses where engineers KNEW the bridge was unsafe and nobody wanted to spend the money. Also, the rich keep going on about not having enough engineers, but they keep increasing class sizes in public schools; every frickin' study since the 70s shows how you get kids to do Math & Science: smaller classes, relevant lessons. Costs money to do that. Why not just let them breed uncontrollable and skim off the 10% that somehow make it.
Nice try though. I'd say if noone else but the GP was pitching you might'a hit something.
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The parasites are ever thinking of new ways to extort more money from the productive. Atlas gonna shrug.
He pays more than AMT. AMT caps at 28%, but he'll pay at 35%. The crossover point is somewhere around $400k.
I recall hearing about mark-to-market in a documentary about the Enron disaster. Think about this though: if I hold $500m of shares in a company at today's valuation, then next year they're worth $2b, and the following year they are down to $500m again, should I pay tax on the 'gain' in between? (approx $500 say) and then do I get that tax back when the shares go down? Without care, mark-to-market taxation would be a tax on volatility of shares, rather than one on real value. As for borrowing using shares as collateral, maybe there should be some tax there, but I can still see problems.
-- The Grand Teddy Bear has Spoken: "Windows 8 Source Code Available NOW! more disgusting than your pr..."
I wish we had mark-to-market tax during the dot com boom.
All of those rank-and-file programmers and sysadmins at dot-com startups who got filthy rich just for showing up to work would have deservedly gotten huge tax bills, instead of avoiding taxes by saying they were only excessively rich "on paper". And it would have served them right, they didn't really deserve all that money. I never got rich working at my super-stable no-risk boring 8-5 3-weeks-of-vacation 401k-matching job.
Also, all those people in California would have had to pay taxes on their $1MM run-down houses that they only paid $100K for. They wouldn't have been able to avoid taxes just by refusing to sell their houses, or worse, actually steal our tax money through sophisticated tax-deductible schemes called "home equity loans" set up by their fancy high-paid bankers.
Ok, so let's say we mark to market
What if there is no market? Move all your investments into private equity funds (not traded on open markets) and the 'market price' is whatever the fund managers say it is. And if you are the fund manager, or the manager works for you (preferably a foreign fund, so the management is beyond the grasp of the IRS) you pre-plan the captial gains to suit your needs.
Say your dad owns a nice house, and he dies.
If your dad has half a brain, his house is owned by an offshore corporation. Corporations never die. So they never pay inheritance taxes. If its a privately held corp. there's no market to mark its shares to. So the inheritance of the shares is practically tax free.
In reality, these structures are much more complex. But the end effect is that money can be protected quite easily one its moved offshore. And since the USA is becoming a poor place to invest in actual businesses (we don't build much here anymore), offshore is where it will do the most good.
At the least, this is unfair, because any US citizen living overseas has to pay taxes TWICE. (Once to the country they are living in, and once to the US).
Not really. Foreign taxes paid are credited against your US tax debt on that income.
Have gnu, will travel.
The Powers-that-Be and their buddies (like Mr. Buffet) are only too happy to tax the top 0.001 - 1%, because they know that:
1. The top 1% (themselves included) won't lose out on the deal because they have so many ways to buy influence and rig the system. Worst case, they'll just leave the country and still be just fine. Mr. Buffet will always pay a lower effective tax rate than his secretary, you can bet on that.
2. Frog in warming water. Once we tax the "rich people", expanding it to the top 10% is cake and will inevitably happen. Top 10% is well into the middle class (top 50% = everyone who pays income tax). This will most likely happen because revenue from the top 0.001% didn't meet forecasts (because they figured out ways to avoid it), so the tax has to be "made more effective".
People often come up with "Tax the rich" systems, which end up hurting a lot of other people. For example, In order to stop rich people from escaping taxes by declaring their income overseas, the US passed a law saying US citizens should be taxed on all income world-wide, regardless of where the income comes from or where they live.
There is at least one convincing theory that the 2008 crash was caused in (large) part by the US forcing clamping down on undisclosed foreign accounts. This had the immediate effect of slowing/freezing the flow of billions of $ that previously had been invested around the world (in things like mortgage-backed-securities). The timing is close enough to support the theory.
That's how it works *now* in the US. This is not what is being proposed.
What's being proposed is to tax increases in value even if you do not see a cash profit. If you own a stock, and the value goes up, you pay taxes on the increase. If you own property and the value goes up, you pay taxes on the increase. Etc.. etc... It *is* a wealth tax.
there's also the romney tax option:
http://www.thedailyshow.com/watch/tue-january-24-2012/indecision-2012---i-know-what-you-did-last-quarter
root@127.0.0.1
Several things are being conflated here.
The biggest issue that is being illustrated here is what is called "step-up-in-basis". As was correctly pointed out, you generally only pay taxes when you sell stock and only on the gain (the sale price minus the purchase price) not when it appreciates in value\ when you sell. This basically means the goverment would theoretically eventually get the money when you eventually sell it and realize the gain.
The problem is that there is this GAPING BIG TAX LOOPHOLE where when you die, you can leave assets to your spouse (or kids), and the effective purchase price of that asset for tax purposes is the market value the day you die, not when it was originaly purchased by you. The original theory behind this so-called "step-up-in-basis" was to avoid the situation where the govt could theoretically collect inheritance tax on the original gain when the person died, and then again collect the tax when the person who inherited the asset sold it. However, because of all the estate tax exclusions available, this is essentially a gigantic loophole for rich folks who pass down assets through many generations w/o selling them and can hire accountants to navigate all the estate tax laws.
Also, the conversion between a privately held company stock and a publicly held company stock is also a change in form of an asset. This can also be considered income as the stock is now liquid. Currently stock options that are converted to actual stock have this interpretation and are taxed as income, but restricted stock converted to common stock does not have this interpretation (thanks to heavy lobbying).
Also, there are already forms of "wealth" taxes such as real estate assets (called property tax). If you buy real estate and hold it, you have to pay money every year to the government for the right to the title to that property. Right to have the government enforce the title to securities and bonds that a person owns, however do not have such a tax. You can argue that there are differences between rights to title to real property and rights to title to securitites and bonds, but in principle, there doesn't seem to be a compelling argument for this discrepency other than it is arbitrary.
If wealthy folks want to keep bricks of gold or cash under their matresses and pay for their own security of that gold, I can see an argument that wealth of that form may not have a compelling goverment interest to be taxed, but if someone wants the government's help in defending that wealth in the form of a title, that is fair game for a tax. Today, securities are only taxed when they are re-titled, but I don't really see how it's fundamentally different than real-estate, and real-estate is taxed today on a recurring basis even when it is not re-titled, After all protection offered by the government for titles is on-going, not just when the ownership changes.
Instead of trying to tax unrealized gains, why not consider a loan secured by unrealized gains to be income, and allow the individual to write off payments against the loan principle (and possibly interest)?
If I enter an off-setting short position in a stock I hold long (i.e. a perfect hedge), the IRS now considers that the same as if I sold the stock, to avoid similar end-runs arounds capital gains taxes. I don't see this situation as much different.
The idiot who wrote this "story" believes that people exist to serve their government and to pay taxes, not that the people set up the government to protect individual liberties and freedoms, such as speech but also freedom of association and of doing business.
He believes that capital must be taxed regardless of whether the person who has it is SPENDING it or is INVESTING it. I didn't bother looking up who it is, that posted this story, but clearly, that person belongs in the most socialist of governments and I now wish him to get this desire and actually to live through everything that a socialist government has to offer, what it offered to the people of the former USSR and of-course I don't wish him to be on top of that ladder, just a 'common citizen'.
As to the story: Zuckerberg is going to pay 2 billion USD of taxes and he is not even putting a cent of the salary that is taxed into his own bank account, he is using ALL of the money he is going to draw to buy back outstanding stock options, he wants to own more of his company and I completely understand him, his model is equivalent of the model that Warren Buffet is using:
1. Re-invest every penny into your own business.
2. Live on dividends, and pay 15% tax AFTER the corporation is already taxed at 35%, which is HIS money, because he is a large stock holder, so whatever profit that the company makes is HIS MONEY, and it's being taxed at 35% and then the dividends are taxed at 15, making his real tax just over 44%.
This, of-course, is a highway robbery, and USA was fighting the British over a 3% tax, now look at it.
You can't handle the truth.
We don't need to be adding wealth taxes like this - we need to be eliminating wealth taxes, like assessed-value property taxes*, because if a proper income tax is in place you've already been taxed on earning that money, and now you're being taxed on still having it; double taxation, as others have already said. Likewise as others have said, this means that people with small incomes who nevertheless manage to claw their way into modest wealth (say buying a home after years of hard saving) will have that wealth continuously eroded out from under them, perhaps at a faster rate than their income can provide.
*(Some flat rate of property tax per land area makes sense, to pay for the services to that land like roads, etc).
Sales taxes likewise need to be eliminated, because the seller is already paying tax on what he's earning from that sale, and then the buyer is paying tax on acquiring something with money he already paid tax on earning. And as many people have already pointed out again, sales taxes are regressive in relation to income, as the amount spent grows much more slowly than the amount earned, and so the high-earners spend a much smaller proportion of the income, and tax taxed much less in turn.
The only tax which makes sense is a tax on the acquisition of wealth; on income. Those who already have wealth and no income will have to spend that wealth to keep living and so will naturally spread it around to those they buy goods and services from. And we don't want to discourage them from doing this by taxing them for spending. Spending is good for the economy; it means more money being put to good use and more opportunities for it to spread around. If we don't touch the money when it's just sitting there (no wealth tax), let it flow out freely (no sales tax), and then progressively take what is needed as it flows back in to others, we end up with a net flow to the poor, even if we're not actually giving anything taken to the poor (i.e. not redistributing it, just letting those who acquire more bear a proportional burden of our collective social costs).
It shouldn't matter where that income comes from, it should be taxed at the same rate, whether you're selling labor or capital, and no matter what kind of goods or services you're selling. Renting space on your web server, renting an office in your building, renting yourself to your employer (i.e. wage labor)? All the same. Selling doughnuts, gadgets, gold nuggets, or stocks? All the same too.
It also shouldn't matter what kind of entity you are, for what expenditures you can deduct from that income. A business can deduct from its income the portion it spends buying labor or services from its employees, contractors, etc; an individual should be able to do likewise, including deducting money spent on "services" like housing rent. The only portion of the income, for either a business or an individual, which should be taxed, is the portion spend on acquiring new goods or capital, and the portion unspent (as unspent money is capital).
-Forrest Cameranesi, Geek of all Trades
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Also the only taxpayer with a net worth of over a billion. Congratulations, America; enjoy your trickle-down wealth.
That's an interesting scheme, and no, I'm not familiar with it. But it sounds like it could work with pretty much any kind of property, so long as bank agrees to take it as a collateral - not necessarily stock, and not necessarily an astronomical amount of it?
Causes the disparage between poor and rich to be to the extent of 15% wealth to 85% of population, 72% of wealth to 5% of population, and then STILL those who get 72% of everything can get away with not paying tax whereas the majority 85% which are doing only with 15% wealth keep paying it. An unique system of inequality.
Actually not so unique. That was exactly the case in late roman republic and early roman empire. it ended very badly, with all small farm owners and free citizens losing their livelihoods and having to indenture themselves to bigger farm holders (latifundia) - and thats how feudalism had started.
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It just amazes me when ideologues resort to the capital flight argument. One minute you're arguing what's right and wrong, the next minute you're capitulating to petulant two-year-olds who run off with their toys to a more lenient parent.
"It's right, and furthermore, if that doesn't convince you, they hold us hostage."
You do know that capital flight is a race to the bottom, don't you? Jared Diamond wrote a fat book about where this kind of thinking leads.
Automatically the government has a primary claim on all property
This has been true of real estate ever since allodial title was replaced with fee simple. Big whoop.
Why not have a NON-consuption tax? Anything you don't spend on products gets taxed? It sure would stimulate the economy.
it 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
I still don't get where the loophole is. So I had a share that was worth $10 a week ago, now it's worth $20. Until I sell it, I don't make any actual income, no money I can spend on something.
TFS talks about borrowing money using that value of $20 as a collateral. Fine, I do that, now I have the cash. But I also have a debt which I will have to repay later - with more cash. So eventually I'll still have to sell my share, and I'll pay the tax then.
Where's the catch?
The catch is that the 'eventually' part happens after you die, so technically you never pay any tax.
I'm sure Investors will be very pleased to know that $5B of their money is going directly into Mr Zuckerberg's pockets rather than into the company for development and expansion etc. If an investor puts in capital to enhance and improve a business, the last thing he expects to see is that money being taken out by the business owners as wages.
Facebook over-valued. Facebook floats. Facebook buys real company (Sony?). Facebook growth stalls. Sony loses money. Bubble bursts. Remember AOL Time Warner?
So of the 5 billion, he has to pay 2 billion in taxes.....then it goes on to complain he pays nothing on the other 3 billion. Is being taxed 40% not enough? How would YOU feel to be taxed at 40%? People are pretty selfish if they think he should pay more. If taxes were not so high in the first place, people would not look for ways around it in the first place. Besides, the government will just waist that money on a bailout, or giving it to another country.
The catch is that you can borrow to make other investments. The real problem with capitalism is that it is easy to make more money once you already have a lot of money, but much harder to make money when you start with nothing. If you have shares worth $1m in a low-risk low-return company, then you borrow $500k with them as collateral at a 4% interest rate. You then invest this in something with a 10% annual ROI, and after a year you've made $30K (more, by the way, than someone earning minimum wage in the USA makes from actually working).
This new investment is now worth $550k, and you owe $20k in interest. Now, you borrow $250k against this new investment and use $20K of that to pay the outstanding interest. Now you have $1,550,000 locked up in assets (assuming that your original $1m investment didn't gain any value) that you can't touch, $230k in liquid assets (i.e. cash), and $750K in liabilities. You have $230K more in liquid assets than when you started and $30k more in actual wealth. You've effectively cashed $200K out of the stock market, as well as making a profit of $30k. Since you have not sold any of these shares, however, you will still pay no tax. Even better, you can probably write off the $20k in interest as a loss, so this will reduce the amount of tax that you pay when you actually do realise some of your assets.
For extra fun, some financial institutions will offer special vehicles for doing exactly this. For example, they will sell you insurance against the shares decreasing in value, along with a loan backed by those shares with an offset facility. Effectively, you have now sold the shares to the bank. If the value of the shares goes down, then at the time of repayment the insurance will pay the difference. While the value goes up, the bank will just compound the interest against the total - you don't pay it, it just means that the loan total goes up and as long as the shares are of the same value as the loan it's fine. For example, if your $1m investment goes up by 10%, then the bank will add 10% to the paper value of the loan and give you 6% in cash, so you get $60k more to play with.
The idea of not taxing the increase in asset value until the assets are sold is that this value is not readily accessible. If someone buys a house for $250, and it goes up in value to $500k, then you can't expect them to pay 10-20% tax on this difference, because they are very likely not to have access to this kind of liquidity without selling the house. Worse, if you consider something like the property bubble of the last decade, someone may buy a house for $250k, see its value soar to to $500k, but then only be able to sell it for $200k when they need to move. Forcing them to pay the tax on the purely theoretical increase in value doesn't seem fair. In contrast, if the paper increase directly translates to an increase in their purchasing power, then it does. These loopholes mean that people can still get all of the benefits of selling their assets without actually selling them (and therefore without actually paying tax).
I am TheRaven on Soylent News
I have held the job that actually sells the stock, so I know this forwards and backwards.
If I bought a stock for $10 and it was sold for $100, I have to pay capital gains on the $90. It does not matter how much I borrowed against it - that does not affect the cost basis or the capital gains. I have seen some people land in serious hot water because I did sell their stock, leaving them with no stock and a large tax bill.
Meanwhile, some republicans have programmed their constituents to disparage welfare and unemployment recipients as lazy folks getting something for nothing. This distracts them from yet another example of how the masters of the universe went and hoarded all the prosperity we achieved. Go figure.
The "market" price is the price at which it last sold. But it's not guaranteed to be available to sell at that price again. We DO have mark-to-market taxation on zero coupon bonds. But that's because a bond is a legal contract that someone has guaranteed to repay. A common stock share give no legal guarantees. So it would be patently unfair to tax it until it's sold.
Any guest worker system is indistinguishable from indentured servitude.
So, should the bad, awful rich person's stocks decrease in value will the government refund some of the tax paid?
Astonishing that the comment starts off by pointing out his TWO BILLION DOLLAR tax hit, then goes on to complain that he's getting away with something and/or not paying what he should.
Pathetic.
While I agree in principle, it's a good idea for the more affluent to help out paying the way of those that can't afford to pay as much. Without such a social compact, you end up without essential government services, and ultimately with revolt and an overthrown government.
Oliver Wendell Holmes, a Republican, said that taxes are the price we pay for a civilized society.
However, putting arbitrary limits on things doesn't bode well for future policy. See: the upper middle class that's getting squeezed by the AMT due to inflation, because Congress can't stop bickering enough to adjust the AMT.
Slashdot still doesnâ(TM)t support Unicode after it was added to the HTML standard in 1997.
If that's the case, I hope his reincarnation comes as the offspring of a poor sweatshop-factory worker...
Well, for one thing, we have hundreds of years of law that says that your assets are distributed per your last will and testament.
Apple pays taxes. The people Apple employs also pay taxes. Foxconn pays import duties and berthing fees for the shipping. Etc.
Why is only Steve Jobs responsible for what all these other entities are doing again? Oh, it's because you haven't been thinking clearly.
Slashdot still doesnâ(TM)t support Unicode after it was added to the HTML standard in 1997.
It's not an original proposal, and a poorly thought out one at that.
Let's say you've started your own company. You're barely breaking even, and not taking any income from it at all. Yet, under your proposed rule, a government accountant will evaluate the "market value" of your company and suddenly you're on the hook for a hefty sum to the government. Most likely you'll have to sell a large share of your business to vulture capital at cut-throat rates to find the cash. Or, perhaps following the state-run capitalism model of the East, you'll give up much of your hard-built company to the government. Way to stick it to the small guys!
It's much easier to tax the effective income (including that from loans).
If the dude is sitting on 23 Billion in paper what is it doing? If it is not fluttering through the economy is it a source of stagnation?
Hello Cruel World
And in areas like Fairfax Co., Virginia, where my property taxes continued to rise during the housing downturn, even though my property assessment decreased by over $100k. Tell me how that works.
Just another day in Paradise
Does HHS even take location into account?
The poverty line is higher in Alaska and Hawaii. As for places within the 48 states with a high cost of living, such as New York, NY, I don't know how HHS handles it. If I had to take a wild guess, I'd guess that HHS assumes full labor mobility such that people who can't afford the rent can get on a Greyhound bus and move to Kansas. As I told others, I'm open to improving the definition of minimum income for sustenance; I just couldn't find a better definition in the 21 minutes between when Sycraft-fu posted and when I posted.
The tax code says that compensation given to employees must be taxed. If it’s non-cash it’s taxed at market value.
I would guess that the example you gave is somebody pushing a loophole. If you work from home or are on call after hours, you need “cable/phone/internet service” so the $100 becomes a work expense and not compensation.
I have heard about some questionable items. Mainly CEO who take the corporate jet to travel to their "office" that's located in a ski resort. But you have to operate under some type of fig leaf.
I will post the formula tonight, but as you increase the time period that you hold a asset, a wealth tax will generate a higher tax drag then capital gains.
Let's say you hold an asset (bond, factory, whatever) for 3 years.
For Capital Gains you pay the tax once on the gain at the end. All return is compounded tax free.
For a Wealth Tax, you pay the tax every year, on the initial investment, on the gain and the compounded return is reduced by the amount of the wealth tax.
Then push it out to 5 years. Then 10.
Since you are paying tax on everything each year, the total tax bill over the time period is much higher, the return is much lower, and the incentive is invest in productive assets is greatly reduced.
Gladly. This is one of the most common complaints I hear from people about taxes lately, and it all comes down to not understanding how your own property taxes work.
Many cities/counties/states have laws in place that limit the rate of increase of property taxes. In california, it's known as Prop 13. In Michigan it's called the homestead credit. Generally these laws limit the increase to either a small percentage or to the rate of inflation.
Now, taxes are based on the valuation of your home. Typically when you live in a place with one of these laws, you will have 2 values on your home: an assessed value, and a taxable value. Assessed value is how much the taxing authority believes your house is worth (the accuracy of this value is another matter, but you can contest this with your taxing authority if it's inaccurate). Taxable value is how much your home is actually considered to be worth for purposes of taxation. When you first buy your house, your assessed value and taxable value will be the same. However, as you live there over the years, the two numbers can drift apart. Assessed value will change along with the market value (again, I don't want to debate the accuracy of this...dispute it if yours is wrong). Taxable value, however, will never increase by more than the limited percentage. In most cases, taxable value can never be more than assessed value, though I beleive there are some places that also limit the rate of decrease in taxable value. Typically that's not the case (but when it is, you can end up with the reverse scenario...property value goes up, but taxes still go down). So ususally your new taxable value is the lesser of either the assessed value or last years taxable value plus the allowed rate of increase
So, lets say you buy a house for $100k. You start out with:
assessed value = $100k
taxable value = $100k
Now lets say tax increases are limited to a 5% increase. Lets also say that the market booms, and after 1 year, your home is now worth $150k. You now have:
assessed value = $150k
taxable value = $100k + 5% = $105k
Now, after another year the value of your house drops to $125k. So you say "my value dropped, so taxes should go down, right?". Wrong. Your taxable value is still well under the assessed value. Even if you add the max 5% to your taxable value, you still end up with a new taxable value of approximately $110k. The's well under the $125k assessed value. So you value drops but your taxes increase. It's not because you are getting ripped off. It's because before you were getting a really good deal, and now you are still getting a good deal...just not quite as good as before.
If the next year your property value falls below the ~$110k of your current taxable value, THEN you will see your taxes start to decrease.
r = return on investment
n = number of years held
t = tax rate.
Assumes constant returns and constant taxes. You can break that assumption, but then the formula becomes more complex.
Return without tax= (1+r)^n
Return with a Capital Gains Tax: ((1+r)^n)*(1-t)
Return with a Wealth Tax: (1+(r*(1-t)))^n
Tax Drag = 1 – (Return with Tax / Return without tax)
Even if the wealth tax is lower than the capital gains tax, as t gets higher the tax drag gets larger.
I posted the return with a dividend tax, not wealth tax.
Return with a Dividend Tax: (1+(r*(1-t)))^n
Return with a Wealth Tax: ((1 + r)*(1 – t))^n
But even given the high evasion in my country, I'm sure I'd live far worse if we didn't pay taxes.
My taxes run my country. They pay for the public security, for the basic infrastructure. Yes, they also pay the salaries of the people in government, and many people say those salaries are too high — But guess what? I work at a public university, so those taxes pay my salary as well!
If you want to know how a country where no taxes are paid, take a look at life in Somalia, where there is no effective government. Or to any country poor enough to still have a barter-based economy, or with most families living off their own produce, effectively cut off the "evil" government control.
Yes, not being an USA citizen makes me not have to blush when I proclaim I am a Socialist. I prefer paying more taxes, and the taxes being steeper as I earn more money. That's the only way to get a fairer society.
why should you be able to barrow against unrealised income? it may or may not have the same value in a week, its really just bullshit and fluff and should not be allowed to be leaned on, or its real and taxable. I dont care either way sounds fine to me
Allowing such a loan is a risk - one that the banks choose to take. And if it doesn't pan out - if the stock tanks - the borrower is still liable for paying back that money.
Money taxed and spent is not taxed again; only the profit is, or the purchase price. If the corporation has $100 in profit, they send me $65. I buy $65 of booze. The bar doesn't pay tax on that $65, only on what profit they realize.
If you put pre-tax money into an IRA, it does have a flag which says "untaxed". When you withdraw it later, then you pay income tax on it.
If you put post-tax money into an account, it has a "taxed" flag, and you only pay income on the interest it earns. You do not pay money on the capital itself.
Infuriate left and right
Nice explanation, but not how it works here. Our assessed and taxable is the same here.
FWIW, I did have to go and get them to reassess, because they had my home completely incorrect in their records. It was showing me with a finished basement, brick exterior (we're stucco, so obviously nobody ever actually saw the place), and a few other items.
Just another day in Paradise
Stocks aren't worth anything.
Seriously, try to live your life be trying to give stock to people instead of money.
Stocks are a representation of invested money, they are only worth something the minute you're selling them.
Thus, the only relevant point is taxing the sale that has been done.
And, still, even then, it's quite a strange market, since, when you sell the stock, they determine what you bought it for against what you sold it for and, here comes the kicker, without accounting for inflation.
So, for an example.
If I had bought stocks worth 1 million SEK (yup Swede, so using our numbers and values) in 1980, and sold them in 2010, and, just for the heck of it we'll say they went up a total of 200%, making them worth 3 million SEK in 2010.
This would mean I would have to tax for 2 million SEK, thus making me pay 600000 SEK, leaving me with a total of 2.4 million SEK.
How much is that if you account for inflation?
Well, according to KPI (the official estimate for how much a single SEK has gone up), the prices have about tripled since, hence, I've actually lost 600k on the while affair in todays measurements.
And what you are saying is that I should've lost more?
Also, there's another issue.
On year, a company has a really, really good year and the stock prices soar to 200%.
Amazing year.
Taxing stocks would then mean that I would have to pay for this increase.
Next year, the company takes a dive right into the dumpster, down to 1% of their total worth.
Sucks to be me, now I've lost the money I invested AND lost the money on taxes.
Such a system would mean that investing money in the public market would be bordering on insane for everyone but short-term dealers.
Oh come on! WTF was the point of your original post? You asked me to explain it, but you already knew the answer. And you knew the answer was "because there was a mistake". Asking someone to explain something when you leave out such an important detail (one which makes the entire attempt at explanation pointless) is borderline trolling.
I only mentioned the reassessment, which was not during the downturn, because you said something about disputing them if they're inaccurate in your prior post. That was back around 2004-5. I've still been unable to get any kind of explanation from the county.
Just another day in Paradise
I am with you on this. As long as it does not become money, stock options are just a strange form of paper — And you are in general not taxed on owning paper, unless it has some strange markings in it that make it money.
Still, back to my post: I am paying more for my house not because the taxes increased, but because my house's value increased. And, as it increased, it crossed a threshold, placing me in a higher tax bracket. So, yes, I paid a lot more than a couple of years ago — Do I like it? No. Is it fair? Yes.
I understand your negative to anything sounding as socialism, coming from the perfect example of a country that tried to implement it but utterly failed. However, many countries have different levels of state participation in the economy — and for many, it has worked great.
Even countries as mine, not faring by far as well as North European ones, have gained a lot from the socialist traits in our politico-economical history. I won't detail into the importance of the land communalization in Mexico between the late 1920s and 1990s, but it drastically helped level out wealth distribution. During the same period, the State owned all strategic industries (petroleum, electricity, water distribution, etc.) and, while Mexico faced and faces huge problems (corruption being among the most endemic), it was during that period that we had our most stable economy in history — Stable because for 40 years there was no big crisis (as we now face every 5-10 years), and growing at stable rates around 7% each year.
Finally, on the point of state employed people, specially public universities (as it directly implies me and the plan of life I have): This is –again– different in each place. In Mexico, the only entities I'd really call "universities" are the public ones. My university alone is responsible for over 50% of scientific research in the country, and #2 (Instituto Politécnico Nacional) is also public. Yes, we do have lots of private universities, but they are more what I'd call schools — they focus on capacitation, not in knowledge generation.
And yes, as an academic, quoting you, I don't actually produce any of the wealth that allowed the real taxes to be paid in the first place. However, we produce the knowledge that is needed for the country to function, to advance and to form an industry that actually produces that wealth.
Convince me that its actually a problem before you try to sell me a solution.
In Reason We Trust
Can you just save your pennies till you have a million and not starve to death?
Yes. It's called putting money into your Roth IRA. You work and save some of your paycheck until you retire on your wealth.
Wealth taxes don't seem wise. But why not tax the huge loans? Perhaps a lot of loans could be taxed. Not mortgages obviously because that would be double-indemnity, but huge securities-based loans are obviously too safe for our collective good, no?
Larry Ellison would have paid the FairTax on all of his purchases when he made them. Zuckerberg could pay the FairTax when he buy stuff. Same goes for Buffett when he buys things.
The FairTax replaces the loophole filled tax dodge for the rich we have to day with a simple, progressive 23% federal sales tax. Everyone with a valid Social Security number gets a check every month that pays them back what someone at the poverty level would have paid in sales tax, so they essentially pay $0 at the poverty level, and those below the poverty level would get a little bit extra. The rich would pay the tax on everything they buy. Limos, purses, jets, fuel for the jets...literally anything where they are the final consumer of the good or service.
However, it does put quite a few IRS agents looking for work.
http://www.fairtax.org