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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.
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?
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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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.
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.
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.
Of course she didn't, because she was his wife and as such, the co-owner of his property.
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.
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)
-- Tigger warning: This post may contain tiggers! --
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.
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.
Hate to break it to you, but these days, it's the banks getting the house, not the kids.
Rule of Slashdot #0: You and people like you are not representative of the larger population. - A.C.
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
That's fine, AFTER the bills are paid. Do you know what the biggest government handout is? Bush's tax cut. It is the largest cause of the growth in the debt right now.
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.
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.
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.
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.
Nah. You are not a racist or bigoted for believing that. But if you don't want to cop to being stupid, then I have to say you are a "dine and dash conservative". Bush took a surplus, that was slated to pay off all of the national debt by 2009, and blew it up into a monstrous pile of debt with unpaid for tax cuts, give-aways to Big Pharma, and his wars. Now that orgy of red ink has to paid for - and that takes tax revenue.
Claiming stupidity is your best way out. Otherwise you are a dead-beat cheat.
Second class citizen of the New Gilded Age
In that case why would the cost-basis reset? If the argument was that she was always the owner of the stock than her cost-basis should still be the same as when Steve Jobs was alive. If the cost-basis reset, this implies that she did 'inherit' the shares; she was just shielded from having to pay tax from the spousal exemption.
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.
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.
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.
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?
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.
Some of us are insane enough to think there's a big difference between someone leaving a 200K house to his kids. and someone leaving 2 billion dollars in stock to his kids. The situation doesn't simply scale up.
AccountKiller
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.
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
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.
Convince me that its actually a problem before you try to sell me a solution.
In Reason We Trust