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The Almighty Buck News

The Zuckerberg Tax 1065

Posted by samzenpus
from the biggest-bill dept.
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."
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The Zuckerberg Tax

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  • by Anonymous Coward on Wednesday February 08, 2012 @08:20PM (#38975159)

    If he has to pay taxes, how is he going to create jobs?

  • by Scareduck (177470) on Wednesday February 08, 2012 @08:20PM (#38975167) Homepage Journal

    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.

    • One more issue (Score:5, Interesting)

      by Scareduck (177470) on Wednesday February 08, 2012 @08:31PM (#38975299) Homepage Journal

      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 [washingtonpost.com].

      • Re:One more issue (Score:5, Interesting)

        by rlk (1089) on Wednesday February 08, 2012 @09:09PM (#38975809)

        I consider myself to favor progressive tax policies, but even I think this goes too far.

        "Mark to market" has a lot of problems. As you say, the market price at any given moment in time simply reflects the price at which the most recent sale of any size was executed. There's no guarantee that any other sale would be executed at that price, and if a large volume of the item (or security) were to be sold all at once, it's unlikely that anything close to that price would be realized. So even leaving aside that this is a wealth tax rather than an income tax, it's not taxing actual wealth; it's taxing wealth assuming an arbitrary valuation.

        This kind of thing could easily be gamed. Suppose at the end of the year someone arranged to sell a small block of securities at an artificially low price right at the closing bell? Presumably regulations could be passed to inhibit this, but I'm sure there would still be plenty of possibilities.

        Furthermore, what happens when the security's price goes down? Does everyone holding it get a rebate? Or it is really nothing more than an annual wealth tax?

        I'm not opposed on principle to a wealth tax, and I understand the issue of using an appreciated security as collateral to float a loan that could be more or less constantly renewed. And while a security's price is "stepped up" when passing through probate, I believe the estate still pays tax on the security's value at the time of death (but IANAL).

        • Not to mention... (Score:5, Insightful)

          by Shark (78448) on Wednesday February 08, 2012 @10:16PM (#38976393)

          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.

      • by caitsith01 (606117) on Wednesday February 08, 2012 @09:37PM (#38976051) Journal

        It becomes an Heisenbergian problem.

        If Heisenberg has taught us anything, it's that all money problems can be solved by manufacturing huge quantities of crystal meth.

      • Re:One more issue (Score:4, Insightful)

        by chebucto (992517) on Wednesday February 08, 2012 @09:49PM (#38976151) Homepage

        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.

        And what effect has this massive capital flight had?

        Money is stored in banks outside of France instead of inside of France?

        Ceteris paribus, that seems about as important as the location of lost pirate gold - interesting, sure, but without any effect on the present-day economy.

      • Re:One more issue (Score:5, Interesting)

        by rachit (163465) on Wednesday February 08, 2012 @11:13PM (#38976881)

        Theoretically, wealth taxes are one of the most progressive taxes out there which also give the best economic incentives for growth. Income taxes discourage earning money, sales taxes discourage consumption, capital gains taxes distort / discourage investment. Wealth taxes encourage people to make the best return from their assets, and if they can't do it, sell it to someone who can.

        It doesn't work for three reasons:

        a) The *truly* wealthy get hurt the most by far. The ruling class will not let anything like this to happen. Other posters moaned about this hurting the middle class is a load of baloney. A small wealth tax would allow for a significant reduction in income taxes, sales taxes, or deficits.
        b) Unless all jurisdictions do it, liquid capital will just move elsewhere (which is probably why wealth taxes are only widely used for real estate).
        c) Some assets are hard to value. There are ways of doing this, but they are all ugly.

        • Re:One more issue (Score:5, Insightful)

          by aeoo (568706) on Thursday February 09, 2012 @12:53AM (#38977623) Journal

          Great post. I'd like to respond to some of your thoughts:

          a) The *truly* wealthy get hurt the most by far. The ruling class will not let anything like this to happen. Other posters moaned about this hurting the middle class is a load of baloney. A small wealth tax would allow for a significant reduction in income taxes, sales taxes, or deficits.

          The truly wealthy are only a tiny tiny minority of the population. All property claims function only by mutual consent of the public. So the wealthy, by themselves, are not really in a position to prevent a wealth tax from being instituted and collected. They need at least some amount of public support. They don't need anything close to unanimous support, but they at least need the support of say 10-20% of the population. They at least need an agreeable pool of people to hire mercenaries from, mercenaries who will defend their property by force from the disagreeing population. If no one at all is willing to defend the property of the wealthy, then the "wealthy" person is just one frail and fallible human being and is effectively powerless.

          So the public consent is a huge deal. If the public consent is widely withdrawn on moral grounds, then the amount of friction and struggle needed to maintain enormous wealth is going to skyrocket.

          b) Unless all jurisdictions do it, liquid capital will just move elsewhere (which is probably why wealth taxes are only widely used for real estate).

          This situation is similar to a thief fleeing the country. Yes, the thief may take a big hoard of gold with her, but she also takes all the thieving activities with her as well. It's a short-term loss and a long-term gain. As long as the country has sane, pragmatic and aware trade policies for dealing with other nations, there is no easy way for externally located super-wealthy to exploit people inside the nation who isn't consenting to exploitation.

          As long as people believe in themselves (which is a big if), they don't need the nanny-type super-wealthy to hand out jobs. Jobs exists purely as function of demand. If there is demand, there are jobs. The super-wealthy do not create jobs. Instead demand creates jobs and the super-wealthy position themselves as intermediaries between demand for goods and services and job creation. In computer network security terms, the super-wealthy is a man-in-the-middle attack on job creation. They interpose themselves between demand and job creation. But they don't interpose themselves purely by their own power. They do so with our willing, grudging, brainwashed, or apathetic consent.

          c) Some assets are hard to value. There are ways of doing this, but they are all ugly.

          True. But this isn't a real impediment. For example, we all know that going 120 miles per hour is dangerous on highways not purposefully designed for such speed. At the same time we also know that going 20 miles per hour is too slow. But where would we draw the line? Well, in reality it's not a problem. We draw an arbitrary line somewhere in a reasonable spot. Not everyone is going to agree. Not everyone will think it's perfect. But in these matters perfection is not necessary. You draw the line anywhere within reason and people will work with it. So does everyone agree that 75 miles per hour is the right number for the speed limit? Of course not. But it's within reason so for most people it's not something worth arguing about.

          Another example of this is age of consent for sexual intercourse. Obviously 5 year olds cannot give meaningful consent. And 25 year olds certainly can. But where would you draw the line? It seems like one of those "impossible" problems, but in reality it's very easy. In reality it actually doesn't matter that much. Be it 16 or 18 years of age, you just plop down some number which is somewhat arbitrary but also within reason, and people work with it.

          The point is that a system doesn't have to be

    • by TubeSteak (669689) on Wednesday February 08, 2012 @08:31PM (#38975301) Journal

      Alternatively, anything that allows the wealthiest to dodge their tax obligations should be looked at as a bug, not a feature.
      The founding fathers had a lot to say about the accumulation of wealth and the corrosive effect it has on society.
      And they would know, as they had seen the Aristocracies of Europe and their concentration of land ownership (wealth).

      • by Sycraft-fu (314770) on Wednesday February 08, 2012 @08:48PM (#38975563)

        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.

      • Re: (Score:3, Informative)

        by Scareduck (177470)

        Alternatively, anything that allows the wealthiest to dodge their tax obligations should be looked at as a bug, not a feature.
        The founding fathers had a lot to say about the accumulation of wealth and the corrosive effect it has on society.

        The Founding Fathers also wrote the Constitution with a prohibition on income taxes, a stricture that was removed with the 16th Amendment.

        • by mosb1000 (710161) <mosb1000@mac.com> on Wednesday February 08, 2012 @09:59PM (#38976235)

          No, they didn't. But they prohibited federal taxes apportioned by person (a poll tax) or by land. A landowner at one point successfully argued that taxing the income he received from charging rent on his property violated this prohibition. So they said in the 16th that they could tax income from "whatever source derived." so there's no question the income tax was legal before, just that it wasn't applicable to all sources of income.

    • by vux984 (928602) on Wednesday February 08, 2012 @08:33PM (#38975339)

      The sleight of hand actually occurred when the wealth grew to a larger amount of wealth without its owner ever needing to describe this "increase in wealth" as "income".

    • by Asic Eng (193332) on Wednesday February 08, 2012 @08:46PM (#38975537)

      Should have inheritance tax then - the inheritance is income.

      As for the borrowing stuff - how is that supposed to work? So Ellison borrows against his shares (fair enough) and buys something with it. So now he has to pay back the loan. That payment needs to come from income, and for that he pays tax. Seems fair.

      • by Trapick (1163389) on Wednesday February 08, 2012 @10:54PM (#38976727)

        As for the borrowing stuff - how is that supposed to work? So Ellison borrows against his shares (fair enough) and buys something with it. So now he has to pay back the loan. That payment needs to come from income, and for that he pays tax. Seems fair.

        Nah, you're not being nearly creative enough. Ellison has no income, you see, so he can't pay back his loan, so the bank collects on the collateral, cancels the loan, and now Ellison has $1 billion and the bank has $ 1.05 billion in stock (or whatever). Easy peasy.

    • by ortholattice (175065) on Wednesday February 08, 2012 @08:48PM (#38975555)
      So what is fundamentally wrong with a wealth tax?

      Actually, only the rich avoid a "wealth tax". For most people, their house represents the bulk of their wealth, and it is taxed annually at a percentage of its value. So effectively, ordinary people already pay a hefty "wealth tax". In some ways it is doubly unfair, because it also taxes the mortgaged part of that wealth that really belongs to the bank, not the person paying the tax.

      Why do we accept this wealth tax but not one on other assets? It is just another unfair loophole that benefits mainly the rich. If people were taxed on their net worth rather than just real estate value, people stressed out by their mortgage would see their taxes go down while rich people who can afford it would pay more.

      In Argentina, people are taxed a certain percentage of their net worth [taxrates.cc] above a certain amount, so a "wealth tax" on all assets, not just real estate, is not unheard of.

  • by khasim (1285) <brandioch.conner@gmail.com> on Wednesday February 08, 2012 @08:21PM (#38975175)

    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.

    • by CrimsonAvenger (580665) on Wednesday February 08, 2012 @08:24PM (#38975217)

      This has nothing to do with a flat tax. Or most other kinds.

      So he doesn't pay income tax on things that aren't income. Big deal.

      I don't pay income on my bank balance either. Just on my income.

      • by Anonymous Coward on Wednesday February 08, 2012 @08:27PM (#38975261)

        Yes. in fact you already *did* pay taxes on it.
        If you are like the majority of us you paid income tax on the money before it went into the bank account.

      • Re: (Score:3, Insightful)

        This has nothing to do with a flat tax. Or most other kinds.

        So he doesn't pay income tax on things that aren't income. Big deal.

        I don't pay income on my bank balance either. Just on my income.

        But notice - your bank balance appreciates due to interest, and you don't take it out - you just leave it there. It is nonetheless taxed as income. It your wealth was in financial instruments like stock, and it appreciates, no tax on the increase.

        The proposal is not to tax the value of the stock (which is the parallel to "taxing your bank balance") - just the increase.

      • by lymond01 (314120)

        You pay tax on your bank interest earned, should there be any. And that's yearly, because it's money in your pocket. Money in the market may as well be $0 until you actually remove it from the market into your bank account. On any particular day the value of your stock can go from $10/share to $2/share. It is the nature of agreed value versus intrinsic value. The latter would be the price you paid for it, the former, the price people know agree that it is worth. And as we've all learned over the past

        • 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.

          • I still don't understand. At some point you need to pay back that loan, won't you need to sell some stock? thus realizing income and being taxed on it? you can't just keep taking out new loans to pay off the old loans.

            • When? (Score:4, Informative)

              by khasim (1285) <brandioch.conner@gmail.com> on Wednesday February 08, 2012 @09:23PM (#38975933)

              At some point you need to pay back that loan, won't you need to sell some stock?

              Maybe. But probably not. Not if you have enough stock. You can take out another loan to pay off the first loan.

              you can't just keep taking out new loans to pay off the old loans.

              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.

      • So he doesn't pay income tax on things that aren't income. Big deal.

        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.

  • Wrong. (Score:5, Insightful)

    by viperidaenz (2515578) on Wednesday February 08, 2012 @08:21PM (#38975183)

    ...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.

    • Re: (Score:3, Insightful)

      by Obfuscant (592200)

      No, it would mean the excessively rich exploit a different loophole instead.

      You mean they'd use a different legal means of avoiding paying tax that they aren't required to pay. Why do people seem happy to take every deduction they are allowed, and then rant about the deductions other people get?

      But yes, taxes aren't a zero sum game. Raise the tax rates, the revenue goes down as people use more of the options to avoid paying it, or simply have less to invest in making more money to start with. Even JFK figured that one out. You can't simply say "double the tax rates means double t

    • by reemul (1554)

      Exactly. Changes to tax codes to try to screw "the rich" will almost never touch them, other than to take some productive money out of the system and waste it on lobbyists, lawyers, and accountants when it could have been put somewhere useful. 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. Even the so-called "Buffet Tax" isn't actually designed to go after the places Mr Buffet himself actually hides his c

      • No. (Score:4, Interesting)

        by mbkennel (97636) on Wednesday February 08, 2012 @08:50PM (#38975585)

        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.

    • Re:Wrong. (Score:5, Insightful)

      by Jah-Wren Ryel (80510) on Wednesday February 08, 2012 @08:41PM (#38975453)

      ...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.

      That isn't a reason to give up trying to fix the system.

      No system will ever be perfect but that doesn't mean we shouldn't always be working to improve it, applying lessons learned along the way. For one thing, if we don't constantly evolve it, it will rot as more and more people apply the lessons they've learned and create new ways to game the system. It isn't like all loopholes are immediately apparent and exploitable. Even the ones that are 'obvious' may still carry the risk of a court ruling making them invalid so only the people with the highest risk tolerance will try to make use of them until the whole thing has worked its way through the court system.

  • AMT (Score:4, Insightful)

    by bhcompy (1877290) on Wednesday February 08, 2012 @08:26PM (#38975235)
    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.
  • Two rules (Score:3, Interesting)

    by istartedi (132515) on Wednesday February 08, 2012 @08:26PM (#38975243) Journal

    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.

    • Re:Two rules (Score:5, Insightful)

      by caitsith01 (606117) on Wednesday February 08, 2012 @09:50PM (#38976165) Journal

      1. The rich always have it better.

      2. If you try to change rule no. 1, you just make things worse.

      This type of pessimism is frustrating. And you are wrong.

      Rewind about 500-1000 years. Pretty much 100% of the wealth around the world was held be a sovereign of some kind and his mates, who between them shuffled some tribute money around but otherwise gained more wealth by taxing the pittance earned by everyone else. Killing a random animal in a random bit of wilderness was a crime because all animals belonged to the King, etc.

      A couple of hundred years ago this had shifted such that the state, independent of the crown, was stepping in, intercepting some of the wealth and redistributing it via social spending. Serfdom and slavery were on the way out. Meanwhile property and other laws had evolved so that the poor could start becoming the middle class through hard work, with obviously much less of a boost at the start than the landed gentry.

      Today, at least in principle, we agree that the rich and privileged deserve no special treatment, and that at least the opportunity to acquire and hold wealth is akin to a universal right. The fact that we haven't fully implemented a system which puts this into practice doesn't mean that "the rich always have it better", nor does the fact that we have recently experienced some short term backsliding on the move from "the king has everything" to "everyone has something".

      In other words, you need to use a larger data set than just the last few years or decades. On a longer timeline there has been a very successful reduction in the extent to which the rich get their own way. The current thrashing around by companies and wealthy individuals post-financial crisis indicates to me that they appreciate that their only chance to maintain their privilege is to manipulate things outside of the rules of the game (political influence and tax evasion, for example).

  • Mark to market (Score:5, Insightful)

    by jonsmirl (114798) on Wednesday February 08, 2012 @08:29PM (#38975287) Homepage

    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).

    • Re:Mark to market (Score:4, Informative)

      by Anonymous Coward on Wednesday February 08, 2012 @08:47PM (#38975539)

      You have been misinformed. The banks have managed to avoid mark-to-market for the entire period, in order to avoid raising more capital, as a run-around the liquidity requirements and leverage ratios. Thus, they could continue to pretend to have assets worth millions when those assets had dropped by half. Realistically, as underwater "homeowners" found out, you cannot borrow the full amount against an asset that is now worth half. But the banks could continue to do so.

      The causes behind the banking meltdown are related to a bubble in real estate prices, and not the ability of the banks to hide stuff on their balance sheet. During the price crash, banks and the Fed have continually (and successfully) opposed mark-to-market rules, which would have revealed how much exposure and risk the banks have, as well as hiding information about the loans given by the Fed to the banks. This has resulted in "surprise" bank collapses and given enough time for the banks to dump the toxic mortgages onto the taxpayer and clean their balance sheet.

  • by rgbrenner (317308) on Wednesday February 08, 2012 @08:32PM (#38975315)

    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.

  • by rsilvergun (571051) on Wednesday February 08, 2012 @08:33PM (#38975337)
    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).
    • by steelfood (895457) on Wednesday February 08, 2012 @09:05PM (#38975759)

      It seems a bit ridiculous to complain about this. If you had six hundred dollars worth of collateral that you could use to borrow the hundred dollars you paid in capital gains tax, I'm sure you could do it too. It may not be for the same interest rate, but it's still doable.

      The only thing is, when you're borrowing that little, it's fairly pointless and not really worth anybody's time, be it yours, your accountant's, or the bank's. It takes time and money to process a loan application, irrespective of who the borrower is. That time adds up to costing about as much as or more than the amount you're borrowing.

      What the wealthy have over the middle class is economies of scale. They can borrow several million or billion to cover their millions in paid taxes all in one go, which would actually be worthwhile for all parties. They pay the same flat amount as the middle class person would to apply for the loan, but their ROI is millions. The low interest rate is just icing on the cake. The bank can afford this not necessarily because of connections, but because when the loan is a billion dollars, the bank is still making a million dollars even the your interest rate is 0.1%.

  • Doesn't work (Score:5, Insightful)

    by alphabetsoup (953829) on Wednesday February 08, 2012 @08:36PM (#38975389)

    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 ?

    • by rgbrenner (317308)

      If my money is tied up in investments, how do I generate the cash to pay my tax ?

      This is exactly why we pay taxes when the gain is realized (ie: shares are sold). The government knows that if we have to pay tax before then, we'll be forced to sell investments to pay the tax... in some cases, selling investments before they should be sold.. making the economy grow slower than it would otherwise.

  • Not a problem... (Score:4, Interesting)

    by Anonymous Freak (16973) <prius.driver@Nospam.mac.com> on Wednesday February 08, 2012 @08:36PM (#38975393) Journal

    ...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.

  • Holy crap. His Income Tax payment will be double the entire budget of the Small Business Administration........

  • Worst idea ever. (Score:3, Insightful)

    by pavera (320634) on Wednesday February 08, 2012 @08:55PM (#38975641) Homepage Journal

    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.

    • by PickyH3D (680158) on Wednesday February 08, 2012 @09:35PM (#38976025)

      Yep. The real purpose of this is to destroy investing. It's not fair that you are planning ahead, or have a lot of money, or your business did extremely well (Zuckerburg, Jobs, Gates, etc.). You owe it to someone who is much better at managing and redistributing money: the United States government.

      People seem to not realize that the few that get stock through options are far outweighed by those that buy stocks using their already taxed income. Then, when it comes time convert the stock back into cash, they get taxed again for it.

      What Zuckerburg is supposedly doing should be infinitely encouraged. He started a business, which has certainly created a lot of wealth that was not there before, and he is about to pay a boatload of money based on his business doing incredibly well; his company has even created successful jobs outside of his own, such as Zynga. Yet that's a bad thing? Jobs was not taking a real salary because he did not need one, and the stocks are only of value if he continued to run a successful company. Seriously, what's wrong with that? Because he might take out a loan on his net worth to buy more property, which is itself taxed on top of the taxes on the product or property itself? Or is it because he paid so little (I have no idea how much he actually paid and frankly don't care as long as it followed the law) while running such a massively successful company that paid enormous amounts in taxes?

      This is despicable. People need to get over themselves. You do not deserve money. You do not deserve success. And you do not deserve to deprive anyone else of it either, whether they got it through luck (including birth) or talent. The only justification is through cheating.

      It's time that people started competing again rather than begging or complaining, but I think that I might be speaking to the wrong choir on this one.

  • by rahvin112 (446269) on Wednesday February 08, 2012 @09:02PM (#38975713)

    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

  • by Barlo_Mung_42 (411228) on Wednesday February 08, 2012 @09:21PM (#38975917) Homepage

    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?

  • by Charliemopps (1157495) on Wednesday February 08, 2012 @10:01PM (#38976261)
    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.

"You don't go out and kick a mad dog. If you have a mad dog with rabies, you take a gun and shoot him." -- Pat Robertson, TV Evangelist, about Muammar Kadhafy

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