The Zuckerberg Tax 1065
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."
Re:Wrong. (Score:1, Informative)
Re:What a country! (Score:5, Informative)
No it is not. (Score:5, Informative)
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.
Re:Mark to market (Score:4, Informative)
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.
Re:Such systems have been proposed before (Score:3, Informative)
The Founding Fathers also wrote the Constitution with a prohibition on income taxes, a stricture that was removed with the 16th Amendment.
Re:Wrong. (Score:3, Informative)
Actually it is a double dip because corporate taxes have a depressive effect on stock price. Not nearly as great an effect as they have on dividends, but still an effect.
When? (Score:4, Informative)
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.
Re:Missing the mark (Score:3, Informative)
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.
Re:Such systems have been proposed before (Score:5, Informative)
Let's not ignore that, as the article points out, there's a loophole method of getting money from these investments in the form of loans using them as collateral.
Don't these loans need to be paid back at some point? They're going to have to either sell their shares, or earn money from somewhere else, to pay that loan. When that happens, they have to pay tax.
Re:Such systems have been proposed before (Score:5, Informative)
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.
Re:One more issue (Score:5, Informative)
Er, scratch that previous comment. Should have read the article. The people are moving out because their share holdings are being taxed. So the French wealth tax does have a negative effect.
Tax Shelter (Score:5, Informative)
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.
Re:Such systems have been proposed before (Score:5, Informative)
Last time I checked, Rolls, Bentley, BMW, helicopters, etc are all sold by dealers in the US. It doesn't matter where they are built, it's where they are bought. If you buy a vehicle out of country and import it, you have to pay duty and taxes on its value anyway. The government definitely gets their sales tax.
Re:Such systems have been proposed before (Score:5, Informative)
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.
Re:Such systems have been proposed before (Score:4, Informative)
You are wrong. The income tax is not a direct tax, so is not prohibited by section 9 clause 4. Taxes are specifically allowed in section 8 clause 1.
The 16th does not allow direct taxation, so it doesn't overturn s9c4 completely. But it does allow the income tax to be applied any source of income.
But don't take my word for it. Look up "direct tax" yourself. Don't just believe everything you read on the Internet.
Re:Job Creators (Score:5, Informative)
Jobs is dead, and as some would have it, God created him.
He was a Buddhist (not a very good one), he has no God.
I'm certain this'll be modded down with the current spate of fanboy moderation going on.