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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 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.

  • What a country! (Score:1, Interesting)

    by 14erCleaner (745600) <FourteenerCleaner@yahoo.com> on Wednesday February 08, 2012 @08:21PM (#38975171) Homepage Journal
    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.
  • 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.

  • Double standards? (Score:2, Interesting)

    by Anonymous Coward on Wednesday February 08, 2012 @08:26PM (#38975245)

    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 [slashdot.org]), you do have to pay taxes on it?

  • 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].

  • by ronpaulisanidiot (2529418) on Wednesday February 08, 2012 @08:36PM (#38975385) Journal
    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.
  • Not a problem... (Score:4, Interesting)

    by Anonymous Freak (16973) <prius@driver.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.

  • by Anonymous Coward on Wednesday February 08, 2012 @08:44PM (#38975511)
    The founding fathers were generally rather wealthy. Their primary motivation for independence was not taxation or self representation but because the English aristocracy didn't consider them equals.
  • by Anonymous Coward on Wednesday February 08, 2012 @08:45PM (#38975513)

    weath-tax is called inflation. Now, income tax is broken. Capital gains should have same taxes as regular income except if in registered retirement accounts.

    It is also broken if inheritance is not taxed like income. It just results in more trust funders that lobby for lower taxes.

    As for borrowing against your assets, what's the big deal? Or are we suppose to pay taxes on money we "get" from mortgage???

  • Re:Not a problem... (Score:5, Interesting)

    by crunchygranola (1954152) on Wednesday February 08, 2012 @08:45PM (#38975525)

    ...Bump capital gains to equal payroll, including taking cuts for social security and Medicare.

    After all, that was good enough for Ronald Reagan. His big tax reform achievement, the 1986 Tax Reform Act, equalized treatment between capital gains and wage income.

  • 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.

  • by larry bagina (561269) on Wednesday February 08, 2012 @08:51PM (#38975591) Journal

    even though they are still wealthy because they can borrow against the holdings.

    What's the difference between Larry Ellison borrowing against his stock vs borrowing against his house (other than the mortgage interest being tax deductible)?

    Either way, he pays back the loan (with money that's been taxed) or he loses the underlying collateral. Please, explain how it's a magic money machine that avoids taxes.

  • by Surt (22457) on Wednesday February 08, 2012 @08:53PM (#38975607) Homepage Journal

    There's nothing wrong with a wealth tax. In fact, every so often one becomes vitally necessary because the few have accumulated so much wealth that the many can no longer live reasonable lives. This tax is sometimes known as 'violent revolution'.

    The wealthy, were they wise, would get behind a wealth tax now, rather than deal with the alternative that is not far off.

  • 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 Anonymous Coward on Wednesday February 08, 2012 @09:04PM (#38975733)

    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.

  • 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%.

  • 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).

  • by Grishnakh (216268) on Wednesday February 08, 2012 @09:20PM (#38975905)

    And yet, they implemented neither income nor wealth taxes, at least at the federal level. Odd how you imply they didn't want the accumulation of wealth and yet they did nothing to stop it. I think they actually knew that wealth was the incentive to success and didn't want to cripple a new country by trying to redistribute the wealth.

    Nope, instead, the Founders wrote a Postal Service into the Constitution because they knew that inexpensive communications were essential to a democracy, and they made education free for everyone (at the state level, however, not federal), because they knew that education and literacy were essential to democracy.

    Nowadays, everything's screwed up. The "conservatives" (teabaggers) want to eliminate the Post Office and replace it with private services so that people in rural areas get to pay $50 to mail a letter, and they want to eliminate public schools altogether (and until then, they want to teach fundamentalist Christianity in public schools). On the other hand, the liberals want to prevent public schools from eliminating bad teachers, and they want to change the curriculum so that instead of teaching English, math, science, and other important subjects, they teach Spanish and "multicultural studies" and other such vacuous BS, and eliminate the hard subjects because they'll hurt kids' self-esteem.

    I think the Founders would be really pissed if they saw how things had gotten after only 230 years.

  • Re:One more issue (Score:2, Interesting)

    by BitterOak (537666) on Wednesday February 08, 2012 @09:22PM (#38975925)

    A wealth tax? You mean like the 2% annual property tax I have to pay on the value of my home?

    That property tax is generally used to pay for services that a homeowner uses, like sewers, garbage collection, police and fire protection, education for your children that live in the district, paving the roads that go to your home, etc. Homeowners cost the city money in providing all these services and that money is collected by means of a property tax. In contrast, wealth that is held in the form of stock in a company isn't costing society money, on the contrary, it is generating wealth by allowing the business to expand, hire more workers, etc. Such a tax makes no sense and generally drives wealth and investment outside the country.

    Keep in mind, Mark Zuckerberg doesn't have to have Facebook headquartered in America. He could have moved the entire business offshore to a more tax friendly environment, and avoided even the $2 billion he will have to pay. But he didn't. He stayed in America and created American jobs. Do we really want to punish him for that?

  • by A nonymous Coward (7548) on Wednesday February 08, 2012 @09:48PM (#38976143)

    Where did the money come from that he used to pay back the loan? Unless he got that from another loan, it was .... income!

    Clever, ain't it?

  • Re:One more issue (Score:2, Interesting)

    by CrimsonAvenger (580665) on Wednesday February 08, 2012 @10:08PM (#38976329)

    My economic thought experiment ponders. Given there are 1000 units of value and 10 people. If one person owns 900 of those units and the remaining 9 people share the other 100 does each unit become more valuable?

    No.

    What happens is that the guy who own 900 shares lowers the value of the other people's shares whenever he is forced to sell some of his shares due to increase in stock price.

    Which means that the tax hurts the small investor possibly even more than the large one.

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

    by ArcherB (796902) on Wednesday February 08, 2012 @10:29PM (#38976509) Journal

    I'm all for increasing the taxes on the rich and making them pay for more of the costs of maintaining civilization since they benefit the most from it,

    This reminds me of, "World to end tomorrow! Women and minorities hit the hardest!" Rich people don't benefit more from society than anyone else. Probably less if you think about it. The "ultra-rich" as you like to call them, don't drive their cars 6 days a week to work over government paid roads. The don't send their kids to public schools and you won't find them at an airport. They don't visit the library or spend time at public parks and would not be caught dead at a public golf course.

    Oh, and while they make up five percent of the population, they pay for half of EVERYTHING the government spends. Sorry, but the top 5% do not take up 50% of the road ways or somehow suck up 50% of the protections the military provides us. They end up paying for the services the other 95% enjoy.

    but these schemes always end up hurting the middle class the most, and the rich just find another loophole to exploit because the code is always written in such a way to give them these loopholes instead of making it simple and fair.

    This may be true. The easy answer would be a sales tax. Get the IRS off the public's back and have them deal exclusively with businesses, making sure they are charging sales taxes. All money is spent at some point. Sure, it might be invested now or put in a savings account, but eventually, someone is going to spend that money. And like in the cases brought out by TFA, it doesn't matter how they made it, it will get taxed when spent.

    these Marxists want everyone to be poor, except for a small class of ultra-rich people at the top.

    And on this part, you are spot on!

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

    by similar_name (1164087) on Wednesday February 08, 2012 @10:32PM (#38976523)
    If selling assets dilutes it's value doesn't the converse hold true that holding assets would make their value go up? Which one is the real value of the asset? Is either?
  • 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.

  • by tragedy (27079) on Wednesday February 08, 2012 @11:49PM (#38977167)

    Yes, they have to be paid back, but one question involved there is when they have to be paid back. Grishnakh specifically stated: "My dear tender little fools...", no, wait, wrong Grishnakh. This one said: "Stock certificates are worthless pieces of paper that only become worth something when you convince some other sucker to buy them from you for more than you paid for them." The fact that you can use them as collateral for a loan like that means that you can get money out of them way before you need to sell them. And the loan could be set up so that you don't even need to start paying it back for years. Not to mention that you don't have to pay tax on money you spend to pay certain types of interest. So, if the loan is structured so you never have to pay any of the capital and just have to pay interest, you could conceivably take out the loan against stock, then each financial term (I don't know if it would be yearly or quarterly or monthly or whatever) sell some stock to pay the interest on the loan. Then, when it's time to pay your capital gains tax, you take a deduction on the money you spent servicing the interest on the debt. As long as the interest you pay on the loan is less than what you would pay for taxes, you could save money and avoid paying taxes.

    I don't know if that's what actually happens. Maybe it's impossible to get away with a tax dodge like the one I describe above. Seems like that, or a variation on it would be possible though, especially when such a massive chunk of the law is the tax code and most of that chunk consists of special exceptions and exemptions. Anyway, as I said about stocks, if a mechanism exists to get a monetary payment out of it, then the implications of that method need to be fully explored before you can say it is or isn't income. I've just veered into the realm of speculation because I don't fully understand all the implications of these loans. In that, I'm no different than you. We're all stumbling around in the dark expounding on the shallow parts of this we do understand and ignoring the inconvenient details we don't.

    In addition to that, after the recent bank bailouts, I think the question of who eventually pays if the stock value doesn't grow forever and the loan comes due with worthless collateral has already been answered. The person who has been living like a billionaire with no technical income and no taxes ends up no worse off than most of us, or maybe even simply defaults on the loan holding a bunch of cash and the bank left with worthless collateral gets bailed out with public money from the taxes the billionaire never paid because the system let them float their taxes.

  • by hsthompson69 (1674722) on Thursday February 09, 2012 @02:42AM (#38978399)

    When billionaires can get away without paying most taxes (surely they pay sales tax on things that they purchase?) yet working stiffs have to pay 20% of their incomes in income+medicare+ss alone, something is clearly out of whack.

    The really ironic thing is that the first income tax was essentially a "billionaire tax", that was never meant to affect normal working stiffs :) While adjusted for 2012 dollars, the 1913 income tax did technically affect non-bill/millionaires, they were only those in the top 5% of income (and I couldn't find any real statistics on the accumulated wealth of the top 5%, just yearly income).

    I'd go for the flat sales tax as the "easy" fix (http://www.cato.org/speeches/sp5-11-5.html) - the problem with it is that such even-handed treatment would send all the special interests who already have all kinds of deductions/subsidies/loopholes into a tizzy. Not to mention that when *everyone* is paying the same rate for taxes, all of a sudden large government programs that cost lots of money become *real* to people because they experience the tax rate every time they buy something - be it wars, social welfare programs, or industry bailouts. When people aren't personally confronted with the costs of something (say, healthcare), they spend more, and get less benefit from it - waste is just too easy to do.

Fools ignore complexity. Pragmatists suffer it. Some can avoid it. Geniuses remove it. -- Perlis's Programming Proverb #58, SIGPLAN Notices, Sept. 1982

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