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."
Job Creators (Score:5, Funny)
If he has to pay taxes, how is he going to create jobs?
Re:Job Creators (Score:5, Funny)
Jobs is dead, and as some would have it, God created him.
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.
Re:Job Creators (Score:5, Funny)
Re:Job Creators (Score:5, Funny)
He was a Buddhist (not a very good one), he has no God.
So his followers should be looking for his reincarnated self?
Re:Job Creators (Score:4, Funny)
How can something that doesn't exist create something?
This is going to get into a discussion about quantum mechanics, I can feel it.
Such systems have been proposed before (Score:5, Interesting)
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)
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)
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)
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.
Re:One more issue (Score:5, Funny)
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)
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, 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.
Re:One more issue (Score:5, Interesting)
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)
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
Re:One more issue (Score:5, Insightful)
Yep, that's essentially the same thing. The problem with a wealth tax is that it requires you to make more income to pay the tax, or worse to sell off your property because you can't afford the taxes. For example, say some guy working as a barista inherits a nice $500k house from his parents when they die. He can afford to stay there as long as he keeps the heat and A/C set low, but in someplace with high property taxes like Texas, he can't afford to stay there at all because he can't afford the $20k/year taxes on the place. Why should he be forced to sell out (esp. if the market is bad, like right now), instead of being allowed to stay in the house his parents left him? So now he has to go sell the house, give a bunch of money to some no-good idiot realtor for doing nothing, and go buy some much cheaper place (again giving a big chunk to some no-good realtor, and paying a bunch in taxes), just so he can have a place to live (let's say he was living with his parents before, renting a room). That doesn't sound right to me.
Re:One more issue (Score:5, Insightful)
Why not? Who are you to decide where he should live? If his parents want to set him up with a paid-off house so he can live rent-free, why is that a problem? You think it's better that he give most of his income to a big apartment complex corporation instead?
Re:One more issue (Score:4, Insightful)
That's an ideal world. In the real world, or at least in the USA, the money will be given to government contractors for $600 toilet seats and various military hardware like $15 billion aircraft carriers, not to mention expensive overseas wars to secure oil supplies, while the retarded orphans will be thrown out into the streets along with all the mentally disturbed people because the taxpayers would rather fund military adventurism than social services and institutions for the mentally ill.
Re:One more issue (Score:5, Insightful)
If the parents sunk all of their money into a $500k house and that was their only asset (thus leaving him no inheritance), then blame the parents for poor financial planning.
If someone leaves you a $500k house free and clear that's a pretty damn good inheritance and hardly poor financial planning on their part.
But aside from that, why should someone who only makes $20k/year (or whatever a barista might make...not much) be expected to be able to live in a $500k house?
Because it's bought and paid for, and his property. The question is, why should someone with low income but fully owned property NOT be allowed to live in it?
Re:One more issue (Score:4, Interesting)
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)
Re:Such systems have been proposed before (Score:5, Insightful)
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).
Ok so figure out a way to not screw other people (Score:5, Insightful)
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:Ok so figure out a way to not screw other peopl (Score:5, Insightful)
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?
Re:Ok so figure out a way to not screw other peopl (Score:5, Insightful)
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).
Re: (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: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: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: (Score:3)
Hate to break it to you, but these days, it's the banks getting the house, not the kids.
Re:Such systems have been proposed before (Score:5, Interesting)
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:Such systems have been proposed before (Score:4, Insightful)
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".
Re:Such systems have been proposed before (Score:4, Insightful)
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.
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:5, Insightful)
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.
Re:Such systems have been proposed before (Score:5, Interesting)
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.
Re:Such systems have been proposed before (Score:5, Insightful)
Don't you have real estate taxes in the USA? (Score:4, Insightful)
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.
Re: (Score:3, Interesting)
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.
Re:Such systems have been proposed before (Score:5, Interesting)
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:Such systems have been proposed before (Score:5, Insightful)
This is a slippery slope the government would be well-advised to avoid. The only way to make this "fair" is for reduction in wealth to be given tax credits. Stock goes up, you pay taxes on the increase. Stock goes down, you get a refund on the reduction in value.
How do you think this would have played out when the market went into free fall a few years ago?
Re:Such systems have been proposed before (Score:5, Insightful)
No, it isn't. "Income" is money that you earn. A bunch of pieces of paper saying you have an ownership in some company are not "wealth". Potential wealth, perhaps, but only when you actually sell those shares or exercise those options. Until then, they're nothing more than paper (or these days, bits on a computer somewhere).
I'd like to tax rich people more just like anyone else, but taxing people based on what their possessions might be worth at some point in the future is ridiculous. Those possessions might also become worthless before they ever cash out. Look at all the "millionaires" during the dot-com boom that suddenly became broke after the bubble collapsed. Are you saying those people should all have paid hefty taxes based on that so-called "wealth" they owned? What about when it all became worthless because those silly companies all dried up and blew away when people finally realized their business plans were idiotic? Is the government going to refund billions of dollar in taxes when that happens?
Re:Such systems have been proposed before (Score:4, Insightful)
In canada we have a system of taxing stock options based on when the option was granted. There are also capital gains separately, but the option is considered to have real value. It's like giving someone a car as compensation, the car is taxed at the value of the car when given, and if it goes up or down later that's a separate issue. If it has value now, it is a taxable benefit, whether that's a personal driver, personal use of a company car etc. So it can be taxed.
Usually this isn't a problem. Unless the stock nose dives before the end of the year, then you have to pay tax on something worth nothing, but that you have nothing to back it up with. It makes lots of people unhappy when these things do happen.
There's nothing particularly wrong with taxing wealth rather than income theoretically. That's certainly something governments could do. But in the west we don't, we tax income. It is managerially easier, because you don't have to deal with house prices rising or falling every year, assessing house prices, car prices etc. Judging the value of someone's assets is actually quite hard, especially if they don't have much, because then you have to really precisely measure stuff or you end up with a very uneven system that could unfairly screw people differently.
Re:Such systems have been proposed before (Score:4, Insightful)
It's like giving someone a car as compensation, the car is taxed at the value of the car when given, and if it goes up or down later that's a separate issue.
Seriously? A car has immediate inherent and utility value - you can drive it around. An option has NO value at it's time of issue - it's the potential ability, after a period of time, to buy stock at a particular price. At issuance it's nearly worthless. Taxing it at full value at the time of issuance is like selling someone a package of carrot seeds, and taxing them the value of a bushel of carrots.
There's nothing particularly wrong with taxing wealth rather than income theoretically.
Heck yes there is. It punishes people for saving and investing. It's only marginally less lousy than punishing people for making money in the first place. The correct avenue is to tax consumption.
Re:Such systems have been proposed before (Score:4, Insightful)
You just confirmed what I wrote before: "the monetary payment received...from...investments".
Hint: stock certificates are not "monetary". Only money qualifies as a monetary payment. 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.
Re:Such systems have been proposed before (Score:5, Insightful)
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. 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.
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, Insightful)
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.
I was wondering that too. How do these loans get paid back?
Either way, the answer is simple. Rather than having a tax system based on how much money a person makes, why not have a tax system based on how much money people spend? Jobs borrowed billions using his stock as collateral. What happened to that money? I'm going to take a guess and say he spent it at some point.
With a tax on spending, no matter how much or how a person earns his income, it will get taxed when spent. Illegal alien? Money is taxed when it is spent. Drug dealer? Money is taxed when it is spent. Illegal gambler? Again, money is taxed when spent.
Of course, there are problems. Buy crack from dealer, it's not likely he's going to charge you sales tax. Hookers will have the same issue. That lady that cleans your house... Again, yes, not all taxation based on services will be enforcible, but it will still be taxed when they spend it.
A tax on spent money, aka a "Sales Tax" (doing the finger quotes here) will ensure that everyone pays taxes, no matter how good your accountant is, as there are no loopholes. The only way out is to save or invest, and well, you won't save forever. All money is spent at some point.
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:Tax Shelter (Score:5, Insightful)
if FB goes to zero he still has to pay back the loan.
That's the beauty of it, if FB goes to zero he'll have nothing, so he'll declare bankruptcy and not pay back the loan.
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, Interesting)
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.
Re:Such systems have been proposed before (Score:4, Insightful)
Are you retarded, braindead or both?
Are you seriously proposing we tax people based on how/when their stock holdings increase in value without the person actually making a sale? How do you propose we deal with decrease of value then? Or alternatively.... you made a nice home purchase in that nice neighborhood of yours, too bad it went up in market value, now you have to sell it off and move elsewhere just to pay your tax bill.
Re:Such systems have been proposed before (Score:5, Insightful)
Funnily enough, my house has a market value, and I have to pay a property tax every year based on that market value. And when it goes up in value, my property tax increases.
I'm not entirely sure why stock is different.
Re:Such systems have been proposed before (Score:5, Insightful)
It's different because property taxes a) are levied by local governments (not federal, which would actually be illegal under the Constitution), and b) go to pay infrastructure used to make your property useful in the first place (roads and the like). It isn't really a tax on wealth, exactly, more a tax on the value that the local government gives the property. In order to tax wealth itself, you would have to argue that the federal government similarly makes stock valuable (a small stretch, but plausible, I guess: defense and whatnot) and would be legal (which it wouldn't).
Re:Such systems have been proposed before (Score:5, Insightful)
go to pay infrastructure used to make your property useful in the first place
This goes to the moral argument, and so that is the one I will address.
A huge portion of my property taxes actually go to public schools, which is not infrastructure benefit directly from. My understanding is that this is not unusual.
It isn't really a tax on wealth, exactly, more a tax on the value that the local government gives the property
It's not a tax on wealth, it's a tax on value?
I think that's splitting hairs, don't you?
federal government similarly makes stock valuable
The federal government, with all of the protections that it gives corporations, absolutely provides company ownership value. Similarly, companies clearly and directly benefit from infrastructure.
Re:Such systems have been proposed before (Score:4, Insightful)
It seems that if you were to decide to tax stocks in the same way you might tax property, you'd have fewer people willing to buy stock, and subsequently less investment in the economy.
This is the general argument used to keep capital gains taxes low, and as far as I can see, there's no real evidence to support it. Of course, most of the ways that stocks are broken can be linked back to the fact that companies rarely issue dividends anymore, and the main way that people make money from stocks is through selling them for a gain. But that's a complaint for a different time.
I guess the reducto ad absurdum is why not tax savings? If you've got $100.00 in the bank, why not tax you 15% every year on it? In ten years, you'll end up with less that $20 bucks. Or why not tax the perceived value of your antique record collection?
Well, my property taxes are much much lower than that. Less than 1%, actually (something like $0.50 for every $100 valuation.) But I do get your point.
I think that taxing savings might encourage people to spend money which is otherwise sitting there doing nothing and not helping the economy. Of course, savings is at an all-time low in this country, so really it might not do anything at all.
At least for property tax there's some sort of implied quid pro quo (you're getting roads, fire, police for your taxes). What exactly does a government give you for savings or stock that is equivalent?
Well, stock is ownership of a company. It's not like companies don't benefit from infrastructure. In fact, they probably benefit more from infrastructure than any individual person does (though they get to deduct their property rather than paying tax on it.) It seems reasonable that a company would need to pay for infrastructure.
If you believe articles like http://www.huffingtonpost.com/2011/11/03/major-corporations-tax-subsidies_n_1073548.html [huffingtonpost.com] then it turns out that many of the most profitable companies don't end up paying income tax (though they may pay into medicare and social security). I'm not sure why that's fair.
The bottom line is that the tax code is screwed up, which is sort of what this /. article is about in the first place. 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. I don't think there's an easy fix.
Re:Such systems have been proposed before (Score:5, Interesting)
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.
This is why a flat tax will not work. (Score:3, Insightful)
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.
Re:This is why a flat tax will not work. (Score:4, 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.
Re:This is why a flat tax will not work. (Score:4, Insightful)
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.
Re:This is why a flat tax will not work. (Score:4, Insightful)
You also are not taxed on your house increasing in value
Unfortunately, in most places you are; it's called "property tax", and it's based on some BS called "assessed value". So if you buy a house that's the most you can afford, and then there's a mini-bubble in real estate (like we just had), your property tax bill goes up and you have to sell your house and move into a much smaller house even though if you wait a few years, the bubble will collapse and your house will be worth less than you bought it for.
Re: (Score:3)
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
But that isn't how it works. (Score:3)
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.
Re: (Score:3)
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)
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.
It's the terminology. (Score:4, Insightful)
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.
You missed the point. (Score:3)
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.
Re: (Score:3)
Wrong. (Score:5, Insightful)
...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)
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
Re: (Score:3)
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)
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)
...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.
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:No it is not. (Score:5, Insightful)
You invest $100 in Company X.
Company X uses your money to make an 80% profit (good job investing!)
The government taxes the corporation at 37%.
This means that the earnings passed back to you as a shareholder are $100 + $80 - ($80 *
Woohoo! $150 means you made $50 in capital gains!
That $50 capital gains is again taxed at a capital gains rate. For long-term investments (one year + one day), this is currently (IIRC) %15.
This is where the notion of double-taxation comes in. The returns on your investment are taxed twice--once when it is counted as 'income' by the corporation, and again when it is counted as income by the individual. This is why some say that capital gains tax should be eliminated (a notion I do *not* agree with) or even that corporate tax should be eliminated (a notion I agree with even less). In any case, there is certainly double-taxation going on with investments. And that's why capital gains are taxed at a (generally) much lower rate than the higher income brackets are.
Again, no. (Score:5, Insightful)
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.
Re:Wrong. (Score:4, Insightful)
Actually, no. Its in no way a "double-dip", because income earned via appreciation of capital isn't, as a rule, earned and taxed as income by some other means; further capital gains in general aren't taxed at a lower rate, long-term capital gains are. Long-term (where the asset is held for longer than one year) capital gains are taxed at a lower rate than normal income (which includes labor income, short-term capital gains, and lots of other things) is because the U.S. progressive income tax system is based on the presumption that the income taxed is earned during a single year, and that those with more taxable income in a year have a higher annual rate of income generation. The inclusion of long-term capital gains as normal income would (if done naively) violate this premise, particularly in the case of most people with long-term capital gains, who have them as occasional events as liquidating long-term stock holdings, selling long-held homes or other real estate, etc.
Now, the very rich (who have by far the biggest share of long-term capital gains and the biggest benefit from the reduced tax, though they are a small percentage of the number of people affected by the preferential tax) may have the kind of assets where they can regularly roll-out assets held for more than a year, such that they have effectively a regular annual income that is being taxed favorably under a tax which really isn't designed for that kind of income.
There are fairly simple ways to address this while not breaking the system for people who have occasional long-term capital gains rather than regular long-term gains -- one of which is taxing capital gains as regular income but permitting advance recognition of gains, prior to realization, for tax purposes or permitting gains to be distributed over several years after realization (or both).
AMT (Score:4, Insightful)
Two rules (Score:3, Interesting)
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)
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)
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)
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.
stock market is ok.. so mark-to-market (Score:3)
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.
You know what I like? (Score:5, Insightful)
Re:You know what I like? (Score:5, Interesting)
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)
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 ?
Re: (Score:3)
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)
...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.
Re:Not a problem... (Score:5, Interesting)
...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.
Screw the 1%, he's going to be the 1. (Score:3)
Holy crap. His Income Tax payment will be double the entire budget of the Small Business Administration........
Worst idea ever. (Score:3, Insightful)
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.
Re:Worst idea ever. (Score:5, Insightful)
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.
Why dance around the issue? (Score:4, Interesting)
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
The part about taking out a loan (Score:4, Insightful)
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?
Here we go again... (Score:4, Insightful)
Re:And for a mere $25 million (Score:4, Funny)
I will write a glowing tweet about him on twitter.
He'll probably just buy twitter if he wants that.
Re:What a country! (Score:5, Informative)
Estate tax (Score:5, Insightful)
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.
Re: (Score:3)