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The Zuckerberg Tax

samzenpus posted more than 2 years ago | from the biggest-bill dept.

The Almighty Buck 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."

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First Post (0)

Anonymous Coward | more than 2 years ago | (#38975111)

Don't tax me, bro!

Z-Tax (0)

Anonymous Coward | more than 2 years ago | (#38975121)

Great a Z-Tax option!

And for a mere $25 million (0)

ackthpt (218170) | more than 2 years ago | (#38975129)

I will write a glowing tweet about him on twitter.

Re:And for a mere $25 million (3, Funny)

discord5 (798235) | more than 2 years ago | (#38975189)

I will write a glowing tweet about him on twitter.

He'll probably just buy twitter if he wants that.

Job Creators (5, Funny)

Anonymous Coward | more than 2 years ago | (#38975159)

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

Re:Job Creators (5, Funny)

eggstasy (458692) | more than 2 years ago | (#38975251)

Jobs is dead, and as some would have it, God created him.

Re:Job Creators (-1)

Anonymous Coward | more than 2 years ago | (#38975331)

God doesn't create jobs. The president does.

Such systems have been proposed before (5, Interesting)

Scareduck (177470) | more than 2 years ago | (#38975167)

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.

Re:Such systems have been proposed before (-1, Flamebait)

modmans2ndcoming (929661) | more than 2 years ago | (#38975193)

awww......too bad.

Re:Such systems have been proposed before (1, Insightful)

Anonymous Coward | more than 2 years ago | (#38975249)

This is a tax on an increase in wealth. An increase in wealth is otherwise known as an income.

Re:Such systems have been proposed before (-1, Troll)

Anonymous Coward | more than 2 years ago | (#38975271)

No. No it isn't you ignorant twit.

One more issue (5, Interesting)

Scareduck (177470) | more than 2 years ago | (#38975299)

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 (0)

Anonymous Coward | more than 2 years ago | (#38975671)

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

Re:Such systems have been proposed before (5, Insightful)

TubeSteak (669689) | more than 2 years ago | (#38975301)

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).

Re:Such systems have been proposed before (1, Interesting)

Anonymous Coward | more than 2 years ago | (#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.

Middle class does this too ... (1, Insightful)

perpenso (1613749) | more than 2 years ago | (#38975541)

Alternatively, anything that allows the wealthiest to dodge their tax obligations should be looked at as a bug, not a feature.

The middle class does this exact sort of thing too. When a retired blue collar worker leaves his house to his kids, the kids only pay taxes on the appreciation from the date of death.

Ok so figure out a way to not screw other people (5, Insightful)

Sycraft-fu (314770) | more than 2 years ago | (#38975563)

See here's the problem: You start taxing wealth, then you start taxing all kinds of shit. Your house would now not only have a property tax, it'd have a wealth tax. It goes up in value, you have to pay tax on there. You don't realize any of that gain, of course, but it still increased in value, at least in theory, and thus you owe money. Now imagine that during the real estate boom. You suddenly owe income tax on an additional $100,000 because our "wealth" increased that much in theory because your house went up.

That's the thing is that having assets, having wealth, doesn't magically kick in at some number. Most of the middle class has some, just less than the rich. If you own any asset that appreciates in value, like a house, a retirement fund, etc, you have wealth. Maybe not much, but you have some. So anything that places a tax on having it is something that you'll be paying.

Have to be careful of unintended consequences.

Re:Such systems have been proposed before (1, Insightful)

Obfuscant (592200) | more than 2 years ago | (#38975579)

Alternatively, anything that allows the wealthiest to dodge their tax obligations should be looked at as a bug, not a feature.

The "tax obligation" is what the law requires them to pay. Are you claiming that they are violating the law and paying less than required? If so, the IRS would probably like to have copies of your evidence.

If all you are whining about is that they have deductions that they use, just like the rest of us have deductions we can use, then I assume you use none of your deductions and pay more than the law requires.

The founding fathers had a lot to say about the accumulation of wealth and the corrosive effect it has on society.

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.

Re:Such systems have been proposed before (3, Informative)

Scareduck (177470) | more than 2 years ago | (#38975611)

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

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

Re:Such systems have been proposed before (4, Insightful)

vux984 (928602) | more than 2 years ago | (#38975339)

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

Re:Such systems have been proposed before (1)

Anonymous Coward | more than 2 years ago | (#38975419)

It is not a "wealth tax," it is an "increase in wealth tax." The intention, as I read it, is that the individual will have to pay capital gains on the increase in market value of their holdings regardless of if they sold those holdings or not. It prevents the individual from perpetually avoiding tax by never selling their shares and therefore never realizing the capital gain... even though they are still wealthy because they can borrow against the holdings.

Re:Such systems have been proposed before (5, Insightful)

swalve (1980968) | more than 2 years ago | (#38975459)

So when my house appreciated up to nearly double during the boom, you'd have me paying taxes on that? Where am I going to get the money? Would you pay me back after it dropped in value?

Re:Such systems have been proposed before (1)

suutar (1860506) | more than 2 years ago | (#38975663)

If it parallelled capital gains taxes, yes, you can consider the loss (up to a limit) as a deduction. However, houses are usually already subject to property tax, so your appreciation will already be reflected in those tax payments (unless the reassessment hasn't happened yet).

Re:Such systems have been proposed before (3, Interesting)

larry bagina (561269) | more than 2 years ago | (#38975591)

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 (4, Insightful)

patchmaster (463431) | more than 2 years ago | (#38975627)

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 (0)

Anonymous Coward | more than 2 years ago | (#38975443)

Tax on Capital, not necessarily "wealth." An important concept to understand.

Without all of its accumulated capital, the U.S. would be no better than a thirdworld country. Our greatest problems then would include starvation rather than obesity and boredom.

Re:Such systems have been proposed before (1, Interesting)

Anonymous Coward | more than 2 years ago | (#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:Such systems have been proposed before (3, Insightful)

Asic Eng (193332) | more than 2 years ago | (#38975537)

Should have inheritance tax then - the inheritance is income.

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

Re:Such systems have been proposed before (5, Insightful)

ortholattice (175065) | more than 2 years ago | (#38975555)

So what is fundamentally wrong with a wealth tax?

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

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

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

Re:Such systems have been proposed before (4, Interesting)

Surt (22457) | more than 2 years ago | (#38975607)

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.

What a country! (1, Interesting)

14erCleaner (745600) | more than 2 years ago | (#38975171)

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.

Re:What a country! (5, Informative)

swalve (1980968) | more than 2 years ago | (#38975479)

Of course she didn't, because she was his wife and as such, the co-owner of his property.

Estate tax (5, Insightful)

QuincyDurant (943157) | more than 2 years ago | (#38975645)

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.

This is why a flat tax will not work. (2, Insightful)

khasim (1285) | more than 2 years ago | (#38975175)

And it is one of the reasons that our tax laws are such a mess.

But I also don't think that we can have a discussion about it without various political agendas derailing it.

Re:This is why a flat tax will not work. (3, Insightful)

CrimsonAvenger (580665) | more than 2 years ago | (#38975217)

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

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

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

Re:This is why a flat tax will not work. (4, Insightful)

Anonymous Coward | more than 2 years ago | (#38975261)

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

Re:This is why a flat tax will not work. (2, Insightful)

crunchygranola (1954152) | more than 2 years ago | (#38975317)

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. (1)

swalve (1980968) | more than 2 years ago | (#38975569)

That's because it IS income. You loaned the bank some money, they paid you for the privilege. Stocks, on the other hand, aren't money. When you buy a stock, you hand over money to some other person, and it is gone. All you have is a piece of paper. It can only become wealth when you sell it.

Re:This is why a flat tax will not work. (1)

LWATCDR (28044) | more than 2 years ago | (#38975571)

You also are not taxed on your house increasing in value or your 401k until you sell them. Stock can also go down in price do you get a refund for that?

Re:This is why a flat tax will not work. (1)

smellotron (1039250) | more than 2 years ago | (#38975603)

It your wealth was in financial instruments like stock, and it appreciates, no tax on the increase.

Until you sell that stock you own, it's just a piece of paper[1]. As soon as you sell it, you are already going to be taxed on any gains from the tax. The only reason that Jobs avoided this is by dying, which is cold consolation. If you think there is a problem with this, it's probably better to be solved by reducing loopholes on the inheritance side, rather than by adding new taxes (and therefore loopholes).

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

The proposal of "mark-to-market taxation" is not only to tax the increase, but to do so before the increase has been realized. This can lead to some pretty silly situations for assets that are illiquid or volatile. It also increases the tax burden on the average Joe much more than the average Zuckerberg, because the latter already has tax experts and the former will probably miss some deductions on bear years.

[1] As pointed out in TFS, capital invested in stock can be used as collateral for a loan. I'm not sure how much of a problem this is, but I sure as hell wouldn't try to "solve" it by introducing a tax on fiction. Which is exactly what unrealized gains are. If Big Zuck dumps his shares into the secondary market, he's sure to depress the price. It's like the Heisenberg principle.

Re:This is why a flat tax will not work. (1)

krlynch (158571) | more than 2 years ago | (#38975667)

Your bank balance doesn't appreciate; the bank pays you an income at a particular interest rate on the total value of your deposits that they hold. Stock dividends are similar - its a payment, not paper appreciation - and dividends are also taxed as income. Paper appreciation is different in kind from interest and dividend income.

Re:This is why a flat tax will not work. (2)

lymond01 (314120) | more than 2 years ago | (#38975357)

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 5 years, that can change at the drop of a hat.

So I agree with not being taxed on stock until you remove it.

But that isn't how it works. (2)

khasim (1285) | more than 2 years ago | (#38975471)

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.

You missed the point. (2)

khasim (1285) | more than 2 years ago | (#38975387)

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

That depends upon how you define "income".

He can take out a loan against his stock and buy a house in France.

Obviously he needs money ("income") to buy that house.
But that money will not be taxed as "income" because it does not meet the USofA's TAX definition of "income" at this time.

Re:You missed the point. (2)

swalve (1980968) | more than 2 years ago | (#38975599)

That's because a loan needs to be repaid.

Wrong. (4, Insightful)

viperidaenz (2515578) | more than 2 years ago | (#38975183)

...would raise hundreds of billions of dollars of new revenue over the next 10 years.

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

Re:Wrong. (1, Informative)

MikeB0Lton (962403) | more than 2 years ago | (#38975303)

Capital gains tax is effectively a double-dip, hence the lower rate.

Re:Wrong. (0)

Anonymous Coward | more than 2 years ago | (#38975391)

Dividends are a double-dip. How do you figure capital gains are? Corporations do not pay tax on the increase in share price.

No it is not. (5, Informative)

khasim (1285) | more than 2 years ago | (#38975527)

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:Wrong. (3, Insightful)

DragonWriter (970822) | more than 2 years ago | (#38975565)

Capital gains tax is effectively a double-dip, hence the lower rate.

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).

Re:Wrong. (2, Insightful)

Obfuscant (592200) | more than 2 years ago | (#38975341)

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 the revenue".

Re:Wrong. (2)

reemul (1554) | more than 2 years ago | (#38975379)

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 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.

No. (3, Interesting)

mbkennel (97636) | more than 2 years ago | (#38975585)

That's a lie, meant to make people give up on a difficult but feasible task.

Changes to the tax code to tax the "rich", actually work some of the time. If they are designed sufficiently lawyer-proof which requires determination and will.

One thing that works is personal criminal penalties: notice how many people who defrauded the government out of money they owed (in Swiss banks) are coming back now that the pressure

"If I was facing a $2 Billion tax bite, you better damn well believe I'd spend some fraction of that money to find a way to get out of paying the rest."

So since the rich are powerful, we should be nice to them and instead tax the poor shlubs who can't outsource a few thousand hours of professional fees?
(note that when there's a national debt, not taxing rich means that either present or future poorer workers are being taxed)

How about a tax code that doesn't have a whole bunch of legal workarounds and so people actually pay up?

"Even the so-called "Buffet Tax" isn't actually designed to go after the places Mr Buffet himself actually hides his cash from the taxman, it's just a feelgood measure to stir up populist votes while screwing those middle class folks who suddenly find themselves "rich" but don't have enough cash to pay for the accountants needed to skate."

How does that work exactly? If, for instance, the income tax rate was equalized for all forms of income, AND, the payroll tax was eliminated, both sides (worker and employee), and its required revenue transferred to the income tax, Mr Buffet and people of his wealth and without his ethics will be paying more and virtually all of us will be paying less (when you include lower deficit/debts). Of course there will be attempts to exploit loopholes but that doesn't mean at all that every one of these people can eliminate 50% of their tax.

Re:Wrong. (4, Insightful)

Jah-Wren Ryel (80510) | more than 2 years ago | (#38975453)

...would raise hundreds of billions of dollars of new revenue over the next 10 years.

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

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

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

and yet... (0)

Osgeld (1900440) | more than 2 years ago | (#38975227)

we get to watch a significant portion of our pathetic little pay-checks fly off to some magical place while driving home on shit roads and getting bum rushed every year cause schools cant afford things like paper towels.

awesome isnt it

Re:and yet... (1)

Anonymous Coward | more than 2 years ago | (#38975551)

So, you're proposing ... what? That rich people are taxed more, and that will solve the problem? You could take people like Zuckerberg ... hell, everyone that makes even just a million dollars a year or more ... and tax then at a rate of 100%, seizing all of their income. And all of that cash? Wouldn't even pay for the budget deficit through the middle of April this year. To say nothing of the rest of the year's deficit, and to really say nothing of the rapidly expanding debt. And you're asking for more spending. Really?

AMT (3, Insightful)

bhcompy (1877290) | more than 2 years ago | (#38975235)

The AMT was only supposed to affect the rich as well... Look how that turned out(and continues to turn out every year). Look, I'm cool with taxing these people, but all these cute little plans ultimately only bite one group of people in the ass, and it's those that are neither rich nor poor.

Voices of approval (0)

Anonymous Coward | more than 2 years ago | (#38975241)

I hear Ken Lay and Jeff Skilling love this plan

Two rules (2, Interesting)

istartedi (132515) | more than 2 years ago | (#38975243)

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 (0)

Anonymous Coward | more than 2 years ago | (#38975369)

Yeah, that whole French revolution thing worked out terrible for France. Except for founding a superior new government which persists to this day.

Re:Two rules (0)

Anonymous Coward | more than 2 years ago | (#38975661)

Yes good idea. Let's kill all of the people who invest in businesses, and give their cash to people who have no idea how to do so. That will really get things going. You know what? We should kill off people who make anything over $50k a year, because they clearly don't deserve it, when other people are only making $30k.

Re:Two rules (0)

Anonymous Coward | more than 2 years ago | (#38975485)

you aren't really rich until you *sell* the stock. Therefore it isn't taxed.

Re:Two rules (0)

Anonymous Coward | more than 2 years ago | (#38975637)

Funny, the rich manage to change rule no. 1 all the time and it gets better for them all the time.

Its gone from "The rich always have it better." to "The rich must have it better."

Double standards? (2, Interesting)

Anonymous Coward | more than 2 years ago | (#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?

Re:Double standards? (1)

crunchygranola (1954152) | more than 2 years ago | (#38975483)

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?

I guess you are assuming the reader will fill in the correct answer - which is: "Of course you do!". Many here will not the make the connection I fear.

Re:Double standards? (1)

swalve (1980968) | more than 2 years ago | (#38975639)

Yes. Income taxes are on the value of the goods, not the nominal amount.

Let's make that stock go down wait there own BS (-1, Troll)

Joe_Dragon (2206452) | more than 2 years ago | (#38975247)

Let's make that stock go down wait there own BS may push it down.

Not well thought out (1)

CrimsonAvenger (580665) | more than 2 years ago | (#38975269)

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."

Don't see anything in the basic concept that makes it apply just to "undeniably extraordinarily rich" individuals. It looks like it would apply to anyone who owned stock.

Then there's the problem that it would encourage stock manipulation, since it would pretty much require that stock be valued at some specific time every year. And if you're not smart enough to make sure your stock is valued low that day, you prolly don't deserve to be rich.

Mark to market (4, Insightful)

jonsmirl (114798) | more than 2 years ago | (#38975287)

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 (4, Informative)

Anonymous Coward | more than 2 years ago | (#38975539)

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

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

Re:Mark to market (0)

Anonymous Coward | more than 2 years ago | (#38975575)

Right now the repeal of mark to market has enabled banks to value the houses that are due for foreclosure at top-of-the-bubble values rather than realistic values. As long as the banks drag their feet on foreclosing, [steadfastfinances.com] they don't have to face the consequences of having lost 75%+ of their equity.

Also another problem with it (1)

Sycraft-fu (314770) | more than 2 years ago | (#38975595)

Was when funds had to have massive amounts of losses on the books because there was no market for what they had at the moment. If something has to be marked to market, and the market is frozen at the moment, that gives it zero value, even if there is real value (like it is property or something). That can then create a feedback cycle of "Oh shit this is worthless!" and so on.

I'm not saying mark to market is never of any value, but there are serious downfalls and we saw them both on the phantom gains and phantom losses side with the recent financial shit.

Re:Mark to market (1)

thammoud (193905) | more than 2 years ago | (#38975635)

You mention phantom gains. Mark-to-Market will only work if it goes both ways. i.e Get a credit on unrealized losses.

stock market is ok.. so mark-to-market (2)

rgbrenner (317308) | more than 2 years ago | (#38975315)

So the stock market has been doing ok, so it's time to consider mark-to-market taxation? This guy has a really short memory.

So during recessions (I think we had one of those recently), the rich will get to mark down their holdings, and pay nothing on any of their earnings. Might even get to report a loss they can use to offset future earnings.

So right at the moment when the federal budget will be the worse, the rich will get to stop contributing. And when things start to improve, they'll get to use their loss from previous years.. then, when everything is ok (at the very top of the bubble), they'll get to start contributing.

I'm sure that will go over really well with everyone else.

What a spin (0)

Anonymous Coward | more than 2 years ago | (#38975323)

So... the article starts by saying Zuckerberg will be the largest tax payer in history at 2 billion... YET still grasps onto a different straw that's not enough and goes on speculating on what he *could* do and what *might* happen at some point so we can all get nice and angry that he *might not* pay taxes on the rest. I understand if we wanted to get angry that he found a loophole so he doesn't have to pay the 2 billion, but if the man does pay his tax on the money he takes out, I do not see what the problem is. Other than there being a guy who has more money than us so we should figure out how to get more money out of him.

As for mark-to-market, I say let's go for it, AS LONG AS I get paid when my stock goes down as well. Otherwise, the stock could go up, I get taxed, then the stock plummets and is now worthless and I end up with having paid capital gains taxes on something I never really gained.

You know what I like? (5, Insightful)

rsilvergun (571051) | more than 2 years ago | (#38975337)

For years and years we read news stories about the amazing and complicated hoops accountants jump through to keep their wealth clients from paying money. Now we find out that all their doing is borrowing money at below market rates against untaxable assets. Nothing too complex, and it relies on a good 'ole boy network to approve the ultra low interest loans that make it all possible (I, for example, can't borrow at a rate low enough to get away with this).

its called regressive taxation (3, Interesting)

ronpaulisanidiot (2529418) | more than 2 years ago | (#38975385)

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.

Doesn't work (5, Insightful)

alphabetsoup (953829) | more than 2 years ago | (#38975389)

Assume this year there is a stock market bubble, and I pay a huge tax this year. Next year there is a stock market crash, and I lose all my previous years gain. So what happens ? Government refunds me my tax ? What about interest on that tax ? Government pays it too ?

Next problem, how do I pay this tax ? If my money is tied up in investments, how do I generate the cash to pay my tax ? Should we start paying our taxes using equity shares ?

Re:Doesn't work (2)

rgbrenner (317308) | more than 2 years ago | (#38975549)

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.

Re:Doesn't work (1)

Kjella (173770) | more than 2 years ago | (#38975643)

Speaking from Norway, this is actually a big problem with successful entrepreneurs and not only stock, but options too. Here we do have a wealth tax and they're both taxed at market value, even if the options can't actually be exercised and sold yet. They're actually forced to liquidate assets somehow to pay their taxes, and since it's a wealth tax you don't get anything back if you have to sit on them through a boom-bust cycle, you pay plenty taxes in the boom and get nothing in the bust. But then our socialist government seem to hate people that make too much money anyway...

Not a problem... (3, Interesting)

Anonymous Freak (16973) | more than 2 years ago | (#38975393)

...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... (4, Interesting)

crunchygranola (1954152) | more than 2 years ago | (#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.

Re:Not a problem... (0)

Anonymous Coward | more than 2 years ago | (#38975597)

From http://www.clubforgrowth.org

By now, everyone has heard Warren Buffett complain that he pays less than his secretary does in federal taxes, and therefore, the government should raise his taxes. But he fails to include the taxes that he pays as a shareholder of his company, Berkshire Hathaway. This blogger explains it quite nicely:

Imagine that you are self-employed. Every year, you earn $100,000, pay 35% in taxes and have $65,000 left in your pocket. Now you form a corporation. $100,000 goes into the corporation. There is a corporate tax rate of 25%, so that leaves $75,000 which you pay to yourself as a dividend which are taxed at 15% which leaves you roughly $65,000. So sure, you could say that your tax rate was 15%, but that would be nonsensical. Nothing of significance has changed. What about if you get a partner and the corporation earns $200,000 paying $65,000 to each of you? Well, what changed? Nothing.

Missing the mark (1)

roninmagus (721889) | more than 2 years ago | (#38975409)

I think some people are missing the mark on the taxes issue. Some people (myself being one of them) are simply not interested in raising government revenue. We want less government, less taxes, less handouts. For that belief, we are derided as bigoted, racist, and downright stupid, when it has nothing to do with race. That's my 2 cents.

Re:Missing the mark (0)

Anonymous Coward | more than 2 years ago | (#38975557)

racist. I'd bet you eat babies too.

How it's done in Canada (0)

Anonymous Coward | more than 2 years ago | (#38975413)

    In Canada death triggers a "deemed disposition" in the taxpayers final tax return. All capital gains and losses are taken into account. Usually this means some assets will be sold to pay taxes leaving the rest for the heirs.

I'm not seeing the problem here. (2)

waerloga01 (308176) | more than 2 years ago | (#38975417)

So, he gets a loan with the collateral of said loan is his stock.

He's going to have to pay off that loan some how. If he forfeits the stock, it's counted as sold and he owes taxes on that. If he pays off the loan with other money he likely has already paid taxes on that. So I'm not seeing the huge issue here.

What a jerk (1)

codepunk (167897) | more than 2 years ago | (#38975427)

What a jerk, just 2 billion in taxes this year?

and so it should be (1)

smash (1351) | more than 2 years ago | (#38975451)

You can't claim a loss on shares that go tits up, so you shoudn't pay tax on them when they're held.

Re:and so it should be (0)

Anonymous Coward | more than 2 years ago | (#38975581)

You can't claim a loss on shares that go tits up, so you shoudn't pay tax on them when they're held.

I've had a few grand worth of losses that i am allowed to claim as a loss when i do my taxes. I am allowed to write off $3k a year in losses and whatever is left over gets rolled into the next year

Uh... (1)

Mullen (14656) | more than 2 years ago | (#38975469)

Why is anyone concerned with Mark's soon to be personal fortune and the taxes that stem from it?

Let me get this straight, you want me to seriously think of a guy who is about to be worth 28 BILLION dollars, who is going to cash in 5 BILLION dollars of it and then get stuck paying 2 BILLION dollars in taxes? Let me note, 500 MILLION of that goes to California, my beloved home state.

We're not talking thousands or millions of dollars, but BILLIONS of dollars. Mark should just be happy he lives in a country and society that he can take a "stupid little idea" like Facebook and turn it into a 100 BILLION dollar company.

For many many generations, the Zuckerburg's Family will be beyond fantastically wealthy. He should just pay it, not sleaze his way out of paying those taxes and be happy he lives somewhere he could make Facebook.

Screw the 1%, he's going to be the 1. (2)

Anonymous Freak (16973) | more than 2 years ago | (#38975477)

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

Quite a stretch (2, Insightful)

Anonymous Coward | more than 2 years ago | (#38975495)

This is unlikely to go anywhere. Tax law has around a century's worth of precedent on only taxing assets at the time of disposal, or deemed disposal. Any transfer of ownership for instance.

If you try and change this there are a couple of problems over and above mere precedent.

1). Many people, even the very rich, can be considered asset rich but cash poor. If you mark to market, the tax code can sometimes create a liability far beyond what the owner can pay out of pocket;
2). Assets do not only increase in value, they can decrease as well. When you mark these to market, does the owner get a refund? A tax credit?

There are answers to these issues of course and I don't want to create the impression that nothing can be done. The biggest barrier I would suggest, would be the precedent. Most citizens have a general idea of how the tax system works. This would be a major departure. Some people have positioned their asset structure around these rules and have created systems literally designed to last for a lifetime. Mark to market would be viewed as an assault by such people, I'm sure.

Sigh! (1)

dgreer (1206) | more than 2 years ago | (#38975561)

This is possibly the dumbest thing I've ever seen posted on /. (and since I recall Taco's upgrade from ISDN to T1, that's saying something)! OMG Ponies was at least a April Fools joke!

And it is, so far, largely accompanied by equally dumb comments.

Say, you bought a house Las Vegas in 2001, would you want to pay income tax on it's value through 2007? Of course not and if you don't understand why, think about what that house would be worth today. The same applies for shares. Apple has crashed before, and it can certainly crash again (and likely will).

And Mrs. Jobs SHOULDN'T pay taxes on those shares because she was MARRIED to Mr. Jobs, and as such their property was JOINT, in other words, those shares BELONGED TO HER, they weren't inherited. That's the absolute basis of any civil union.

Consumption Tax (0)

Anonymous Coward | more than 2 years ago | (#38975567)

Why not scrap all the other taxes for a consumption-based tax? After all, that's what the people hate, right? A billionaire buying yachts and planes, all the while skirting the tax system.

The FairTax (fairtax.org) seems to address the technicalities pretty thoroughly, including collection and effects on the poor. It seems the tax would be 23-30%, but they make a pretty strong case that all the goods we're buying have nearly that amount built in (consider buying a loaf of bread: every stage of production is taxed, employees are taxed, gasoline for distribution is taxed, etc).

BUT - this is ONLY a good idea if it replaces everything else. Adding a national sales tax (like the VAT in europe) to the current cacophony of taxes will not help.

We don't live in a democracy, just a plutocracy (2)

WillAffleckUW (858324) | more than 2 years ago | (#38975583)

And the effective tax rate on Billionaires is in the single digits.

Heck, most corporations pay less than 8 percent effective tax, due to exemptions and loopholes.

It's why Greece is going broke - everyone who isn't a millionaire or a corpoation has to pay taxes, but not the Rich or the Corporations.

(caveat - my tax rate is incredibly low too - legally - cause I know about these nutso loopholes and exemptions)

yeah, but (0)

Anonymous Coward | more than 2 years ago | (#38975593)

What incentive would there be to become a billionaire then?

Better spending habits instead of more money (1)

schwit1 (797399) | more than 2 years ago | (#38975623)

Why should we be looking to give the US government more money when they've proven incapable of wisely spending the money they already get?

Worst idea ever. (2, Insightful)

pavera (320634) | more than 2 years ago | (#38975641)

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.

Please tell me no one is falling for this (1)

Totenglocke (1291680) | more than 2 years ago | (#38975655)

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.

We've heard these bogus "It will only affect the super rich (who are evil and deserve to be punished)" lies almost every time new taxes are created, then once they're on the books, they're expanded to cover everyone else. Income tax in the US is a fantastic example of this - it was sold to the people as only affecting the top earners in the US and that it would only be a tax of around 3% of their income. I think it's safe to say we all know how that turned out.

As for why you only pay taxes on the gains? Because you already paid tax on the income used to buy the investment and you only actually gain anything when you sell it. If you want to make borrowing against stock without selling said stock illegal, go for it - but don't alter the system to screw over everyone who owns investments (which includes most pensions and private retirement funds).

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