Mark Zuckerberg will pay less tax than you

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Before we start talking about the Facebook Windfall and all the nice new tax dollars the company will pour into the state treasury, let me take a moment to put this in perspective. Before Jerry Brown's finance director goes to Mark Zuckerberg's house to wash his windows and mow his lawn (which wouldn't work anyway; according to its SEC filings, Facebook pays for a home security service for its CEO), he should understand that Zuckerberg will be paying a disgracefully low amount of money on his great wealth.

If things go as planned, Zuckerberg will exercise $5 billion in Facebook options, and pay federal and state taxes of nearly $2 billion -- making him the largest single taxpayer in history. Sounds like he's a hell of a guy, doing his part to help the cash-strapped public sector.

But in reality, he'll be paying an actual tax rate of about 7 percent -- less than nearly all Americans.

Zuckerberg's stock will be worth around $28 billion. But he won't have to pay any tax at all on most of it. As tax lawyer David S. Miller notes in the New York Times:

Instead, 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. He reportedly borrowed more than a billion dollars against his Oracle shares and bought one of the most expensive yachts in the world. ... If Mr. Zuckerberg never sells his shares, he can avoid all income tax and then, on his death, pass on his shares to his heirs. When they sell them, they will be taxed only on any appreciation in value since his death.

More:

Consider the case of Steven P. Jobs. After rejoining Apple in 1997, Mr. Jobs never sold a single Apple share for the rest of his life, and therefore never paid a penny of tax on the over $2 billion of Apple stock he held at his death. Now his widow can sell those shares without paying any income tax on the appreciation before his death. She would have to pay taxes only on the increase in value from the time of his death to the time of the sale.

This is, as Miller points out, grossly unfair. Sure, Zuckerberg will pay a nice amount in taxes -- but if he were taxed at the rate ordinary people who make more than $200,000 a year pay, his state and federal tax bill would be closer to $12 billion, six times as much as he's actually paying. And guess what? He's still be left with $16 billion. Plenty of money to live on. He'd still have one of the greatest fortunes in American history, more than he or his kids or his grandkids or his great-grandkids could ever spend in their lifetimes.

And the country and the state wouldn't be so broke.

Just a thought.

Comments

DanO has more faith in Zuckerberg getting money into beneficial hands than the state of CA. That's the central difference between us -- and there's no need to be rude about it. I believe that, with all its flaws, representative democracy is a better way to allocate society's resources than reliance on the benificence of great wealth.

Posted by tim on Feb. 10, 2012 @ 4:05 pm

employees pay and benefit packages that are clearly unsustainable and out of control, I have no clue why you think it is a prudent manager of money.

The Gates Foundation gives far more in aid and help to the poor than the State does, and much more efficiently, and at no cost to you and me.

Your faith in big government and bureaucracy is touching in an old-fashioned, but misguided, way.

Posted by Guest on Feb. 11, 2012 @ 4:28 am

Quite a few states that have problems paying their pensions and benefits programs now are in that situation because of the Wall Street toxic mortgage debacle. They got fraudulent security rating organizations to rate mortgages that were likely to default as AAA, the same as treasury bills, and then Wall Street shopped those packaged mortgage securities to state pension funds. If most of those funds had performed just at bond rates, they'd be fine now.
The inprudent management of money was giving it to those wealthy business men you think know so much about handling money.

Posted by Guest on Mar. 14, 2012 @ 11:01 am

Tim - You seem to think that government is the answer. It is. Provided the question is "what is the best way to get money from those who earn it to those that demand it in great numbers?" Then yes....government is the answer.

I'm hopeful that the referendum to raise taxes on the "wealthy" passes with an overwhelming majority. Then I'll be laughing my arse off when Moonbeam and his minions scratch their heads when revenue heads south as a result.

I recently moved from NYS to a state that doesn't rape me every time I walk down the street. In doing so, without a nickle change in pay, I realized a $300 a WEEK raise, the delta that I was paying for the "privledge" of living in Mario Cuomo's and Cheesey Chuck (you) Schumer's state.

Posted by Guest on May. 18, 2012 @ 8:52 am

Representative democracy brought us the war in Iraq. Blindly allowing the government to be a bottomless pit of taxation allows it to run wild.

Posted by matlock on Feb. 11, 2012 @ 4:46 am
Posted by Patrick Monk. RN on Feb. 11, 2012 @ 12:55 pm
Posted by Patrick Monk. RN on Feb. 11, 2012 @ 1:31 pm

The article appears to fail to make a distinction between options and stock with respect to taxes.

Option gains are relatively difficult to convert to long term capital gains that are taxed at a lower rate (25%). If the option is an incentive stock option, it must be exercised and then the resulting stock held for over a year before sale in order to have the gains taxed at the lower long term capital gains rate. This requires paying alternative minimum tax at the end of the tax year of exercise (remember that the sale of the stock to actually get the money has to happen in the next tax year) and risks the stock dropping in value during the year. Immediate sale of the stock from an incentive stock option exercise, or any non-qualified stock option exercise, results in W-2 income of the option gain, taxed at "normal" income tax rates (35% for the highest income range). Not exercising the options defers the taxes, but it also means not getting the money.

However, if the persons in question hold actual stock, not options, then sale of long held stock may well be subject to just the long term capital gains rate of 25% on the gains. Additionally, not selling the stock defers the taxes. Donating the appreciated stock to charity or dying and passing the stock to heirs does avoid paying any taxes on the gains at all.

Of course the above is just for taxes collected by the IRS. The state of California does not have different rates for long term capital gains versus other income.

Posted by Guest on Feb. 17, 2012 @ 10:13 pm

Someone needs to teach the Obama\Occupy\Govt employee crowd that raising taxes affects people's behavior.

Posted by Guest on May. 18, 2012 @ 9:01 am