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

The man is going to be paying taxes in the billions on a fortune that didn't exist before he created it. So net gain to him: billions, net gain to the country: billions. How is this a problem?

Posted by Kane on Feb. 09, 2012 @ 5:51 pm

You're a troll.

Posted by Guest on Feb. 09, 2012 @ 5:58 pm

Troll is an approriate name for you troll. He is following the existing tax code. If you don't like it, tell your representatives to change the code. Why would anyone be required to pay taxes on unrealized gains? If the value of his shares decline are you willing to rebate taxes to him that he already paid in unrealized gains.

Posted by Guest on Feb. 10, 2012 @ 4:45 am

It's simply a term used to denigrate anyone who has the temerity to think for themselves and not tow the party line.

Personally, I'd take it as a compliment.

Posted by Guest on Feb. 10, 2012 @ 7:46 am

You are a troll.

Posted by Steroidal Progressive on Feb. 10, 2012 @ 10:28 am

There are many of us here. Some arrive and stay, some come and go - either way time can take its toll on the troll.

Posted by guest on Feb. 10, 2012 @ 10:51 am

Tim "Scrooge" Redmond. Zucks will pay 2 billion in tax. That's a stunning amount of money. And the wealth and jobs he created was made here in the Bay Area, and those billions will be spent in the Bay Area.

But Tim cares noting of these things. He just sees success and wants to punish it. It's really very sad.

Posted by Guest on Feb. 09, 2012 @ 6:00 pm

It is also 40% not 7 as stated

Posted by Guest on Feb. 10, 2012 @ 12:35 pm

It's a problem because it threatens to grow private sector jobs at the expense of public sector unions and the growth of entitlements. We can't have that!

Posted by Guest fmc on Feb. 09, 2012 @ 11:43 pm

It's long known that taxes have not been for Rich people. This historically started in the 80s. It is often misunderstood how developed and developing countries have been competing especially since the 70s against what is still called today Offshore territories. Taxes are ZERO in those locations. The most infamous one being the Cayman Islands for US "citizens"... Over the past 40 years "normal" countries were forced into lowering their taxes for "multinational" corporations that have essentially escaped taxes... to continue being attractive to "foreign" capitals.

When it comes to Facebook and Google and many others they use methods such as transfer-pricing to pay no taxes. The service-creating country sells for no profit or even a loss, if needed, their services to a subsidiary in the Caymans for example, paying no taxes in that country. Then the Cayman subsidiary sells it to another receiving-country company (or the main company in the case of google) at a high price so google sells its services with no profits either. Basically the margin is made in the Caymans where corrupted officials take no tax. Google saved and we lost $3billion in taxes in 2009.

Just so you know, the Cayman Islands are under the control of the City of London (the commanding organ of most of the offshore world, in relation to English old empire)... and in the recent decade, the city of London has become more and more a puppet of the bankers on wall street, who finally managed to make the US one of the most attractive offshore destinations to outsiders and multinationals. In 2005 George Bush allowed multinational to bring back some of their profits at a 5% tax rate instead of 35%... and in a few months about $350billion came back to the US.

Long live low taxes for the rich.

Posted by Guest on Feb. 09, 2012 @ 5:57 pm

When we read the early history of any region of the world - Persia, SE Asia, Egypt, Rome, Europe, Japan - the government rulers and landlords (sometimes the same group of families, sometimes overlapping, often different families) extracted huge sums in taxes and rents from the bottom 90% of society. The tax and rent tribute may have been outright slavery, or a quasi-reciprocal feudal structure, or a variation of the two, but from the earliest of times the strong and smart dominated the weak. The bottom tiers of society in almost all places across the globe have never rectified that economic imbalance.

Since they are the groups that form any government originally, obviously the powerful and wealthy have tremedous influence over any laws adopted by the government. Thus, it's not unexpected the housing and tax laws will be heavily tilted against the lower and middle income working people groups in favor of the wealthiest landlords, bankers, bondholders and land speculators. The government bureaucracy, such as the massive military forces, police agencies and other public workers receive a decent salary and relative job security in exchange for keeping the system in place and ensuring the masses don't get out of line.

There's a reason why almost 2/3 of all Americans (North and South) pay over 35% of their income to a bank or landlord for housing, and then pay another 30-40% of their income for dozens of taxes to federal, state, local and numerous other taxing agencies.

Let's hope the reports are true that the Occupy groups are formulating an action plan to dramatically reduce the amount that lower and middle income people have to spend on housing and taxes, while inceasing the taxes on the largest landlords, bondholders, shareholders, and other multi-millionaires.

Posted by Guest on Feb. 09, 2012 @ 7:32 pm

old enough to remember, taxes also are beneath free weekly "new papers" like the Bay Guardian. As in the early 90's the Bay Guardian freaked out and refused to pay their "fair share".

Posted by matlock on Feb. 10, 2012 @ 3:26 am

You are a troll. We all know it.

Posted by Guest on Feb. 11, 2012 @ 12:10 pm

These headlines are really getting out of control "Mark Zuckerberg will pay less tax than you" is a blatant untruth. No, he will not pay less tax than me (or most other people) he we pay a lower percentage.

Really? Two billion in taxes isn't enough for one person to pay? Let alone all the other taxes he will pay on his purchases (which can reach nearly 10% in CA), property and other luxuries.

Does he personally use more government services than anyone else?

Get a grip people.

Posted by Guest on Feb. 09, 2012 @ 6:27 pm

While I agree with you that the rich are greatly overtaxed, it is worth considering that they do depend on government far more than you or I do. For me to protect my house (~200k) from invaders takes very little effort at all. For a billionaire to protect his house from invaders, a lot more effort would be required. (and not a relative amount either; it's an exponential amount.) The more money he has, the more tempting it would become, and the more security he would need.

A fifteen billion dollar jackpot would be more than fifteen times more tempting that a one billion dollar jackpot.

Posted by Chaz on Feb. 09, 2012 @ 8:09 pm

Private protection is not government. Billionaires don't pay cops to protect them. They need actual protection. Not just someone to write up a report once things are stolen.

Posted by Guest on Feb. 09, 2012 @ 10:34 pm

It's not private protection. If society were to break down, the extreme rich would be most at risk so they really do benefit the most from a society that doesn't break down. Thus they shouldn't be constantly pushing to have their taxes lowered, resulting in the defunding of schools for our young people.

In societies where the rich don't pay high tax rates, corruption and disfunction is the rule, not the exception. Of course often it was corruption in some form that allowed many of the rich to get rich (look up Jack Abramoff on Wikipedia).

Posted by Guest on Feb. 19, 2012 @ 2:36 am

"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."

You don't need Zuckerberg's wealth to do this - any of us can.

Posted by Guest on Feb. 09, 2012 @ 6:36 pm

When I pass on my gazillion shares of facebook stock to my heirs.

Why didn't I think of this before? Oh wait... I don't have a gazillion shares of facebook stock!

Posted by Greg on Feb. 10, 2012 @ 9:50 am

I think it's a slippery slope when we start talking about taxing un-earned income. I remember when my 401k was worth a lot more than it is today so I'd be pissed if I was taxed at that rate. So stir the shiz up and make a big deal of the one percent; the reality is that we will all pay the bill if we changed the rules. I'm not a facebook fan, but I applaud the creative minds and risk that create it and think we should celebrate their success. May everyone should be so hardworking and inventive. When the state and federal governments start doing more with what we give them, I'll start feeling bad about those who give them less. Until then, it's sort of like arguing over who gave more to pirates.

I'm amazed at how many people just get pissed over the rich instead of getting rich themselves. Seems like a much better plan in my book. We could all pay 7% and the coffers at the local and federal level would be full. Pretty sure under this mess I'm not rich nor paying a paltry 7%.

Posted by Guest on Feb. 09, 2012 @ 6:37 pm

Really? How about instead of getting upset at people who just use the law for them to avoid paying more taxes, to a government who mis uses the money anyways, and be angry and the laws that allow a person to do that. Why is it a crime to you when the government allows that? Be mad at the politicians, who in many cases dont even pay their fair share in taxes.

Posted by Guest on Feb. 09, 2012 @ 8:05 pm

Estate tax rate in the US is 35% after 5 million! So on death 35% goes to the Fed. A single person has to make $388,350 to pay a 35% federal income tax rate.

So 1.5B fed .5B state in income tax at IPO, plus 9.8B fed tax at death.

http://en.wikipedia.org/wiki/Estate_tax_in_the_United_States

Posted by Fact Check! on Feb. 09, 2012 @ 8:22 pm

http://www.fairmark.com/capgain/basis/decedent.htm

The stock will be stepped up to the market value at the time of his death. Hence his heirs will pay no taxes.

Posted by GlenParkDaddy on May. 18, 2012 @ 10:32 am

I don't understand these people who say (1) he paid X billion in taxes - how's that less than me, or (2) he created wealth all around so anyone wanting to tax him are trying to punish the rich, or (3) he doesn't use that much government services, so why should he pay so much...

These are all arguments based on a faulty reasoning.

The question is not whether he is punished, or whether in absolute terms is enough, or what is fair and what is not... The question is only that if - I repeat if - we believe that a progressive tax system is fair in order to maintain a healthy government and economy, then we should not break its intent with "loopholes" available only to corporations and the wealthy. In other words, if we agree that this is the tax system we want, we should also agree that anything that breaks it is not in our best interest. And this is regardless of whether one is rich, poor, use enough government services, or whether in absolute numbers one's taxes are unbelievably high.

Posted by Guest on Feb. 09, 2012 @ 8:23 pm

gains that they have not yet made?

We tax gains when they are made. If FaceBook shares plummet, those gains will vanish unless realised, so why tax them in advance?

Posted by Guest on Feb. 10, 2012 @ 7:49 am

Guest, we do have a progressive tax system.

The more you make, the higher bracket you are in. We also have an AMT tax that disallows many deductions for individuals who would otherwise be entitled to claim lots of itemized deductions and subjects more of their income to taxation than what would be taxed under the regular tax.

What some people are upset about is that we have a tax code that is intentionally designed to encourage investment, and so it taxes long-term capital gains and qualified dividends at a lower tax rate than other types of income. However, this is not a benefit unique to very wealthy people, as middle-class and lower income individuals who make investments also can claim this preferential tax rate. That said, very wealthy people who get their income primarily from investments (e.g. Warren Buffet) benefit more from this preferential tax rate than very wealthy people who earn their income (e.g. Beyonce or Angelina Jolie) and working middle-class and lower-income people. Many years ago, we decided it was good public policy to encourage investment by taxing investment income at a lower rate; maybe, circumstances have changed to revisit this decision, but it does not make our tax system more or less progressive to have this rule in place.

Moreover, it is factually untrue to state that Mr. Zuckerburg is subject to a 7% effective tax rate on his income. What the author is arguing is that somehow it is unfair that Mr. Zuckerburg is only taxed as he sells his stock and realizes income, rather than being taxed on paper gains, which could disappear tomorrow or next week or never--who knows? Taxing unrealized earnings is a separate policy discussion and does not necessarily make a system more or less progressive. Taxing people on paper gains would create a situation where, yes, Mr. Zuckerburg would owe a lot more tax, but it would be on income he never receive, and also, he may not even have the cash to pay the tax. If we do want to go this route, at least I read a more nuanced proposal made by a prominent tax attorney in the New York Times that would consider in subsequent years whether the person actually realized the income and give them a tax credit back if their paper wealth disappeared. But, again, this should be a separate discussion, and not founded a falsehood that misstates how are tax system currently works, or what effective tax rate Mr. Zuckerburg actually pays.

Posted by Chris on Feb. 17, 2012 @ 5:11 pm

individuals are treated the same way as proprietary trading desks that have to "mark to market" and are taxed on their paper profit.

However, very few nations tax individuals in this way for precisely the reason you note - there is no guarantee that the individual will have the cash to pay the tax.

I agree with you that if Tim wants to advocate taxing on a "mark to market" basis then he should state that explicitly, rather than generically whine about how it variably works out from one year to another.

Posted by Guest on Feb. 17, 2012 @ 5:31 pm

Why did Mark Zuckerberg hold out so long on an IPO? Because he knows that once that happens, he loses control of his company. His net worth reaches the stratosphere but his company is not his anymore. Wall Street takes over from here on.

I feel so bad for Jerry Wang, yeah, that billionaire. He just wanted to keep control of his company but Wall Street drove him out because he wouldn't cooperate.

What about the two Steves? They go public, Wall Street sends in a guy to fire them.

What about Netflix. They go public, Wall Street tells them they are not charging enough.

Forget about Mark Zuckerberg and Facebook. That's a Wall Street company now.

Posted by DanC on Feb. 09, 2012 @ 8:30 pm

How is that related to anything in this article?

Posted by Guest on Feb. 09, 2012 @ 8:34 pm

There's a certain underclass of people who like to parse emails rather than address the subject at hand, anonymous "guest".

Posted by DanC on Feb. 10, 2012 @ 9:22 pm

Um, if Zuck doesn't sell any of the stock, where would the money to pay the taxes on what he didn't sell come from, exactly?

Thank goodness I don't have to pay taxes on the stock I hold in my portfolio! Do you, article author, pay tax on your stock holdings when you don't sell something?

(And hey, that yacht the Larry bought - he paid someone for it and likely those people earned money as builders and sellers of the yacht. They paid tax, right? So thank goodness someone employed them so they could pay tax... Or we'd all be better if no one bought anything. That would make it a great nation!!)

This was the dumbest article I've seen in a while.

Posted by An irritated reader. on Feb. 09, 2012 @ 8:33 pm

Talk about a greedy scumbag.

Tim is clearly an unaccomplished individual who can't appreciate the realistic contribution $2 billion makes. I'm no personal fan of Zuckerberg, but Tim Redmond is only attacking him (and any other successful entrepreneur) out of his own secret jealousy and dejected ego. I'll guarantee you: if Tim Redmond even comes close to achieving the success and earnings of Zuckerberg, he'll flip 180 and coat his own ego with trappings and glam.

Posted by Anonymous on Feb. 09, 2012 @ 9:24 pm

of math or economics. I am all for the likes of people like Buffett or Romney paying their fair share of taxes in a highly progressive tax regime.

What Redmond doesn't grasp is that Zuck's wealth is unrecognized and could go to zero. Ask the founders of many internet companies in the last bubble.

As for borrowing, there is a cost to doing that.

The wealth tax that redmond seeks is confiscatory.

Posted by Guest on Feb. 09, 2012 @ 9:59 pm

Oh God, how I hate the word "fair".
If people like Zuckerberg were to be taxed with 20-30%, the next Facebook wouldn't be in the Sillicon Valley. I can't comprehend how one may even think of "unfair" tax rate on a person whose company created 3000 jobs.

The reason the rate of the rich is lower is simple - if it was way higher, they simply would move or avoid it in some way. Even politicians get that, although their populist babble may sound otherwise. Higher capital gains tax brings lower total revenues, for example.

Posted by Nikolay on Feb. 09, 2012 @ 11:12 pm

The reason politicians "get it" is because they work for the 1%, not the rest of us (the 99%). But you don't like the word "fair" because there is nothing fair about a tax system that increases economic inequality.

http://economix.blogs.nytimes.com/2011/11/18/tackling-income-inequality/

Posted by Guest on Feb. 10, 2012 @ 4:56 pm

That $28 billion that he "created"? It could be gone overnight when the next favorite flavor of social ice cream comes along. It's completely illusory and completely temporary, even if only in the long run. Be happy with your $2 billion...

Posted by Guest on Feb. 09, 2012 @ 11:48 pm

Pete Wilson wanted free weekly "news papers" to pay their, ahem, fair share, papers like the Bay Guardian freaked out at this.

Various "news papers" including the Bay Guardian, freaked out and got Pete Wilson to back down.

If your paper is an apologist for government run wild, scream and moan about taxes, on other people.

Posted by matlock on Feb. 10, 2012 @ 3:22 am

Tim's willful ignorance of even the basics of the tax code would be comical were it not so sad. He's the shrieking rictus of liberalism, always crying out to be fed and never sated.

Posted by Chromefields on Feb. 10, 2012 @ 9:37 am

You've obviously taken a page out of the rightwing playback~ that is, "just keep repeating the 'politics of envy' meme over and over ad nauseum until people believe it. Tell me, have you met Tim Redmond? If not, you don't know jack squat about him. Admit it. And enough with ad hominem attacks.

Posted by Guest on Feb. 10, 2012 @ 4:43 pm

Tim constantly bellows out his often bizarre left-wing views with a foghorn?

It's not like his views are either unknown or unpredictable.

Posted by Guest on Feb. 11, 2012 @ 4:25 am

". . . repeating the 'politics of envy meme . . . "

Good phrasing. The politics of envy meme was also thrown at anyone who objected to the lionization of Warren Hellman, heir to the Wells Fargo fortune, who spent most of his working life at Lehman Brothers, a corporation noted, as Wells is now, for underwriting the private prison and coal-fired power industries.

Zuckerburg's creation is not so horrific, on its face, but one could also say that his genius is persuading much of the world to blog for him and collecting all the ad revenue himself. Great business model. He did what the Huffington Post did times hundreds of millions. In a different society, Facebook might be seen as an accomplishment built on the labor, ingenuity, and creativity of others, in the past and now, and its fruits might thus be more evenly distributed, among many people, including millions of workers making many more millions of I-Phones and laptop computers, in brutal, overseas electronics assembly plants, where none will ever have the remotest chance of seeing their own talents flower as Zuckerburg's have.

Posted by Guest Ann Garrison on Feb. 17, 2012 @ 6:17 am

Yep, guess that's me. I'm the one who agrees with the tax rates imposed by that socialist Richard Nixon, who realized that if you're going to have a war (Vietnam) you have to pay for it (with surtaxes on the very rich). Oh, and that lefty nutcase hater of success Warren Buffet, who agrees with me that the rich don't pay anywhere near enough taxes.And that uneducated lunatic Robert Reich, who served as secretary of labor under that Wall-Street-hating Bill Clinton.

Fact: The American economy functions better when there is less wealth inequality. Fact: One of the best ways to lesson wealth inequality is through a progressive tax system that uses the excess (yes, excess -- nobody needs $28 billion) money of the rich to pay for, say, education for the poor and working class.

Fact: If the Facebook crowd paid the level of taxes that I suggest, they will still all be stinking, filthy rich with more money than they could ever spend in their lives. And maybe the public schools would be able to hire more teachers and reduce class size -- which is a proven way to improve student performance.

How much is enough? How rich do you have to be? Isn't $10 billion enough for Zuckerberg? Be serious.

And since taxes are measured as a percentage of your income, hs WILL pay less tax than most of us.

Posted by tim on Feb. 10, 2012 @ 11:03 am

When I file my taxes, it doesn't say "Pay 15%". It says pay a dollar amount.

The richest 2% of the population pay half of all taxes. Only you could argue that's not enough.

And it isn't "wealth inequality" that is stopping economic success. America became great long before we saw the massive tax hikes of the 1960's under LBJ. Everybody being mediocer doesn't create great economies.

Our problem isn't with the odd rich billioanire but with the poor who consume vast amounts of benefits and subsidies, draining the free market of investible resources.

If you want to lessen inequality, get the poor to work harder.

Posted by Guest on Feb. 10, 2012 @ 11:39 am

Then the top 2% earn almost as much as the lowest 150 million, why wouldn't they pay half the federal income tax? And keep in mind, that is just federal income tax you're talking about. FICA, federal gas tax, state gas tax, and sales tax all end up charging more as a percentage of income to the poor. Most states have flat taxes on income.

Posted by Guest on Mar. 14, 2012 @ 10:54 am

The top 2% do not pay 50% of all taxes. Why do you wingnuts lie about such easily checked facts? Do you believe the drivel you spew?

Posted by GlenParkDaddy on May. 18, 2012 @ 10:30 am

Where is your stat from?

Posted by Guest on May. 18, 2012 @ 11:07 am

But cherrypicking and stitching together a few points of agreement from disparate sources is more befitting of a high-school term paper. Keep that SPF 50 around -- I don't want your palms to get sunburned.

Posted by Chromefields on Feb. 10, 2012 @ 11:45 am

you pooh pooh'd him for giving $100M to the Newark Public School system earlier this week?

I'm sorry, but I can't get too upset about a guy's tax rate when he has already dedicated the bulk of his fortune to worthwhile causes. In this case, I have more faith in Z getting his money into beneficial hands than I do the State of CA.

And, if he has realized gains of $5B and is paying $2B in taxes, that's 40%, which is a shit-ton higher than the rate I'm paying

Posted by DanO on Feb. 10, 2012 @ 2:49 pm

So he will pay more tax then you & your entire family tree will ever earn or pay to the US gov't. And this is grossly unfair. Why don't you invent the next facebook and then liquidate your entire fortune (shares of stock) in the same year it goes IPO & offer to pay 35% income tax rate on the proceeds. I'm certain you'd feel differently then. Or perhaps you can go ahead and buy some facebook stock in your retirement or brokerage account and make your own fortune off someone else back. Get some skin in the game... will you? Last time I checked, the IRS accepts donations. Break out your personal checkbook and sign away.

Posted by So sad on Feb. 10, 2012 @ 11:17 am

While I agree that the tax system is gamed to death, I just have a question about the numbers presented here. His stock options are theoretically worth $28 billion, but he's only exercising $5, correct? So in reality, he's seen $5 billion in gains which is what is taxed. It would be no different if you or I would buy shares in a company and see its value go up. But you don't pay taxes on a paper increase, only when you've actually gotten a gain from the sale of the stock. With regards to Ellison's clever ploy, well once again, the tax code is rigged to be gamed. I wonder if Ellison wrote off the interest expense on that loan. I'm sure there is a way to fix that...well assuming we had a political class that weren't such sell outs.

Posted by Johnny Venom on Feb. 10, 2012 @ 11:18 am