Mark Zuckerberg and the case for a wealth tax
The Economist has a cute chart today, showing the net worth of the world’s richest men (and one woman), divided by their age. Warren Buffett has, on average, built just over $600 million of net worth per year of his life, putting him just behind Bernard Arnault and well behind Bill Gates and Carlos Slim, who right now constitute the billion-dollar-a-year club. (I’ll save you the math: that’s $2.7 million per day.)
There’s a good chance that when Facebook IPOs, Mark Zuckerberg will join that tiny group: he’s 27 years old, so the market cap we’re looking for here is $95 billion. If Facebook is worth more than that, Zuckerberg will have increased his wealth by $1 billion a year, on average, from the day he was born onwards.
Which helps to put Zuckerberg’s ten-figure tax bill in perspective. If you’ve been getting a billion dollars wealthier every year for 27 years, a one-off payment of $2 billion doesn’t seem particularly excessive, in tax terms — especially if all your other tax bills, before and since, are relatively minuscule.
What’s more, Zuckerberg’s $2 billion tax bill is only coming about because of a quirk in the way his Facebook equity has been structured: on top of his 414 million shares of Facebook, he also owns 120 million options. Zuckerberg’s shares are generating no tax bill at all; it’s only the fact that he’s exercising the options which is giving him $5 billion or so of taxable income, for this year only. (And even that income is offset by the fact that Facebook itself gets an equal and opposite corresponding deduction — and since Zuckerberg owns 28.4% of Facebook, what he’s losing personally he’s partially making up through his corporate shareholding.)
David Miller explains how founder-billionaires get off even more lightly than private-equity GPs when it comes to taxes:
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.
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.
Miller has a rather complicated way of getting America’s ultra-rich to pay taxes: if you earn more than $2.2 million per year, or own $5.7 million or more in publicly traded securities, then you have to mark your wealth to market every year and pay income tax on the amount that it has gone up. Conversely, if your wealth declines, then you can get a massive rebate.
Personally, I think it would be much better idea if we simply implemented a small wealth tax, on top of income tax, for the very wealthy: last year I proposed that any wealth over $5 million should be taxed, annually, at a 1% rate. For someone with $5.7 million in wealth — that’s the top 0.1% — such a tax would increase their tax bill by just $7,000 a year. But for Mark Zuckerberg, it would bite. Right now, he stands to pay essentially no taxes in 2013. But if there was a 1% wealth tax and he was worth $27 billion at the end of 2013, that would generate a $270 million tax bill.
When politicians talk about taxing the rich, a common rejoinder is that income is not the same as wealth, and it’s wealth, not income, which really makes you rich. Fair enough. So let’s tax wealth. It’s fair, and it could provide some very useful revenue for anybody looking to balance the national budget.