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.