The Zuckerberg Tax | Hacker News Reader

The Zuckerberg Tax

nytimes.com

136 pointsteej173 comments

This is a bad idea for so many reasons. People have to understand that the current trading price of a particular stock does not mean as much as they think it does.

Just because a stock is trading at price X at a particular time does mean that one can sell a million shares at price X. Thus if one has a million shares of that company, it is unfair to assume that they have X times a million of ready money. Thus, this tax is unfair and dangerous. It can easily cause a stock's price to collapse as an investor is dumping shares to pay the IRS.

Furthermore, it will probably cause more large companies to go private, which will result in great inefficiencies in our economy.

The problem here is that certain people are trying to think up some weird exotic tax which will satisfy the popular desire to tax the rich more fairly and yet leave those certain people untaxed.

As far as the supposed unfairness of the examples provided by the article that is caused by a loophole that happens at death more than anything else. It seems that when someone dies their heirs get to have a higher basis on their assets without paying any income tax on the asset gains. We can easily close this loophole without enacting new exotic taxes. You can simply make it so dieing does not result in increasing the basis, which is the logical thing to do anyways.

Assuming that this kind of taxation would have no impact on the way stock market works is wrong IMO.

This kind of tax would probably at least to some degree make market participants more weary about "true" or "long term" stock price.

Author is a tax lawyer. The more nonsensical the tax code, the more money he makes.

This is one of the most frustrating article to read I've ever seen on HN. The proposal is completely ridiculous. Ellison and Jobs never selling shares has so much less to do with avoiding taxation as it does with maintaining control and upside exposure.

This proposal would effect a slow creep of management being universally excised from their companies over time, as they're compelled to sell shares to cover their tax liability. I fail to see any good whatsoever that would come of this. All it does is introduce a time decay of company control for founders and owners. The secondary effects of trying to collect a little more tax here would redefine industries.

This article must be some form of NYTimes trollbait. Catastrophic unintended consequences aside, it would be hilariously ironic to use Enron's accounting system in a misguided attempt at tax reform (http://en.wikipedia.org/wiki/Enron_scandal#Mark-to-market_ac...).

Yes, this is a very big problem especially for startups.

Ex: Let's say I set up a nice startup that receives attention from an investor who purchases a 10% stake in my company for a million dollars. My company is now worth 10 million "marked to market". So I will need to pay tax on the appreciation of my 90% stake from next to nothing to 9 million when I haven't actually earned a single buck!

Badly thought out article in my opinion. This move is practically untenable.

There are problems with the proposal, but it does explicitly say it's for publicly traded stocks only and, thus, wouldn't apply to startups.

The author said it was only for publicly traded stock. In your scenario you'd only have to pay tax if you did an IPO, at which point you would have the money.

Regardless of Jobs's and Ellison's intentions, they did avoid taxation despite accumulating large wealth. Furthermore, the people who inherit from them will not pay taxes over this accumulation of wealth, either. This could be a side effect, but it is a real effect.

It is possible to prevent the creep you are referring to, just decouple control from the wealth brought by the shares. After all, this is by design. You can distribute voting rights independent of the share of income. I realize one has to be intelligent about this, but I don't see how it is inherently impossible.

The good it brings is fairness. I am taxed on the wealth I accumulate, so should the others. Now, there are exceptions to this; e.g., very poor should not be taxed since that does more harm than good. Perhaps what is suggested in the article would also do more harm than good, but to me it looks like the harm can be prevented.

As the author off-handedly implies, this only works for liquid investments. It's obviously unworkable for someone with a massive paper gain in an illiquid investment -- e.g., shares in a privately held company whose stockholder agreement prohibits transfers.

But if the proposal would be to force paper gains only in publicly traded companies to be marked to market, then everyone will work awfully hard to avoid ever directly holding shares in publicly traded companies... which, I don't know, seems possibly problematic.

Seems more realistic to go after the revenue on its way in to companies. (E.g., require companies with executives domiciled in the US to pay US taxes on worldwide profits. No more "Double Irish" and zero US taxes for GE, unless Jeff Immelt wants to move to Dublin.)

Your cure is worse than the disease. Who really cares whether they work in Geneva or New York or Sydney or SF? They are all nice places to live, and that plan would be a national disaster.

The US just needs to tax capital gains as ordinary income, and cut the corporate income tax to 10-15% with no exceptions to be globally competitive. The goal is to have more multi-nationals based in the US, not less.

The US just needs to tax capital gains as ordinary income, and cut the corporate income tax to 10-15% with no exceptions to be globally competitive.

This only makes sense if the income used to buy the capital hasn't already been taxed once, when it was earned. Since it already was, you're in effect arguing for double taxation. Which is why capital gains are taxed differently in the first place.

The capital was taxed at ordinary income, yes, but the capital gains was not.

He's right, it's time to start treating capital gains as ordinary income. My fifty dollars of capital generated by fixing a bug at work is equal to your fifty dollars of capital generated by the time/risk value of money.

If anything, I would tax capital gains at 30%-40% while taxing ordinary income at 15%. Actual labor has more utility than raw capital.

Taxing appreciation in the value of stock isn't double-taxation. It's like taxing the appreciation in the value of your house.

Taxing dividends can be double taxation, but isn't necessarily.

Are you aware that sales tax exists, excise tax exists, and that these taxes, along with income tax, are taxes on transfers, not creation? This isn't double taxation, it's n taxation. Money is taxed as it circulates.

I actually got the idea right (taxing capital gains as ordinary income is a bad idea) and some of the reasoning wrong: http://marginalrevolution.com/marginalrevolution/2012/02/div... :

President Obama wants to tax dividends at ordinary income rates. These results, from Marcus and Martin Jacob, should not come as a huge surprise:

    We compile a comprehensive international dividend and capital gains tax data set to study tax explanations of corporate payouts for a panel of 6,416 firms from 25 countries for 1990-2008. We find robust evidence that the tax penalty on dividends versus capital gains is statistically significant and negatively related to firms’ propensity to pay dividends, initiate such payments, and the amount of dividends paid. Our analysis further reveals that an increase in the dividend tax penalty raises firms’ likelihood to repurchase shares, initiate such repurchases, and the amount of shares repurchased. This is strong confirming evidence that when listed industrial firms globally design their payout policies, they take into careful consideration the relative tax implications of their payout choices.*

The US corporate income tax rate is irrelevant to companies like GE that pay no US corporate income taxes.

GE has and will pay large amounts of corporate income tax. GE paid no corporate income tax in 2010 due to a variety of special situations (including the 2008 meltdown of their finance business), and it was widely reported in the news. Since more normal tax years don't make the news, this has led many people like yourself to erroneously think some corporations don't pay income taxes.

Here are some graphs of US Corporate taxes as percentages of profit, GDP, and pretax profit for the last 60 years.
http://blogs.reuters.com/felix-salmon/2011/11/17/charts-of-t...
I'm sure GE has paid some taxes some years, and the graphs must also include firms that lost money, but still, the percentages are very, very small.

Not necessarily true. Large companies can and do currently benefit from higher corporate tax and a complicated tax code. It creates barriers to entry for new companies competing in their market. If you make the tax code simpler it provides them less opportunities to specialize in avoiding taxes.

And tax unrealized gains, to eliminate a loophole that benefits folks who are rich enough to avoid realization.
And to smooth the progressive tax rate over multiple years, avoid punishing the entrepreneur and employees who toil for 5 years to earn one big pay day.

Taxing capital gains as normal income would also have a positive effect on the serious problem that 70% of US companies don't pay dividends, which is really missing the whole point of making capital allocation more efficient.

The author does explicitly state that his proposal is only about publicly-traded stocks, so your first point is moot.
Secondly, regarding your second point, some company or person would be holding those publicly-traded shares, which means that they will be paying tax under this proposal.

Maybe feeding the troll, but in case you were serious...
My point was that the author is forced to use some arbitrary standard like "publicly traded" since such a proposal is inherently unworkable for illiquid investments. But in doing so, the author creates an obvious problem: if "publicly traded" is the litmus test for this new mark-to-market tax, then investors will move investments into non-public vehicles to avoid paying the tax.
As to your second point, the amount of publicly traded float is not zero sum: companies regularly go public and take themselves private to achieve financial, governance, and other objectives. So it is not the case that anyone necessarily would be paying the mark-to-market tax on shares of a currently publicly traded company, any more than it is the case that having an X% corporate tax rate means US companies pay X% of profits in tax to the US government.
If this proposal were enacted, future-incredibly-valuable company F woud avoid becoming a publicly traded company entirely. Facebook, which the author cites because it's headline-grabbing, harms rather than helps his case: they've intentionally avoided going public until now, and could into the arbitrary future if it were especially onerous for the founders/investors for the company to do so. The rational expectation of Facebook principals right now is that the benefits of going public (at least for the founders and investors) outweigh the negatives, because there is a massive liquidity and valuation improvement from doing so.
But under the author's proposal, that cost/benefit analysis would change, and companies would simply stay private and achieve liquidity for founders and investors via other mechanisms. Over time, these mechanisms would evolve into processes that were as close to indistinguishable from public company registration as possible without actually triggering the language of the market-to-market tax law. SEC rules about selling shares to non-qualified investors would still hold, obviously, but I'm sure with so much potential tax to be saved, investors would find ways to legally aggregate non-qualified investors into qualified vehicles to get around this. Or just live with qualified investors, and no others, owning their companies.

Yes, the situation is completely unworkable for illiquid investments.
But that's exactly how the US government treats permanent residents today should you lose your permanent residency, voluntarily or not - all the private stock you own gets marked-to-market and your tax bill is due immediately.
And my wife wonders why I'm paranoid when I cross the border.

> If his Facebook shares decline in value next year, he’d get a refund.
This seems like potentially the biggest problem with the scheme, at least in a sane world. What if, as happens in the markets, the shares decline in a big way? The author addressed it briefly in the end but I felt it was half-assed and an overall unsatisfying answer. The government is happy to take $X where X is huge but next year $X is gone on government spending and the refund due to any reason (bad economy, bad company) is basically created out of thin air. Unless the government happens to be better at using $X to create $X+$c than the original holder of $X, the refund has to be artificially created or deducted from other government programs. Nothing new for our government though, especially for amounts as insignificant as billions of dollars when trillions are so easily created. Seriously, justifications like this:
> 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 sound very convincing to me at all. All this arguing over a few hundred billion dollars over 10 years? The US government is still spending trillions of dollars each year, we're still trillions of dollars in debt. Maybe the government can keep going for another 100 years in this crazy state, maybe it can't. If it can't, I'd rather get the worst of the possible financial problems over with now and have the US citizens deprive the feds from all sources of income and talk about things like taxes and valid uses of tax revenue from a fresh start with an entirely new government (even cooler, a saner and more distributed approach to government than massarchy). This might be radical enough to get some downvotes but I don't think anything less than a radical change will fix things in a way the huge majority will enjoy. (Other radical changes I'm banking more on and care more about are things like a positive Singularity.)

Besides that, is this tax refund for a marked-to-market loss a new element of this scheme? Right now, real losses can only be used to offset similar gains and excess losses are carried forward.

As it stands you can't get a refund for AMT tax against non-equivalent assets. Instead you get to write it off at $3,000 per year against your income. A number of dot com vets have 150 to 200 years worth of $3K/year write off headed their way.

> What if, as happens in the markets, the shares decline in a big way?
The government could wait a full year before spending the money so that refunding from the previous year would be easy. I'm not sure I really understood from the article if refund only happens from one year to the other though and if not how fair would that be.

Actually holding on to cash is a serious issue at the size we are talking about. Over night the feds would be the biggest investor in everything. A small country can go set up a sovereign wealth fund but the US would probably just hold its own paper which is equivalent to spending the money in the first place.

> Unless the government happens to be better at using $X to create $X+$c than the original holder of $X, the refund has to be artificially created or deducted from other government programs
Instead of a refund, a tax credit could be issued which could be carried over for X years.

And the $X won't be of same value because of inflation. Will the govt. gives back the money after adjusting for inflation? I doubt that.

> 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.
I believe this is also what Markus Persson (Notch) of Minecraft fame did. He mentioned a couple of months back about how it's cheaper for him to borrow money than it is than for him to take money out of the company. He's not as rich as Zuck though.

At some point though the borrowed money needs to be repaid, and this would be with income (capital gains or earned income) that is taxed, right? So, I am curious how this works out in the long run. I imagine there is a twist to this I am missing...

Yeah, I'm trying to figure this out myself.

He only casually mentioned it (Twitter link here: https://twitter.com/#!/notch/status/110068027608932352) so I too have absolutely no idea.

You could presumably pay the loan off with shares. Since it was a loan, it's not income, so no income tax.
IANATL, TINLA.

I am pretty sure that paying off a loan with the shares would mean that the shares had been sold in the eyes of the IRS. If not, this seem to be a pretty simple way to avoid paying capital gains on the shares of even small stock sales.

You may be right. Hence IANATL.

Yes, the tax is ultimately the same, modulo the time value of money. However, the idea of the realization requirement is that it's not reasonable to tax someone on a gain in the value of property when they don't have liquid assets to pay the tax, or when they haven't realized benefits from that appreciation. Taking a loan against those assets cuts against that, though. And the time value of money does make a difference. Say your stock appreciates $10 this year and stops appreciating. You will ultimately pay taxes on that $10 when you sell it, but if you can borrow against that money now, you can enjoy current benefits from that money while delaying the tax to years in the future when it is worth a lot less.

Not a tax lawyer, but doesn't the Jobs family pay 35% death tax? The writer intentionally does not mention this. Although this is not income tax, its false to suggest that they are someway cheating the system.
Edit: grammer

You are referring to the estate tax. The term "death tax" is deliberately misleading and used as a propaganda term by those who want to repeal the estate tax.

I won't deny that it's a term of propaganda, but how is it misleading?

Income tax taxes income, sales tax taxes sales. Death tax is not a tax on death. I have heard people equate "death tax" with "paying to die" and as support for the phrase "even death isn't free".

I suppose that technically it's a tax on the transfer of your assets after your death. But unless you have no assets at all, it's hard to die and not transfer your assets to anyone.

I'm not an admirer of Luntz's work, what he does is evil. His active spreading of the "death tax" term, however, is one exception. "Inheritance tax" is better of course, but "death tax" is still better than "estate tax" in terms of conveying the actual meaning and causing less confusion than "estate tax". In any case, this discussion has served little utility (especially considering the GP's question on Jobs' inheritance tax) and I wouldn't mind someone downvoting the whole comment chain.

Do you really think that spreading the term "death tax" caused less confusion than before? Really?
It is a brilliant propaganda term because it makes people think they will have to pay when their loved ones pass away even if they own nowhere near the $5 million cutoff (as of 2011) for paying federal estate tax. In reality, these people are opposing taxes that they will never see.

Good point, you've raised some interesting meta-concerns. I guess it's an interesting philosophical question if a term and its evangelical spread that brings knowledge to more people while simultaneously confusing a subset of them is better than never having the term in the first place and leaving more people ignorant (and thus not confused). I know some people reason by literal terminology and when faced with experimental fact that a term doesn't correspond to what they think it means, they still refuse to change their mind on what they think it means. (Or the inverse of ignoring any evidence associated with a particular term because they think they apply their prior on the term alone, not what it means--my poster-child on this is global warming, every winter you'll hear the same things.)
I don't think it's that interesting that people are actively opposing things that don't affect them, even if in some cases it's fun to point and laugh.
It is definitely a brilliant piece of viral marketing. You know your right-wing propaganda is working when even the few progressive media outlets fall into saying the same things. I'm just not really in agreement with how large the subset of people confused by the term from the name alone is and I think most people confused by the term are likely confused by so many other things that it doesn't matter stressing over the one term causing confusion when the aggregate should be looked at. This may explain why I used to be a grammar nazi when I was a young teen, then realized that there are much larger problems with people's handle on English than problems like typos, their/they're, u/you, and so on. Unsolicited correction these days is mainly for trolling and "lulz". I still get deeply annoyed at the most egregious abuses of English (my pet peeve being the simple then/than), so I can see where you're coming from now. Unlike you, I have yet to run into anyone confused by death tax in such a way as you've mentioned. Of course, I think saying "No, it's not death tax, it's inheritance tax" can mislead them toward the truth in 3 seconds, while saying "No, it's not death tax, it's estate tax" doesn't. All these terms go to the same Wikipedia article.
At the very least I think most HN readers aren't confused in the ways you've highlighted, though they may be misinformed about specific facts like the amount of the cutoff. Maybe I'm wrong though and overestimating the community knowledge. If I'm right, then pointing out the potential terminology problems reduces to a more pedantic point about encouraging habits that will save you outside the community. Just because most of us are emotionally capable of handling abusive statements mixed with other comments (2+2=4 you dumbass) doesn't mean we ought to get in the habit of writing abusive comments.

Actually, it is a death tax. The Gingrich Congress passed it to discentivize people from dying. :P

Yes, can someone clarify what happens at death?
Even with the proposed change, it seems if Zuckerberg dies after the IPO but before the year's end, his heirs would pay no taxes on the stock?

They would pay estate tax of a percentage of what the estate, including stock, is valued at.

That only counts if you are passing it on to someone other than your spouse. The so called "unlimited marital deduction" which comes up frequently in gay marriage debates. If you keep it going with death/marriage/death/marriage you can avoid ever paying the estate tax.

I'm not a tax lawyer either, but if he set up trusts for his family members, they may be sheltered from paying estate taxes on some of that money.

This is correct, but the amount that can be sheltered is small compared to the overall value of the Job's estate.

Spouses are exempt from estate taxes. Had Steve left his stock to his children, then yes capital gains and estate taxes would both be paid on his $2B.

> Not a tax lawyer, but doesn't the Jobs family pay 35% death tax?
Nobody who does any sensible planning pays the estate tax. It is a complete red herring used by politicians to demagogue their constituencies.
It is beatable in so many ways that it's not worth discussing.

This should be combined with my even more radical plan for fixing some irregularities in the year-by-year accounting system for income tax (notably, the fact that progressive taxation punishes you more for earning nothing for nine years and then $1m the tenth year, than for earning $100k steadily each year):
Annually, you calculate how much income you've earned over your entire life (and of course subtract any deductions you've become entitled to over your entire life). Then you look that up in a progressive (i.e. convex) tax function which tells you how much tax you owe for your entire life. Subtract the amount of tax you've already paid with all prior years' returns, and pay the difference.

I think your suggestion is more "fair" for someone who earns a steady income every year of their life, but is horrible for people (like me) that drop in and out of earning money every few years.
Lets say I earn $100k for 5 years, and pay taxes on it during.. then take 5 years break, and only earn something like $10k a year to keep rent ticking over. So I would have to pay tax on $550k over 10 years... that effectively means my tax rate during the later 5 years was calculated on earnings of $55k a year, even though only $10k actually came in. So I have to pay more tax that I'm earning for those later 5 years. Lets hope I saved a bunch during the first 5.
Conversely, my brother is a ski bum and has not earned over $10k a year for the last 10 years. He's actually an Aerospace Engineer, so lets say he now goes and gets a big-wig job for $200k a year for just 3 years. During those three years, he'll only pay tax on an (average) income of $53k, even though he had $200k coming in those 3 years.
It's certainly more appealing to not go to work until the last few years and earn as much as you possibly can in those years... somewhat like the opposite of retirement I imagine.

You're imagining the tax rates as being much higher than they would actually have to be (and I think you also missed that the taxes you pay always end up being a tax-rate proportion applied to the amount you earned that year). Assume for simplicity that people typically have a 40-year working life.
Then when you earn your first $500k in five years, that will be taxed at a rate appropriate to someone who earns $500k over their working life (that is, $12.5k/year). What's the U.S. tax rate at that level, currently? 15%?
So I envision your annual taxes, in your example, as looking something like:
Year 1 Earn $100k Rate 10% Tax $10k Year 2 Earn $100k Rate 10% Tax $10k Year 3 Earn $100k Rate 10% Tax $10k Year 4 Earn $100k Rate 15% Tax $15k Year 5 Earn $100k Rate 15% Tax $15k Year 6 Earn $10k Rate 15% Tax $1.5k Year 7 Earn $10k Rate 15% Tax $1.5k Year 8 Earn $10k Rate 15% Tax $1.5k Year 9 Earn $10k Rate 15% Tax $1.5k Year 10 Earn $10k Rate 15% Tax $1.5k
You won't move into the 25% band until you've earned something like $1.3m over your life.

Hmm. I see what you mean now.
Though it's still extremely unfavorable for people that work sporadically. If I work hard for years then retire early, that means I have to keep paying tax in retirement for the money I earned years ago.
In the example of my brother, lets say he doesn't earn any real money until he's 40.. so he pays very low taxes until then, then starts making the big bucks... at that point the average will never catch up to him before he dies, and he will have not paid enough tax for the money he earned.
It sure is an interesting idea, I just can't see how it would work out.

Let's say I earn 100K a year, steady.
When I move into the 25% band after I hit $1.3m in lifetime earnings, do I have to pay back taxes on the rest of my income that I've been paying 10% on the whole time? If so, then I'm going to owe about 200,000 that year, which is more than my income. "smoothing" not the word I would use here.
Or, do I just start to pay 25% going forward? If so, your plan amounts to a massive tax cut for young people and a massive tax increase for retirees. As a young person, I can live with that, but it's absolutely terrible public policy.

25% going forward.
When you introduce the system, of course, you have to give people credit for all their past income tax paid. Most people of working age will have overpaid and will get a windfall in the form of a huge one-off tax credit, which will compensate them for the higher tax they will pay later in their lives.
If letting people hold onto their money early in life and give it to the government later is considered to be undesirable public policy, it would be possible to even out the tax by including tax deductions based on age. For example, when computing your lifetime taxable income, subtract a "lifetime personal exemption" of $4k times your age. This causes no problems other than that your annual tax bill could potentially be negative (if you earned less than $4k that year).

It might be clearer if you just said the first lifetime $500k will cost you $60k in taxes and your next $500k would cost you $75k in taxes.

This plan does not smooth things out completely because the value of a dollar decreases over time.

This is absolutely true.
Capital gains tax also screws people over because the value of a dollar decreases over time. If that's the biggest objection anybody comes up with I say we start tomorrow (and I'll have an inflation-indexed version worked out by then anyway).

Taxing someone based on their unrealized gains only makes sense if you have liquidity! Instead of making the tax system more complicated with propositions like this, we should just switch to a consumption based tax system.

A consumption based tax unfairly places more tax burden the poor, who is less likely to be able to afford it.

The tax doesn't have to be flat- luxury goods can be taxed at a higher percentage.

And who gets to decide what is "luxury goods"? I think consumption tax is still considered unfair, whether it's tweaked to be "unfair" to the rich, or "unfair" to the poor.

In case you wonder what the term "superwealthy" means in practice, the HEART Act of 2008 could offer some help. The act introduces a mark-to-market tax for people who wish to give up their citizenship, as well as long-term Green Card holders if they give up their Green Card. To prevent the super-rich from avoiding taxation. Senator Kennedy called it "the billionaires' amendment".
Now who is a billionaire according to Senator Kennedy? Anyone with (a) the tax liability above $139k on average over the past five years (inflation adjusted), or (b) the net worth above $2M (not inflation adjusted).
Hope that helps.

Do I understand this correctly? If an American sells an asset the day before he dies, he pays tax on it, but if his widow sells the exact same asset the day after he dies, she doesn't pay any taxes?
I think the colloquial phrase for that is "fucked up".

As far as I can tell, the entire problem can be solved by just fixing this flaw. You don't even have to tax most of the estate, just tax realized gains by the widow/heirs when they sell the stock. And this entire 100 comment+ thread can be avoided.
Or am I missing something?

Yes, eliminate the "tax cost of asset gets reset by death" rule and the entire problem evaporates.
Which, incidentally, is exactly what Canada does in the case of assets inherited by a spouse. (Assets inherited by non-spouses are usually but not always considered to be sold at market value, resulting in a tax bill for the estate. I am not a tax lawyer and this is not legal advice.)

At this point, congress should be focusing on cleaning up the tax code, not trying to tax Zukerberg.
What's unfair is that we got a byzantine taxation system with all sort of exceptions, subsidy, loopholes, plugs, punishment, etc.

That's kind of like saying we should rewrite the Windows codebase because it has all sorts of patches, hacks, etc. Do you have any evidence on how much those things are actually costing us?
I don't (I'm not the one making dramatic claims), but my hunch is that most of the real revenue losses in our tax system are from some broad failings, not little loopholes. Our ridiculously low capital gains rate, for example.
To the point of the article, there is actually a deep-running theoretical difference between various realization schemes. This isn't just "trying to tax Zuckerberg" but rather figuring out how to properly compute "income = net accession in wealth." The theoretical amount subject to tax is: Gain = Net income + Delta(value of property). Theoretically, you could compute the latter term at any interval you like (every year, etc). As a general policy we compute the term at sale of property because it's the easiest time to do so (the valuation is fixed precisely by a market transaction). But for something like a publicly traded stock, that rationale carries much less weight. And the counter-veiling concern of ensuring that the amount does get fairly taxed (instead of being held on-to indefinitely) probably outweighs that rationale in this case.

The one aspect I'm not seeing anyone mention here is the very real implications this has for the company in question. I don't have the numbers, but a tax like this could (and probably would) cause Zuckerberg to no longer have control of Facebook since he had to sell shares. Or Bezos to lose control of Amazon, etc.
I, for one, think this is a big negative.

What concerns me about Mr. Miller's proposal is that if we went to a marked-to-market and in year 1 the stock gained 100%. Then let's assume that provided the government with $5Bil in taxes, the government would spend that money like a kid in a candy store. Then what would happen if that stock lost 50% of it's value in year 2? How would the government have the funds to "refund" that $5Bil back? Would they just print more money?
This idea doesn't take into account how volatile the market is and the nature of government to spend during any surplus. Not to mention all the overhead needed to find fair "marked-to-market" values for pre-IPO companies.
And as other comments have stated, if this were to happen, what would be the motivation of CEOs to drive the price of the stock higher? Wouldn't it be in their best interest to keep it low so their tax bill would be lower?

Or you could simply regulate loans made using stocks as collateral by either setting the minimum APR to say 20% or making the whole practice illegal.
Seems a lot easier than getting a new tax passed (loans are well regulated already) and won't harm the poor guy who is paper wealthy but can't actually sell his shares.

I'm still trying to figure out where they get the money to pay off the loan.

I believe the implication is that it is simply cheaper to refinance.

"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."
Assuming that Zuckerberg has a normal life expectancy, what's the probability that Facebook will still be around in 60 years? Not very many corporations have lasted that long.

This is the risk the banks take using shares in a tech company IPO as collateral. How does this weigh in on the proposed tax?

This article has a fundamental flaw. It starts with the premise that some outrageous tax revenue level is necessary, and from that premise tries to analyze the fairness of the existing tax code.
There's one thing I would really like to understand. I've been mulling this over for a couple of months, and I'm coming to the conclusion that a vote in favor of ANY tax is immoral.
If I cast a vote for a tax, I am voting in favor of taking money from someone else, with the force of gunpoint and the threat of prison. How can that be moral?
Since coming to this conclusion, I have tried to find arguments, and they usually start with "well, we need to have a tax, or no one will pay." (Romney even said that in one of the debates.) But I can't find any proof to this statement, and I find lots of things that disprove it.
1) The United States was founded with a volunteer militia funded completely voluntarily. (And at the time, citizens had to pay tax to the enemy of the revolution, England.)
2) Numerous organizations ranging from charities, to huge churches that have survived several millenniums, to a complete country (Vatican City) are funded voluntarily, and do that quite successfully.
3) Free people freely give to causes that they believe in. And people believe in freedom. It would not be a hard sell.
The whole argument that we have to get more from the rich (or more from anyone, for that matter) is standing on this shaky ground - that somehow it's moral for "the majority" to steal from others through a diffuse system of voting, representatives, laws and organizations like the IRS. But it's you and me, stealing from other people, and using organizations like the IRS and the police force as our weapons. And that can't be right.
Honest question: Can someone convince me that it's not immoral to vote for a tax? Please don't down-vote me for asking a question, because I am honestly trying to understand. If you disagree, help persuade me.
Edit: I WANT to pay for freedom. I DON'T want to FORCE someone else to pay for freedom (which has an obvious contradiction).

I think your idea that people will pay for something they believe in really only works out in fantasy land, not the real world.
In fact, your sentiment is the exact case study that shows how horribly this would fail. You are saying that a vote in favor of any tax is immoral - therefore promoting a "more for me" attitude. Just imagine if everyone thought like that. Your utopia will quickly crumble.
I think fantastic cases in point are Google, Apple, Facebook, etc. These are massive corporations making billions in profit, and paying less tax than you and I do. Sure, they could pay more if they wanted to, but are they? Why not? Because they (or the shareholders) have a "more for me" attitude.
(On a side note, I can't believe Google are doing that and still get away with their "Don't be Evil" line. Everyday Google use simple public services (Police, Fire, road, courts, judges) and don't pay for it. That looks evil to me.)

I cited several examples where this works in the "real world" and not fantasy land. You cited zero.
I NEVER advocated not paying taxes - I pay my taxes as I am forced to do, and I do it "honestly". So your second paragraph is simply inaccurate. I would also give to an organization, if there was one (maybe there is), IN ADDITION to paying my taxes, that promoted the establishment of such a system of FREE choice in government. I also give to charities. Each of these points disproves your second paragraph where you claim that this is just a "more for me" attitude.
Your point that corporations not paying tax somehow disproves my point is a red herring. Corporations are structured with charters which dictate objectives, which are often to maximize shareholder value. I am talking about people, humans, not corporations. People give to causes that they believe in, and people believe in freedom.
So I appreciate the reply, but you really didn't say anything to persuade me. You just went back to the "it wouldn't work" argument, without shooting down the MANY examples where it DOES work.

Sorry, I didn't understand your stance.
I'd like to clarify:
You don't advocate not paying taxes[1]. (so you advocate paying taxes)
You think a vote in favor of ANY tax is immoral[2].
Is that right?
[1] quote from your second comment. [2] quote from your first comment.

I am not trying to start a rally to get people to quit paying their taxes.
I am trying to ask the question as to whether voting for a tax is moral. I have come to the conclusion that it is not, and am asking for some reasons why that might be an incorrect conclusion.
I believe in freedom and supporting freedom financially. If I had a choice of paying my taxes, or paying 10% more to an organization that supported a system of government with no taxes, I would choose the latter. But I am not aware of any such choice, so I naturally pay my taxes, which is the closest thing that there is.
Let me say that again: I WANT to pay for freedom. I DON'T want to FORCE someone else to pay for freedom (which has an obvious contradiction).

But why stop at taxes then? The same argument can be applied to say, theft. I don't want to steal, but I would not force anyone from stealing.
And before you bring in the obvious thing that stealing harms people, so does not paying taxes. Not paying taxes means that people take from society without giving back their fair share. Not paying taxes means million of kids sleeping hungry for no fault of their own but being born in to wrong parent. It means crime running rampant, as there is no police to stop criminals. If someone can come up with a society where everyone can pursue happiness without having to pay taxes, I am all ears.
As for now, not only is it moral for you to pay tax, but it is also moral for you to "force" people to pay their fare share, if you want to maximize utility and happiness in society.

Not paying taxes harms people??? That's pretty funny. Yeah, it harms the person not paying taxes.
Your false assumption is that people (as a whole) wouldn't pay an equivalent amount, or more, to charitable organizations or government, if they were not compelled to pay taxes. It's very closed-minded. I'm actually somewhat shocked at the responses on HN, because this crowd usually doesn't jump to unproven conclusions.
> Not paying taxes means that people take from society without giving back their fair share. [citation needed]
> Not paying taxes means million of kids sleeping hungry for no fault of their own but being born in to wrong parent. [citation needed]
> It means crime running rampant, as there is no police to stop criminals. [citation needed]
You, too, are making the leap that compulsory taxes are the only way to raise money for services. It's already been demonstrated numerous times, every day, that voluntary contributions can fund every one of these services. Not only that, but it can be done more efficiently than through a tax system.
Point by point: first addressing People who don't pay taxes don't pay their fair share. It seems to me that someone like Bill Gates or Warren Buffett (who happen to be the EXTREME, so should be great examples to PROVE your case), actually pay FAR MORE than their "fair share" (whatever that is - apparently you have some sort of formula), by donating vast amounts of wealth to charity (to keep kids from sleeping hungry).
People cite Romney as an example of someone "not paying his fair share", yet he gave far more to charity than most people.
Great use of the "Think of the Children" argument, by the way. Suckers everywhere would fall for it. But the fact remains that charitable organizations, through VOLUNTARY contributions do tremendous work in the US and around the world. Filtering charity through government bureaucracy and waste, in an effort to "help the children" is nonsense. People WANT to live in a society free from starving children, which is why charity does as well as it does. Imagine how much MORE it could do, if we weren't FORCED to pay the government.
People also want to live in crime-free environments, and people with the most to lose may have extra incentive to do so. So much so that private security forces are funded all the time voluntarily.
I haven't read an argument yet that has convinced me that I can decide what someone's "fair share" is, and force them to pay it based on MY arbitrary decision. I DO have a sense of what is reasonable for me to pay, and I do believe in generosity. But I'd rather give because it's the right thing to do, not give because someone made me. But I still willingly pay my taxes "honestly". I just don't think it's right that I dictate how much someone else pays.
As I have shown, the argument really can't be extended to theft. Freedom does not extend to harming others. "My freedom to swing my fist stops at your nose", or whatever that saying is.
Not paying taxes does not inherently harm anyone except the non-taxpayer, who goes to jail. There are plenty of other ways to "pay your fair share" as you say, without being forcibly compelled to do so.

It's obvious you need to go and live in some third world countries for a while. Spend 6 months in each of Bolivia, Peru and Ecuador then try and tell me this stuff. Watch what actually happens when people don't pay tax and do (pretty much) whatever they please.
You will never look at the world the same way again, I guarantee it.

If taxes weren't mandatory, I wouldn't pay them. Most people I know wouldn't either.
Then suddenly things like road systems, hospitals, schools, police, water systems, sewer systems, and courts would no longer be able to run.
Do you honestly believe that you could run a major developed country on donations? The Vatican doesn't count because it has a population of 800 and is run by the church.

>Then suddenly things like road systems, hospitals, schools, police, water systems, sewer systems, and courts would no longer be able to run.
Exactly. And people would no longer be using Facebook. Citizens who personally benefit the most from this great society are, similarly, the most indebted to it.
While certainly morally just, this is beside the point: It is imperative that such a society continues to exist so that the _next_ Zuckerberg/Jobs/Gates has the opportunity to advance our species further.

My country for a long time believed, that you even can't run a shoes store without government owning it.
Why private roads, hospitals, schools, police, water and sewer systems can't exist?

I doubt people would donate enough to support a modern military, but maybe we could get by with a smaller one (personally, I wouldn't count on it). Overall, it would at least take a pretty radical change in our culture, which has gotten used to receiving from the government.
I would definitely like to see people having more direct control over which projects their money goes to, though, like earmarking some of your (already mandatory in my scenario) money for street repairs near your house. Projects people care about get funded. Bridges to nowhere... less so.
What in your view is the threshold for government action? Is it only to prevent violence, or similar violations of person and property?

> What in your view is the threshold for government action? Is it only to prevent violence, or similar violations of person and property?
My views are evolving, which is why I asked the question in this forum, which I consider to be pretty sharp and left-leaning. I think government could extend beyond what you suggest. Public works projects are not out of the question. Establishment of just laws seems reasonable. Protecting the country from the tyranny of other nations seems necessary.
I think the US Constitution is a good place to start, to determine the threshold.
I actually have little doubt that we could raise enough money through donations to support a modern military. The people who have a great deal of wealth have reason to protect the system; many have a strong desire to make a difference.

> If I cast a vote for a tax, I am voting in favor > of taking money from someone else, with the force > of gunpoint and the threat of prison. How can that > be moral?
How can you run a government without revenue of some sort?
You suggest donations, but I seriously do not believe that it would be possible to get enough money to run a government based entirely on that. Even with a 'trimming of the fat' in government, there would be too many people willing to try and 'game' the system.
(I guess it would possible to cut the required money even further by making government offices on a volunteer basis, but that would setup a bad set of incentives. It would only attract rich people that could afford to do something like that on a volunteer basis and/or people that are power-hunger/power-seeking.)
> 2) Numerous organizations ranging from charities, to > huge churches that have survived several millenniums, > to a complete country (Vatican City) are funded > voluntarily, and do that quite successfully.
You're ignoring:
1) For several hundred years some of those religions were the official religions of several counties, and 'donations' were compulsory[1].
2) The Vatican is not completely funded voluntarily[2]:
The Holy See, which depends largely on investments for its annual income, had income of about $326 million and expenses of about $313 million.
There's also tourism, in addition to "Peter's Pence" (donations to the Holy See, Vatican's governing body). I tried looking for actual numbers, but didn't find anything in the little bit of looking that I did.
[1] http://en.wikipedia.org/wiki/Tithes
[2] http://ncronline.org/news/vatican/vatican-budget-surplus-201...

> How can you run a government without revenue of some sort?
How does the Mormon Church work? They have no tax. Don't tell me tithe. There's no threat of jail time and income confiscation for not tithing.

social pressure can be incredibly effective, especially when you can make people feel like the world is empty without the impact the "inside group" you think you belong to is making.
they make people think their only choice is remain "accepted" or be cast out among filth. mormons are good at it, but the catholic church perfected it centuries before, and it isn't limited to christianity or even to religion. heck, political parties do it, too-- no law making you join a party.

In the Mormon Church, tithing is required to attend services, and especially to use church facilities for major life events (i.e., weddings or baptisms). Effectively, tithing is a tax levied by the Mormon Church on Mormons.

You said two different things: that tithing is payment for facilities, and then that tithing is a tax.
Mormons - all people - have the free choice to pay or not pay the Mormon church. And they do quite well.
I would have no issue with a government that said "If you want to use our services, you need to pay. If you want to use roads that we build, you need to pay." And then people could freely choose.
I have an issue with demanding that someone else pay for their so-called "freedom".

It's not required, always, to pay tithing to attend the standard sunday services in the LDS faith. But if you wanted to get help from your bishop, who has the ability to grant about $5000 USD to anyone of his choosing (I think per month), he will most certainly note if you are contributing to the church if you ask for help paying utility or medical bills, which is not uncommon. Mormons that wish to be married or sealed in the Temple will also be scrutinized of their contributions.
Like you noted, when relating it to Government tax, if you decide to never pay taxes again, you wouldn't get thrown in jail or forced to leave, but you wouldn't get to enjoy the simple things in life, like roads, police, ambulances or the fire department.
You could probably live a life like Henry David Thoreau, but it probably wouldn't be very comfortable.

Have you considered that stable currency is a service performed by the government? Feel free to accumulate wealth, just don't use government backed currency.

First, I am not saying that I don't value government services. I am saying that as someone who believes that people should be free, it's disingenuous of me to force someone else to pay for freedom, through the threat of guns. (I am completely willing to pay my "fair share" and more.)
Second, if the government provides a valuable service, people should and would WANT to pay for it. So there's no need for me to FORCE someone to pay for it.
Third, you named a great DISservice. Currency "stably" heading to zero [1] is really not a valuable service.
[1] http://www.profitscore.com/articles/prof_ValueofaBuck_Aug-09...

People are usually talking about stability from wild fluctuations when they are talking about stability in currency...

Agreed, but it's the same organization that is performing both "services" - providing stability and guiding it "stably" to zero.

> I would have no issue with a government that said > "If you want to use our services, you need to pay. > If you want to use roads that we build, you need > to pay." And then people could freely choose.
Just by living in the country you are accessing the benefits of those things though.

> How does the Mormon Church work?
You keep using religion as an example for how to run a government on donations. Do you really think that the government should be modeled on religious power structure? Are we supposed to run a government fundraiser by promising salvation in the afterlife?
Also, with religion, I'm sure that it's possible for someone to be 'kicked out' of the religion for not paying dues. In the case of a sovereign country, where would you deport a US citizen to for conscientiously objecting to the collection of taxes?

The best example of voluntary contribution to a government is the founding of the US government itself. It was entirely voluntary, while taxes were being collected by the enemy. And yet somehow this was successful enough to overthrow the largest world power.
But the obvious objection to that is "times have changed". Religious institutions and other charities are simply modern examples.
Personally, I believe that the entire US government (in its present state and power structure) could be funded voluntarily. Not by promising salvation in the afterlife, but by marketing to the citizens that if you want to remain free, it's your civic duty to contribute (at some prescribed rate).
Since arriving at this new way of looking at taxes, my attitude at the ballot box will be something like this: When asked "Do you approve an 'x-mil' tax levy for the Department of Disability?", the question is NOT asking me "Are you personally willing to support the Department of Disability for Y-dollars?" (which I wholeheartedly support), but rather "Are you willing to hire enforcers to enforce the extraction of payment from someone who may not agree or may not be able to support the Department of Disability? The enforcers may harass, bind, and imprison those that do not support it. And you are hiring these enforcers." Because that is REALLY the question being asked.
At that point, I need to make a moral decision. Is the tax so important that I am willing to vote to imprison someone who doesn't support it?
On the other hand, I am perfectly willing to "sign up" on the spot, for automatic deductions for myself to support the Department of Disability. But that isn't an option. And it should be.
In order to "phase in" widespread voluntary "tax", each organization would need to facilitate easy acceptance of direct payments (just like charities do), and our leadership would need to "market" to the people that contribution is the right thing to do (just as Obama, Bush, and Clinton did in soliciting donations for Haiti).
Pretty simple, really. You'd know pretty quickly whether it was viable.
Honestly, tax is the "lazy man's" way to raise revenue. "Let's just vote it in... then we don't have to justify it further."
I would cringe if my contributions to Wikipedia were mandatory. Yet Wikipedia is always able to raise the funds necessary to continue on their mission. But if they started preaching eternal damnation if you didn't contribute, I bet the contribution spigot would run dry.

Maybe I'm just not seeing the path there. If we were to completely implement this system with a twitch of the nose, then I think the government would collapse. There would be too many people willing to 'play chicken' with whether or not the fire department will put their house out if they don't opt-in to the fire department donations. Why? Because you don't want 1 house fire to cause more.
Just letting someone die (not rescue them from the burning house) or letting their house burn down would not sit well with others.

I guess that would depend on an individual's moral code. I, personally, would argue that it's immoral to vote against a tax.

Interesting. Is there any logic behind that?

It's almost impossible to make major decisions without being unfair to some people. Ask any manager.
Voting requires the voter to make decisions, hard decisions. Even decisions about other people's money. Sometimes the status quo is unbearable and something has to be done. Where exactly is the unfairness in taxing wealthier people at the same percentage as middle class and others? I'm pro capitalism, but the argument that capital gains taxes need to be lower than income is a separate argument. There are probably great reasons for capital gains taxes to be much lower than income, but fairness isn't one of those reasons.
1. Volunteerism doesn't scale.
2. Charity doesn't support everything. I've done non-profit fundraising and rich people like to give money to put their names on buildings a lot more than they like to fund operating expenses in local charities.
3. People like roads and bridges and such, but a lot of services require people and salaries and it's much harder to raise money for things like that.
It's not immoral to vote for taxes. People vote for taxes that they pay and they vote for taxes that they'll never pay, but when individuals in the government don't act, the responsibility to do the difficult lies with the voters.

People thought something as complicated as an Operating System couldn't be written by volunteers also, because volunteerism doesn't scale.
> Where exactly is the unfairness in taxing wealthier people at the same percentage as middle class and others?
I have no issue with cutting the middle class tax. The false premise in the article leads people to the false conclusion that the only solution is to raise the tax on the wealthy.

> This article has a fundamental flaw. It starts with the premise that some outrageous tax revenue level is necessary, and from that premise tries to analyze the fairness of the existing tax code.
It's really not. The proposal in the article has a strong theoretical basis. Read the chapter on realization in this book: http://www.amazon.com/Chirelsteins-Taxation-Concepts-Insight....
> Honest question: Can someone convince me that it's not immoral to vote for a tax? Please don't down-vote me for asking a question, because I am honestly trying to understand. If you disagree, help persuade me.
Taxation is only "immoral" if you believe in radical individualistic libertarianism. That is not the only tenable view of the world (and I'd argue it's not even a tenable view of the world).
Alternatively: 1) Human beings are inherently social, communal creatures. 2) Division of labor requires social organization. 3) Without division of labor, you can't create wealth. 4) Government is created by groups of humans to implement social organization and facilitate division of labor. 5) Fine-grained division of labor yields a huge surplus (i.e. the total production of society using socially-organized division of labor is far higher than the aggregate production of a group of unorganized individuals). 6) The proceeds of that surplus, which exist but-for the institution of social organization, don't morally have to be distributed in any specific way. 7) The rules underlying the social organization are there for utilitarian reasons, and taxation is just another rule that should be justified on utilitarian reasons.
There are no God-given rights. "Rights" and "property" make no sense at all without society imposing, by the threat of force, certain rules on certain people for the greater good. "Theft" is different from "taxation" because the former is not sanctioned by society, for utilitarian reasons, while the latter is sanctioned, again for utilitarian reasons.
Zuckerberg and Elison wouldn't be rich but for the existence of government. They'd be at the bottom of the pecking order, physically weak nerds that would be enslaved or killed by the physically strong. Indeed, "billionaires" on their scale would not exist without government--a society without an effective government can't create that kind of wealth! When society institutes a set of rules to create a net benefit from the combined productivity of a large number of people, why is it "immoral" for society to then decide how those proceeds are distributed?

Maybe I am misreading what you are saying, but I didn't say taxation was immoral. I said it's immoral for me to vote to impose a tax on someone else.
There's nothing inherently immoral about taxation, and certainly if I wanted to vote to impose a tax on myself, that wouldn't be immoral.
You make some interesting points, but it's exactly the "sanctioning by society" that I am questioning. Actually, what you may mean by "society" is "the majority". If everyone in a society agreed to something, then fine, you are not forcing someone to do something. But if not, then it's not "sanctioned by society", but rather sanctioned by a subset of society.
The US Constitution was written to protect the minority from the tyranny of the majority.

> Maybe I am misreading what you are saying, but I didn't say taxation was immoral. I said it's immoral for me to vote to impose a tax on someone else.
The distinctions you're making only make sense in the context of radical individual libertarianism. "We" are imposing a tax on "our" members as a condition for belonging to "our" community. If I vote for a millionaire tax, and strike it rich tomorrow, I'm subject to the tax too.
> If everyone in a society agreed to something, then fine, you are not forcing someone to do something. But if not, then it's not "sanctioned by society", but rather sanctioned by a subset of society.
Again, that's a pointless distinction. Society inherently operates through collective action, and collective action is inherently majoritarian. Organized society only exists because the majority forces the physically strong to respect arbitrary concepts like "property rights" and the "right to life." Society does this for the greater good, but make no mistake that there are a lot of people who are worse-off under this system (Zuckerberg isn't one of them--think the big burly moving guy who occupies a very different place in our society than he would in the state of nature).
> The US Constitution was written to protect the minority from the tyranny of the majority.
No, it was not. The Constitution put in some safeguards to protect individuals from the majority, but most of those protections aren't even in the main text but rather in the Amendments. Article I of the Constitution is an elaborate exercise in defining the metes and bounds of majoritarian rule through a Congress elected directly or indirectly by the majority. Most of the founders were not radical individualistic libertarians, but rather people who believed strongly in the rule of law and the institution of government (the Constitution was a reaction to the Articles of Confederation which was deemed too weak of a government!). It was framed by people who regularly invoked the language of the collective (the first words are "We the People"), and were from a legal tradition where absolute sovereignty was vested in the government.

Your argument that there's no such thing as "rights" and that they are arbitrary concepts is false.
Yes, they are protected by the government by force and it's possible for someone to violate your rights.
This does not mean the rights are arbitrary. The right to life is a fundamental good agreed upon by pretty much every culture and civilization in the world. No one sanctions arbitrary killing.
You are starting to move into the world of moral relativism which is a false moral philosophy.
Even the utilitarian philosophy relies on some fundamental ideas about what is good and should be promoted.

Look at animal society for an idea of what "rights" are natural. Now, that does not mean that different sets of rules aren't more or less useful than others. But that doesn't make them any less arbitrary. You can pick parameters that optimize the lift of a wing, but that doesn't make those parameters "natural" or "god-given." Whatever "truth" exists in those parameters is defined entirely by the desired outcome.
"Right to life" and "right to property" are socially useful fictions, encoding rules that optimize in some way desired social outcomes. They are useful only to the extent that they further those outcomes. The metes and bounds of those rights are defined socially. We might argue, internally, that some configuration of those rights would lead to outcomes that we as a society think are desirable, or that some configuration is incompatible with other configurations, but whether they are morally "right" or "wrong" is a socially constructed fact.

I'd only look to animals for ideas of where rights come from if I saw no distinction between the humans and animals.
There is evidence that suggests humans are born with moral intuition. There is a natural aversion to killing others (that can be overcome by conditioning) which suggests there is at least one natural law. There is also research suggesting that human babies have a sense for fair play and justice. I'll have to cite this at some point; I believe I read it a Malcom Gladwell book.
You also still haven't explained how society decides what is desirable and what is not. If you keep asking why, it will eventually lead to a natural right or fundamental good.

Aversion doesn't necessarily have to reflect an underlying natural law. In the case of killing, indiscriminate attempts to kill would threaten personal fitness, because there is a good chance the attacker could be killed in turn. This risk becomes more prevalent as tribes and societies develop to increase the fitness of their members. Indiscriminate killing within ones tribe would threaten group fitness, and so a viable groups members would need to kill the indiscriminate killer to increase chances of their own survival. Groups that do not act in this way suffer a big fitness penalty, and would not last very long.
Fit humans will not kill others of their tribe, but one merely has to look at the vast history of warfare to realize that there is no similar aversion or restriction on killing outside of one's tribe.

I think the problem with
"We" are imposing a tax on "our" members as a condition for belonging to "our" community.
is that you are forced to belong to community, you can't leave the community with your property.

You can leave the community with the property you entered with: your own body. Why should you be allowed to leave the community with the property you acquired in and under the protection of the community, without following the community's rules?
Zuckerberg can leave the U.S. every bit of property that is truly "his", that he didn't earn but-for the highly-organized society that created the wealth that is his "property."

Well, for starters, where did you even get the concept of "money" from? That's not "yours"; you didn't invent it. Someone else gave it to you. It essentially came from the same place that gave us taxes.
The premise that "taking money from someone else" is inherently immoral is trying to assume an impossible ideal that each person is an autonomous being, and that our lives aren't inextricably interwined with everything around us (or at least that's as much as I can gather from your reasoning). Would you also agree that a police officer arresting a citizen is immoral under any circumstances?
Now I don't necessarily disagree with your notion that taxes are unnecessary (or at least some taxes). I'm sure that it's possible for the government to be at least an order of magnitude more efficient. One somewhat surprising thing I learned (from Ron Paul) is that the income tax didn't even exist until the 20th century. So it's far from clear that it's even necessary.
But I would not start with the assumption that money is a inalienable right. And I don't really understand your alternative. Who is going to beg others to fund things like roads and sewers and subways and food inspection? Fund-raising costs money.
Also, there are a few things that are most efficiently done by a government monolopy -- i.e. it's not practical to have 5 competing subway systems in NYC.
So anyway, I think you're trying to come down too conclusively on one side, whereas the answer is probably more mundane and in between.
(Also, I think you are being slightly dramatic in that in all likelihood no will point a gun at you if you don't pay your taxes. More likely you will get a bunch of letters from IRS over many years.)

> One somewhat surprising thing I learned (from Ron Paul) is that the income tax didn't even exist until the 20th century.
Before the 20th century, the majority of Americans lived in rural areas working on small farms. Industrialization dramatically increased the level of division of labor in the society, and of course as you increase the degree of social inter-dependence, it's no surprise that your organization overhead increases, super-linearly.
If we were talking about any system other than the political system, the proposition that bigger, more complicated systems have exponentially-increasing amounts of organizational overhead would be completely uncontroversial. It's a phenomenon that us engineers see in systems constantly. Yet, when we see it in the political system, we assume something is wrong.
When I work on a small farm, and you work on a small farm, we don't need an EPA. When we live in a city and your factory dumps poisons into our shared river and makes my kids sick, we do. When we work on small farms, we don't need an SEC. When we work in the city and our savings consist of securities rather than silos full of grain, we do. When we make all our own clothes we don't need a Consumer Products Safety Commission, when we grow our own food we don't need an FDA, when we work for ourselves on our own farms we don't need an NLRB or an EEOC. When we ride horses to work we don't need an FAA. When we don't depend critically on Middle Eastern oil we don't need a very big Army. When people die naturally of old age at 45 we don't need Social Security. When small, stable, farming communities take care of their poor we don't need Medicaid.

Well, I know people like Wesley Snipes didn't just get a letter and report to jail. I am quite certain that someone showed up at his door, with a gun, and hauled him away. Maybe the gun wasn't pointed at him, but I'm sure it would have been, if he resisted.
http://today.msnbc.msn.com/id/16109063/ns/today-entertainmen...
(Note, I'm no advocate of tax cheats. I'm just saying that the end penalty is not "a bunch of letters from the IRS", it's a guy, or a team of people, showing up at your door with guns.)
Edit: OK maybe Snipes wasn't the best example, since he surrendered. But I bet he would have been hauled off, had he not surrendered.

"Some would argue that it is inherently unfair to tax “paper gains” before they are realized — Mr. Zuckerberg won’t receive $28 billion in cash; he holds only paper. Moreover, markets are inherently volatile; one year’s paper gains is another’s real losses. However, these arguments are far less credible when paper losses give rise to real tax refunds."
Wouldn't it be simpler and more consistent to get rid of these tax refunds, and have neither paper gains nor paper losses taxed or refunded, than to have a separate tax for gains and refund for losses?

All the comments on this thread agree that the proposed tax rule sucks, so they prefer the existing capital gains tax rules. But there is a third option which I think would be the best.
There is clearly a problem with the current capital gains tax rules because it favours people who hold their shares over those that trade frequently, even when the rate of return is the same.
For example, suppose I have two trading strategies: Strategy A buys shares and holds them for 20 years. Strategy B buys shares but trades them once a year for 20 years. Also assume that both strategies produce an annual capital gain of 10%. With the current capital gains rules, Strategy A pays far less tax overall than Strategy B - distorting the market and leading to inefficiencies.
So here's my proposal: make the capital gain percentage a function of the duration of the investment and the average rate of return. For example:
If your investment return was 10% over 1 year your capital gain tax is 15%
If your investment return averaged 10% over 3 years your capital gain tax is 16.23%
If your investment return averaged 10% over 20 years your capital gain tax is 28.21%
If your investment return was 20% over 1 year your tax capital gain is 15%
If your investment return averaged 20% over 3 years your capital gain tax is 15.94%
If your investment return averaged 20% over 20 years your capital gain tax is 21.30%
etc...
Ok, it's not the simplest tax rule, but it would greatly reduce the distortion of the current capital gain tax system.

To me, the loophole seems to be '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. '
Why doesn't the widow need to pay taxes on the increase from the original cost basis to time of sale? What is the reasoning for resetting the cost basis to 'value at time of death', when no taxes are paid at that time?

This could never work in practice because it would unfairly penalise founders of small companies whose share value may not be so spectacular.
The principle of paying tax on a notional value (which is what the market share price effectively is) is crazy - as the author points out the value can go down. Who's to say that it doesn't go through the floor at some point, which by his reckoning would allow for you to claim some of the tax back? Talk about volatility - you would want the stock to be massively unstable!
The author suggests that selling stock to pay for a tax bill as a solution - but that sale would also be taxable. Therefore you could never fully pay off your tax bill, and what would happen if you ran out of shares to sell?
I think the rot stems from the practice of lending where shares in public companies are used as security. This is not security at all and should be stopped. The impact would be clear it would force companies to either pay a (taxable) salary to it's founders and directors (like SMEs) or let them sell shares to realise income.

Sounds like the perfect get-rich-quick scheme:
1. Buy a publicly traded company 2. Surreptitiously drive it into bankruptcy while maintaining semblance of fiduciary duty 3. Collect refund from government from loss in share price
Oh wait, they've already done that: http://en.wikipedia.org/wiki/Troubled_Asset_Relief_Program

Taxing the super-rich is rife with problems. They will find other ways to avoid taxes. The only tax that makes sense to me is a sales tax on luxury goods. Let them keep their money however long they want. It doesn't affect anyone: until they buy that yacht that takes 100 man years of labor to make. Charge big taxes on those yachts, etc.

Why wouldn't they then lease it, or have it owned by some foreign entity not subject to local/national taxes, or have an exemption lobbied into existence for this particular yacht? Cargo ships get flagged Panama or Liberia for roughly this sort of tax-dodge reason, I would think luxury craft would fare the same...

I still don't see the appeal of raising taxes for the wealthiest income bracket. Do people expect faster lines at the dmv and world class public schools to suddenly appear once we start taxing the rich more?

If anyone would like a more detailed investigation of this topic, there's a good article on SSRN by another tax professor (http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1734601), or Miller's own more expansive article (http://www.cadwalader.com/assets/article/120505MillerTaxNote...).

> He could sell some shares to pay the tax (and would be > left with over $20 billion of Facebook stock after tax), > or borrow to pay the tax. > > If his Facebook shares decline in value next year, he’d > get a refund.
What happens if the market goes through a downturn and the government has to refund all the superwealthy their taxes?
I can imagine this working well in a bull market, but when a bear comes around the corner it could be disaster for the budget.

By only taxing publicly traded equity, it seems like they'd also hit small retail investors pretty hard too, while only serving to retard valuable new IPOs even more.

The simpler solution to the proposed problem is an estate tax on capital holdings. This could be done by simple requiring the shares be sold on death and repurchased in the beneficiaries name.
Mark-to-market adds voodoo to tax valuation, has the government managing investor cash flow, and rewards investment losses more than the current system. Why reward poor market performance?
Personally, I think this seems like a suggestion for bad governance trying to appease wealth envy.

The idea of owing tax the moment a company goes public seems tremendously stupid. Not a single person I know who's had shares in a company that went public was able to sell them immediately. They all had to hold onto them for some set period, and some of them actually had to pay tax on the gains before they could even sell the shares (to get the liquid capital to pay the tax). Maybe I'm missing something?

Yes, you're missing that management gets to choose the "lockout period" before existing shareholders can cash out. Usually, management imposes a 6 month lockout period but exempts management (i.e., board or executives)
Mr. Zuck is management at Facebook.
As for the taxes, you're thinking of the imputed income from exercising options at below the market price of the shares when exercised (i.e., an option to buy a $10 share of PublicCo for only $2 is $8 in imputed income b/c you could then immediately sell the shares for $8 in gains).

It's the underwriters of the IPO that impose the lockout periods, not management. The lockouts apply to all pre-IPO shareholders (excluding shares explicitly included as part of the offering).
Lockouts may also include provisions that any early release granted to management or dominant shareholders must also be granted to all other parties on equal terms; that was true of the one lockout agreement I was subject to.

And management chooses the underwriters, who therefore will conform their requirements to management's demands, as they have here.
Underwriters frequently try to impose lockouts, but its the management who actually sets the terms, which is why some lockouts are as short as 3 months while others are as long as 9 months. There is no requirement that the lockouts apply equally to management/dominant shareholders and other shareholders, though management frequently accept such restrictions b/c its not usually worth the cost to carve out such an exception.

A very similar problem is plaguing Australian companies now. The downside to share-based compensation can outweigh the upside. For example, options would be taxed upon vesting rather than exercise, so there are immediate liquidity issues. Even those that are anti-dilutive for EPS purposes from the grantors perspective (e.g., underwater options) may be taxed.

Yes you are missing a little detail. He is paying tax on exercising options which he was awarded as part of his salary. He does not owe the money because the company went public but because he chose to exercise the options. He could exercise less options and pay less taxes. And the fact that he can exercise the options usually means that he can sell the resulting shares.

How does this tax lawyer know that:
The $5 billion he will receive upon exercising those options will be treated as salary
Was it in the S-1 that Zuckerberg did no tax planning?

Our tax system is based on the concept of "realization."
Interesting that the same system that un-taxes the original corporate owner (Zuckerberg, Jobs) punitively taxes rank and file staff who exercise options in pre-IPO stock as "realizing" gains as "ordinary income", even though the stock is illiquid.

According to many people in favor of higher taxes, quantitative easing has no ill effects. Why don't they just ease $5B into existence?
And why don't people concerned with "unfair" taxes call for Gaga's rate to be lowered rather than Zuck's to be raised?
Miller doesn't seem to understand that the superwealthy also tend to be highly intelligent and resourceful. They are not stationary targets. A tax like this would push growing startups to grow outside the US a few years before IPO. A multinational can change its base of incorporation, and many people can and will change their citizenship over a million bucks, let alone a billion. This kind of foolish proposal would just drive more US businesses overseas.

Tomfoolery.
>According to many people in favor of higher taxes, quantitative easing has no ill effects. Why don't they just ease $5B into existence?
It increases inflation. Right now, it's better to have more people employed/have the economy growing than it is to have inflation below 2%.
QE isn't exactly a progressive tool of choice, and I'm only minimally informed, but iirc that's the broad keynesian view as to why in theory it's at least better than doing nothing at all.
>And why don't people concerned with "unfair" taxes call for Gaga's rate to be lowered rather than Zuck's to be raised?
Because I'm not worried about Gaga's overall income. In fact, she probably ought to be taxed at a higher rate, because people like her comprise of almost zero per cent of the population. Cry me a river, in other words; it's not at her income range we're concerned with inequality.
>A tax like this would push growing startups to grow outside the US a few years before IPO.
Serious question time. Is this even reasonable?
If Zuck could have saved a cool billion in taxes, what's stopping him from doing just that?
If I'm say a Canadian citizen and I live in Canada but I own a fuckload of Facebook stock that qualifies as a salary, where do I file income taxes?
>This kind of foolish proposal would just drive more US businesses overseas.
These kind of astronomical windfall events are extremely rare and as I've denoted above, what you describe is already currently possible. So… why don't we already see this?
Other than the fact that you there are many advantages to having lots of engineering staff located in the United States/North America.

> > According to many people in favor of higher taxes, > > quantitative easing has no ill effects. Why don't they > > just ease $5B into existence? > > It increases inflation. Right now, it's better to have > more people employed/have the economy growing than it is > to have inflation below 2%.
There's an orthodox misconception here that is taking some time to be fixed / properly understood by economists.
Quantitative easing is nothing more than an asset swap for banks. It increases the reserves in the banking system, yes, but it does not actually put more money into the hands of people who will spend it in the real economy. Its effect is at best indirect: it pushes the interbank lending rate down, and that can increase the pool of potential borrowers. But the effect is marginal at best.
Note in particular how the "money multiplier" dropped after QE: http://research.stlouisfed.org/fred2/series/MULT?cid=25

Right. I tried to caveat myself, for I forgot the exact reason I wasn't supposed to like it.
Institutionally, we seem adverse to any sort of intervention that does not go through a banking intermediary.

Do you have any data to support the claim that they are highly intelligent?

I believe that he's referring to all the schemes they currently use for evading taxes and (at least for the likes of Zuck and Buffet) the way they got their money to begin with. Regardless of whether they or merely their accountants are intelligent, they won't take a massive tax hike lying down.

> A multinational can change its base of incorporation, and many people can and will change their citizenship over a million bucks, let alone a billion.
I see this argument, but it is completely non-sensical. Someone who just cashed in to the tune of $5 billion is going to leave the US to avoid paying $2 billion in tax? To where? Europe, with its super low tax rates? The developing world? Every place worth living has higher tax rates than the U.S.

Singapore and Hong Kong would like to talk to your about you theory that every major domicile has higher taxes than the US.
Plus, if you enjoy living in a sea of sandcastles, Dubai has no income tax.

I said every place worth living.

Singapore and Hong Kong collectively are smaller than Los Angeles or New York. Last I checked, the local tax rates in Los Angeles and New York are pretty damn low.
Scale changes everything. It's possible to do things in a nation of only 7 million that isn't possible in a nation of more than 300 million.

Yes! It's so amazing that engineers understand all about scale when it comes to databases but so many completely fail to appreciate issues of scale when it comes to political systems.

Both Singapore and Hong Kong are embedded in the most populous region on earth: the far east. Hong Kong is indeed part of the most populous nation. The concept that they're some kind of run down backwaters next to "real" big cities like LA, NY et al is just silly -- they're major global centres in their own right and have far lower taxes than pretty every other such centre that I can think of.

A multinational can change its base of incorporation, and many people can and will change their citizenship over a million bucks, let alone a billion. This kind of foolish proposal would just drive more US businesses overseas.
I do international tax for a living. I laughed so hard at this line I started crying.
Businesses will do business in any nation where they can make money, taxes be damned. Moreover, taxes are the price of doing business in a country -- if they don't want to pay taxes in a country they won't get to do business there either. Multinationals will focus on miniziming taxes where feasible, but taxes usually aren't the biggest costs on their books.
The U.S. corporate tax rate is the "highest" in the world, but it only taxes profits (most other countries base corporate income taxes on revenue), which results in effective income taxation rates in the low single digits for all but a tiny handful of companies.

Businesses will do business in any nation where they can make money, taxes be damned. Moreover, taxes are the price of doing business in a country -- if they don't want to pay taxes in a country they won't get to do business there either. Multinationals will focus on miniziming taxes where feasible, but taxes usually aren't the biggest costs on their books.
Thank you for your comment. So many people seem trapped in the media doublethink loop that they forget corporations will form anywhere you can make money from forming a corporation. Taxation is rarely a hurdle to starting a successful company and if you are relying on a very thin margin (say, about the size of the effective tax rate) you probably won't be successful in five years.

Well, if you are an international tax lawyer, obviously moves like the Double Irish show that the base of incorporation matters quite a bit:
http://en.wikipedia.org/wiki/Double_Irish_arrangement The Double Irish arrangement is a tax avoidance strategy that U.S. based multinational corporations use to lower their corporate tax liability. The idea is to use payments between related entities in a corporate structure to shift income from a higher-tax country to a lower-tax country. It relies on the fact that Irish tax law does not include U.S. transfer pricing rules.[1]
Obviously there are many more things one can do to avoid (not evade) US taxes through various international arbitrage opportunities and offshore tax havens.
And I don't see why any company wouldn't do that. Why would you want more of your money wasted in Iraq and Afghanistan?

For starters, there are restrictions on the use of the Double Irish structure that generally limit the benefits to IP-based companies (i.e., technology, media, etc.), which is why most of the companies structured this way are technology companies.
Manufacturing companies would derive little if any benefit from the Double Irish structure, though this depends on the circumstances of their businesses.
Also, in regards to Iraq and Afghanistan, Ireland does not maintain treaties with either nation, so there is no special low rate that would shield such income.
(Sorry for the late reply; I don't read HN every day.)

What would stop the unscrupulous from creating a shell company, attract investors at a huge markup for a extremely small share, then declare the loss the next day (and split the refund check or do the same in return).

Tax-on-profit/refund-on-losses are, in terms of economics equations, "elegant". It appears to minimise distortion.
But there's two problems in practice.
1. Hollywood Accounting. "I get a refund for losses? Look how much I lost this year!" It would just lead to a new round of shuffling deck chairs.
2. Sovereign Risk. Sure they promise to pay you back. But does anyone honestly expect that politicians would be prepared to allow a $1 billion cheque to be cut for a billionaire?
Both of these are why such taxes are neat in theory, economic kryptonite in practice.

I hate when they bring up Warren Buffett. He skirted the US tax laws for the majority of his life and now that he's older, he wants everyone to pay more in taxes.
If he really cared, he would have fought for higher tax laws earlier in his life.

It's not "skirting" if you're following the letter of the law. Regardless of how you feel about the man, he makes a valid point.

The capital gains rate was 28+% for much of that period. Buffett didn't start advocating for higher tax rates until after the Bush (and Clinton) tax cuts which slashed capital gains rates to 15%.
Your position is as foolish as saying if Al Gore really cared about global warming, he would have been advocating for climate change policy during his college years.

Agreed. Obama recently spoke at the university I attend. At one point in his speech he mentioned that Buffett's secretary told him that they have a higher tax rate than Warren Buffett. Then literally two minutes later in his speech he praised Warren Buffett for addressing the issue of needing to increase taxes on the wealthy. What a joke.

I don't see the problem here. Warren Buffett pays the 15% capital gains tax and wants to see it increased. Are you criticizing him for not paying more than he is taxed?

If its a good idea after the government makes a legislation, surely its a good idea even otherwise.

If he really cared, he would have fought for higher tax laws earlier in his life.
I don't understand this kind of reasoning. He's arguing against his own self-interest now. I think it's hard to say he doesn't care. Maybe he didn't come to feel that he unfairly benefitted until he was older. It's not like he's saying we should tax young people more now that I'm old.

The point is that he's 81 now. He doesn't have many more years to spend his millions (or billions). A few more percentage points in taxes isn't really going to matter to him.
It would have matter when he was much younger.

For the majority of his life, until the Tax Reform Act of 1986, Warren Buffet's "tax skirting" still meant paying more than 25% rates on his income.
Effective tax rates (accounting for inflation) now are lower than they were at any time since 1913 (i.e., since we've had income taxes).

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