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The Liberal Parrot Squawks Again

There is an op-ed in today’’s New York Times of truly surpassing nuttiness. It is called “”The Zuckerberg Tax,”” in reference to Mark Zuckerberg’’s impending multi-billion-dollar capital gain from Facebook’’s IPO. The author, David S. Miller, is upset that Zuckerberg will not have to pay any taxes on his vast capital gains until he sells the stock, if he ever does.

He writes, “So he recommends an annual tax on unrealized capital gains of 15 percent: For individuals and married couples who earn, say, more than $2.2 million in income, or own $5.7 million or more in publicly traded securities (representing the top 0.1 percent of families), the appreciation in their publicly traded stock and securities would be “marked to market” and taxed annually as if they had sold their positions at year’’s end, regardless of whether the
securities were actually sold. The tax could be imposed at long-term capital gains rates so tax rates would stay as they were.”

Naturally (cue the liberal parrot—“ Arrrwk! Tax the rich!”), it would apply only to the very rich. But only to the very rich whose assets are in the stock of publicly-traded companies, where the capital gains can be easily and exactly calculated. If someone owned a very successful sub-chapter S corporation, however, the
tax would not apply. Nor would it apply to someone who owned, say, the King Ranch in Texas, all 1 million acres of it, or a Greenwich, Connecticut, waterfront mansion.

First, how long do you suppose it would be before the liberal parrot was demanding this tax be applied to the millionaires and billionaires who earn only $250,000 a year, and then to all capital gains in publicly held corporations? Arrrwk! Tax the Rich!

Second, the perverse economic consequences of this would be almost without end. Just for starters, if a stock subject to the tax doubled in a year— by no means unheard of for a successful company in a bull market–the owner would have to sell 7.5 percent of it to pay the tax, or sell other assets, or, as David Miller
suggests with an airy wave of his rhetorical hand, borrow against it. All of these could have very adverse business consequences for the owner.

Moreover, he says that should the stock go down the next year, then the government should pay him 15 percent of the unrealized capital loss. It’ is not unheard of for the stock market to lose 50 percent of its value in a calendar year. (It lost that much between October 2008, and the following March, in the wake of the
financial crisis). In that case, in the teeth of a terrible economy, the government would have to spend hundreds of billions of dollars to reimburse the rich for their paper losses.

It is well established that a tax system dependent on taxing the rich causes government revenues to soar in good times and plunge in bad times. Just ask California, the poster child of this approach to taxation. The Miller plan would be California on steroids.

Naturally, Miller’’s argument for this tax is “fairness.” He writes that Lady Gaga (a singer, I’’m told) has to pay 35 percent on her enormous income, so why shouldn’’t Mark Zuckerberg have to pay 15 percent on his enormous capital gains? Well, for one thing, Lady Gaga’’s income is not subject to a 35 percent
tax at the corporate level.

He writes, “if  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.”

Yeah, except that his heirs will have had to pay a 35 percent estate tax first. In 2013, the estate tax is scheduled to rise to 55 percent. Even in 2010 when, for one glorious year, there was no death tax, the heirs acquired the decedent’s cost basis along with the stock. So they have to pay the full capital gains when they sell the stock, not just the capital gains since the date of death.

Is David S. Miller, a tax lawyer, unaware of the revived estate tax? Or is he and the New York Times so intellectually dishonest as to ignore it in pursuit of their agenda? I vote for the latter.

Could anything be more relevatory of the utter intellectual bankruptcy of latter-day liberalism then this  proposal?

 



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