In the great scheme of problems, a huge tax bill resulting from a financial windfall has to be one of the best headaches to have. Such is the quandary that 27-year old Facebook co-founder Mark Zuckerberg is facing, after revealing plans to sell $5 billion worth of stock options, which will result in a $2 billion tax bill.
This will likely be the largest individual tax bill ever paid out to the IRS and it will immediately induct the young billionaire into what Macke and I call the Taxpayer Hall of Fame.
What's even more amazing is that he's choosing to do it. Zuckerberg does not have to exercise his stock options now. By doing so, he is registering major monetary gains that will be taxed as ordinary income at a 35% rate.
Sure, he'll still have many billions left to get by on after writing his checks to the Federal government and California --the State government will rake in a $500 million chunk of change too. But it didn't have to be this way.
"Not to be a cynic, but this is pure P-R," Macke says, arguing that the payout is ultimately designed to make Facebook look better in the eyes of America.
Of course, when the Harvard dropout pays a 35% rate it makes for some clumsy comparisons, most notably, with Warren Buffett, whose self-described under-taxed status not only earned him and his secretary a mention in President Obama's State of the Union address, but has seen his name being affixed to proposed legislation.
The so-called "Buffett tax" would see anyone earning more than $1 million dollars a year paying at least 30%, regardless of how the money was earned. In Buffett's situation, as well as in the case of Republican Presidential candidate Mitt Romney, that change would effectively double their tax bills, as both paid rates in the mid-teens for 2010.
There are sure to be ripple effects from such an enormous payment on the already contentious tax debate set to be a key topic in the upcoming election. Here's why: It would take 1,000 Mark Zuckerbergs just to balance the Federal budget for one year!
Bottom line is, as big as Mark Zuckerberg's tax bill is and regardless of his intentions, the fiscal crisis this country faces is just that much bigger.
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