The Zuckerberg Tax

nytimes.com — When Facebook goes public later this year, Mark Zuckerberg plans to exercise stock options worth $5 billion of the $28 billion that his ownership stake will be worth. The $5 billion he will receive upon exercising those options will be treated as salary, and Mr. Zuckerberg will have a tax bill of more than $2 billion, quite possibly making him the largest taxpayer in history. He is expected to sell enough stock to pay his tax. But how much income tax will Mr. Zuckerberg pay on the rest of his stock that he won’t immediately sell? He need not pay any. Instead, he can simply use his stock as collateral to borrow against his tremendous wealth and avoid all tax. Why is this? Our tax system is based on the concept of “realization.” Individuals are not taxed until they actually sell property and realize their gains. A drastic change is necessary to fix this fundamental flaw. The fix is called mark-to-market taxation.

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