Billionaires 'n' Taxes
April 14, 2021

I don't like very long Facebook posts -despite having written many of them- but want to make something clear. Here, on my own website, may be the best place for my thoughts. Recently, I posted the following on FB:

Regarding billionaires and fairness, I hope you'll read the following and tell me what you think. A billionaire CEO of a successful company receives no salary for his services but, instead, is awarded shares of stock and options as certain performance goals are met, as spelled out in his contract. The goals are not defined on an annual basis but are awarded whenever they're realized. Most of his wealth is in the form of shares in the company he works for, but he maintains a $5 million cash account with his brokerage to cover living expenses. Since he's a preferred customer with his brokerage, the cash account earns a 2% interest rate, a rate you or I would not be eligible for. As it happens, in 2019, he's in between tiers and doesn't meet any performance goals, so he receives no compensation whatsoever. However, due to the vagaries of the stock market, the value of his existing share holdings increases by $3 billion. Tax time rolls around and J--- D-----, a common working man, pays his 35% tax rate. Our CEO, $3 billion richer than the year before, pays taxes on the interest accumulated from his cash account. It amounts to less than $20,000. Is this fair?

As I received no reply that detailed any perceived unfairness of this scenario, I will explain why I feel it's not unfair at all. The CEO received no payment in any form in 2019, so there was no compensation to be taxed. His sole tax liability would be the result of the interest earned by his cash account. The massive increase in his wealth was due solely to the appreciation of his existing stock holdings...basically, something he already owned became much, much more valuable. But the media would scream "CEO of XYZ company increases net worth by $3 billion while paying $20,000 in taxes". And too much of the public, neither knowing nor likely caring about the true details of the situation, would vote for any multi-millionaire grandstanding politician who would cry that something needs to done about this out-of-control greed and that these gazillionaires must be made to pay more.

Some whose thinking is founded in ignorance may wonder why the CEO didn't need to pay capital gains taxes on this gargantuan increase in wealth. The answer is simple: capital gains taxes are due upon the sale of assets. An increase in the value of stock, as described above, does not, by itself, create tax liabilty. Taxes would be due if or when any stock is sold. Reaching further, some may wonder, "Well, he's a billionaire, right? How did he get to be a billionaire in the first place without cheating somehow?"

Let's say, in 1997, you had 10 million after-tax dollars. A lot of money, sure, but not force-of-nature money, not one-percenter money. Amazon goes public in May and you sink that $10 million into shares of the stock. After which, you do...nothing. For 24 years. You neither buy nor sell any more; you have deprived no one of anything, not taken the food from some baby's mouth, not stepped over anyone at all. You simply hold. As of January of 2021, you would have 12 billion dollars. Now, you're a one-percenter, by performing one of the most difficult acts, as many professional investors will tell you, in the financial racket; doing nothing. And how much have you paid in taxes on this colossal growth? Since Amazon doesn't pay a taxable dividend the answer is, again, nothing. As a parallel for us regular folks, it's as if you bought a house and its value increased astronomically.

When Warren Buffett made his famous remark about paying a lower tax rate than his secretary, it's sounds great in the media, yes? Makes him sound like a man of the people, marveling at how such a thing could possibly be. Maybe, on the inside, he's hoping they won't come for him when the revolution starts. But an answer could be very simple; Buffett, one of the richest men who has ever lived, is paid modestly in his role as CEO of Berkshire Hathaway, a few hundred thousand dollars per year. Perhaps he pays his secretary more. The bulk of his wealth is derived from the appreciation of his holdings. Buffett is famous as a buy-and-hold type of investor (perhaps partly for tax efficiency?) and, over any period of time, he owes no taxes on any stock positions he doesn't sell.

It's easy to have opinions that sound charitable and be magnanimous with other people's money, more difficult to take the time to understand why something is what it is...and that, just maybe, the appearance of unfairness is sometimes merely an appearance. Some may feel that all I've laid out here is irrelevant...what's important is that there's suffering not being addressed and no one should be allowed to possess such gigantic fortunes when there's so much want in the world. And easing that want is justification for simply taking the property of those who have so much and giving it to those who have so little. I'm not talking taxation or contribution, I'm referring to another form of injustice, seizure. "So what?", one might think. "One injustice eases suffering while another just means a fucking billionaire gets to keep his money." But it's still wrong and where does the seizing stop, once started?

On one level, I don't wish to only hear opinions of a single voice...if someone reading this believes that something should be done to help the needy, you have my ear. If you feel that some may be not paying a fair share of what they earn to support our society, I may agree with you. But, for me, there's a line; if you think it's right to simply confiscate what one person owns in order to give to another who has less, then we don't and are never going to agree. You will likely be offended, if not appalled, by some of my beliefs and I have no time to either listen to or discuss the way you think the world should work. Let's save each of us the unpleasantness of being exposed to the others' opinions. Please unfriend me and more; let's go our separate ways altogether. Whatever our relationship, on Facebook or in real life, I have as little desire to hear your thoughts as you likely have to hear mine. If you consider me a greedy bastard or an unfeeling asshole and need or want to give me a parting shot on the way out, well, OK, you're right, I'm wrong and you get the last word...just please don't forget to close the door behind you.