Tax Analysts Blog

Zuckerberg's Effective Tax Rate: 7.6%

Posted on Feb 5, 2012

Thank God for Mark Zuckerberg and America's other high-tech entrepreneurs who grow our economy in leaps and bounds. But please don't feel sorry for the 28-year old billionaire who will be facing what is likely to be a record setting $1.65 billion federal tax bill. That's 35 percent on the estimated $5 billion he will realize when he exercises his stock options.

Zuckerberg pays 35 percent on realized income. But in the eight short years since he started Facebook in a Harvard dorm, Zuckerberg has accumulated an estimated $23 billion in wealth. That figure is his real income over that period. Dividing $1.65 billion by $23 billion gives us an effective federal tax rate of 7.6%. Adding California's top 10 percent tax rate on millionaires (and taking into account a deduction from federal tax for that California tax), the combined federal-state effective tax rate is 9 percent.

It is a routinely ignored fact that our tax system does the rich a huge favor by only taxing realized income. But unrealized accumulations of wealth are income that increase well-being--just like a paycheck--and should be subject to tax for fairness' sake.

Read Comments (1)

Martin A. Sullivan's pictureMartin A. SullivanFeb 6, 2012

The classic Haig-Simons definition of income is consumption plus changes in net worth. Mr. Zuckerberg had an enormous increase in net worth. You may not believe in progressive taxation. You may believe than investment income should be exempt from tax. You may believe the Code should make some allowance for income that is not realized. But you cannot deny Mr. Zuckerberg had an increase in net worth (= real economic income) of approximately $23 billion.

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