Barack Obama, John McCain, and The Future of Facebook
I really liked Ricky’s look into the corporate tax rate and its effect on Facebook’s prospects.. Though Michael Graetz, a Yale Law Professor who specializes in tax policy, speculates that Obama can’t raise the rate above 20%. Above that, people would lose money and nobody will sell. That means Mark may only pay $900,000,000 in cgt, just a quarter of a billion dollar increase. Which, per this interesting article, 5 Steps to a Better Tax System, will help assure that we have “money for retirement benefits or health care for kids or for cities leveled by hurricanes or for defense and national security.” Thanks in advance, Mark.
Will Facebook be sold within the next year? A question I’ve heard asked countless times over the last, well, few years. So here’s some insight — that could very much depend on who wins the presidential election in November.
Currently, the federal tax rate for a capital gain (making a profit from an asset you’ve held for over a year) is 15%. Many suspect that with a Democratic congress and president, that rate might rise to 28%. If that’s the case, Mark Zuckerberg would save himself a lot of money if he decided to sell the company before a change in the tax laws.
So let’s do the math. At a $15 billion dollar valuation (which Microsoft set at its last invesment), with Mark owning 30%, his share is worth $4.5 billion.
At a 15% captial gains tax rate, he would pay $675,000,000 in taxes to the federal government. At a 28% capital gains tax, he would pay $1,260,000,000 (not to mention state and local taxes).
This means that if the Democrats win in November and raise the capital gains rate, Mark would pay over a half a billion dollars in additional taxes upon the sale of Facebook— $585,000,000 to be exact.
I’d imagine the investors who own the other 70% or so would be pressuring him to sell as well. That all said, Mark’s history of turning down a lot of big offers in the past shows that perhaps he’s not in it for the money and saving a half billion dollars isn’t worth losing control of his baby.
Note: I’m terrible at math so correct me if any of these numbers are wrong.
Note 2: Reader Peter e-mailed me to point out that if Facebook was sold as a non-cash transaction (stock), that would reduce the tax burden.