Facebook’s 99%: Later employees may pay almost double the tax rate

1) Sure, but effectively all income is multiple-taxed. Suppose I run my own business, and am paid by a consumer with their money that they earned as wages. If I turn a profit, I then pay taxes on that income. By this logic, I shouldn't have to pay taxes, because the consumer that paid me was using after-tax dollars, so taxing my income from them would be double-taxation, right? The double-taxation argument is simply not very-compelling because there's no one true wellspring of money; if there were, you'd just tax the source and call it good. But reality is way more complicated than that, and money is always taxed multiple times as it moves around the economy.

2) I don't think you're correct about there being empirical evidence of capital gains rates affecting those things. For example, see http://www.slate.com/blogs/moneybox/2012/01/19/capital_gains.... As far as I know, there's no credible empirical evidence that cutting capital gains rates deterministically helps investment or saving, or that raising them hurts those things. Sure, you can pick and choose examples with those outcomes, but you can also find plenty of empirical examples where those effects didn't happen. It's totally misleading to act like that's a settled question in economics.

3) He's paying more in taxes because he ended up earning more money. So yes, he deserves to pay more in taxes than Sally, because he earned more money. Otherwise, you could easily say "Sally decided to work part time and made less money than Fred. Does hard-working Fred really deserve to pay MORE in taxes than Sally?" Yes, yes he does; unless you really think that a poll tax is a good idea, even a flat-tax advocate would have to argue that someone who makes more money should pay more in taxes.

But if you pay yourself a dividend, there is no transaction. If you own an asset, and it goes up in value, there is no transaction. (Capital gains tax is not on the transaction of selling your stock, but on the change in value of the stock; it's only realized at sale. Some countries do charge a transaction tax on stock sales, usually called a stamp duty, which is entirely different.)

More generally, we tax things when they change ownership. (We even tax things when you give them away!) In the case of a small business owner, everything in the business is owned by you. It's yours. You own the business, the business owns the couch, therefore, you own the couch. Ownership is inherently transitive. Even in a large business, everything is owned by the stockholders. Businesses are not people. (Note: At this point, people usually bring up Citizens United, despite the fact that the decision does not claim that businesses are people. Try reading it; it's actually pretty interesting.)

Thought experiment: Can we tax you on the rent you are implicitly paying yourself for living in your own house? Why or why not? And if we can't tax you on the value of the rent your house is providing you, why can we tax you on the value of the things your business is providing you? (Well, obviously, we can do it because the law says we can. But morally, the difference seems remarkably theoretical.)

Further thought experiment: Should you be taxed if you hire yourself as an employee? I'm actually torn on this one. Logically, the answer seems like it should be "no"; it doesn't matter if you hire yourself as an employee for a salary, or work for "free" in exchange for equity. Intuitively, it feels to me like it's okay to tax an owner on his salary but not his dividends. shrug Guess I'm not that logical. :)

2) Yglesias' post is suggestive, but doesn't really prove anything. As I said, there's a LOT of research on this point, and saying, as he does, "Germany added a capital gains tax, and their savings rate didn't immediatly change" does not really tell us as much as he thinks. Germany has also been noted for extremely low wage growth recently. Clearly the result of underinvestment caused by their pernicious capital gains tax, right? I doubt it, but it's no more implausible than Yglesias' argument.

83b election essentially says: Dear IRS, I know I received all these unvested unexercised options, but I want you to tax me on them as though they were all exercised when I received them. You do this in the year they are assigned to you.

Since this is before the company actually takes funding, the shares are worth some stupidly low number ($0.001/sh). So 1M shares is $1000 of income. Since he was not making much money, that amounts to maybe $200 of income tax on 1M shares.

When he goes to exercise the options, no income tax is paid because he already paid it! He can use those share for ALL SORTS of collateral for the future. As long as he doesn't actually sell the shares, no income tax is due.