The Dispatch, California’s Billionaire Tax Is Changing the World:
On October 21, Meta announced a 2-for-1 stock split, meaning that every Meta shareholder gets a second share for each one that they own. … [I]f you read the 109-page filing, you’ll find that the split wasn’t really about the share price (or pursuing acquisitions, etc., as the company stated), but was rather the end result of a monthslong negotiation between Mark Zuckerberg and his own board over two things: 1) how to fund the company’s AI investments, and 2) a California ballot measure that would impose a wealth tax on billionaires. The way that they settled things could change who controls Meta for years to come, and it gives us a lot of information on the future of taxation in the United States.
Zuckerberg’s net worth is somewhere around $240 billion—depending on the day and the index you use—and more than 90 percent of his wealth is Meta stock. The tax on his $240 billion would come out to about $12 billion. As the fifth-richest person in the entire world, he can certainly afford it: A tax of 5 percent on someone who owns $100,000 worth of assets would be about $5,000, for context. It’s nothing to sneeze at, but Zuckerberg would have to sell Meta shares to pay it. That could end up costing him more than just the $12 billion: It also threatens his control over the company. Zuckerberg has never been willing to run a company he could lose. He has always been in charge and has always voted down one-share-one-vote proposals. The company’s whole structure exists seemingly to make him unfireable.
Meta has two kinds of stock—Class A is what you and I can buy, and it has one vote per share. Class B gets 10 votes per share, and Zuckerberg owns most of them. It’s how he controls Meta: He owns only about 13 percent of the company while controlling about 61 percent of the votes through super-voting shares.
Votes matter a lot. Votes pick the board, and the board, of course, picks the CEO. If you hold the majority of the votes, no one can fire you, ever. Zuckerberg has been untouchable since Facebook went public. And he wants to keep it that way.
.A tax on ownership is painful if you have to sell what you own, and for Zuckerberg, selling is losing control. …
The American tax system is built around taxing income. The biggest fortunes that we currently have in this country aren’t based on income. Zuckerberg pays himself $1 a year and borrows against his shares to fund his lifestyle, and when he dies, his heirs will inherit those shares, so the gains are never taxed. Zuckerberg’s $240 billion has never been taxed because he has never sold it, and under our current rules, even into death, he never has to.
Tax people call this “buy, borrow, die.” By one estimate from Berkeley economists, the 400 richest Americans paid an overall tax rate of 24 percent from 2018 to 2020, far lower than everyone else’s 30 percent. So something does need to shift if we want a tax code that reaches the wealthy at all. Prop 40 is one answer—and it could unintentionally reshape how our biggest companies operate. …
The board’s solution was to invent a third kind of stock. Class C shares have the same economic rights as Class A, so they go up and down with the company’s share price and collect dividends, but they carry no vote at all. All the money, but no say in what the company you own a little bit of does. Every shareholder gets one Class C share per share they already hold of Class A and Class B, which is the “split.” The new shares start trading on January 19, 2027.
Zuckerberg gets the same dividend as everyone else, but he can sell 20 percent of his new Class C shares immediately. That’s about 10 percent of his total economic stake, “for any reason, including so that he may pay his potential tax liability under California Proposition 40.” The other 80 percent is stapled to his voting stock, so for every one of those he sells, he has to sell or convert a voting share, too, and they’re released to him gradually over eight years. In exchange, he agreed to remain a California resident, or a resident of where…ver Meta’s headquarters is, for eight years, unless “material unforeseen circumstances” intervene. …
Both sides claimed the Meta deal as a win, which tells you a lot! Rep. Ro Khanna argued that it proved billionaires don’t actually leave over the tax. Zuckerberg stayed because his company paid to keep him, whereas Google co-founders Sergey Brin and Larry Page left. …
[Prop 40 failed so] Zuckerberg won’t owe a dime. The new share class, the eight-year contract, and the $60 billion of nonvoting stock due to hit the market all outlive the measure that caused them.
There is always a way to navigate a new tax. And none of this is new! The New York Stock Exchange banned nonvoting stock in 1926 because the Dodge brothers (of car company fame) did exactly this. The 1980s were all about letting this back in. Europe has tried wealth taxes, and mostly quit, because the money they were chasing simply left. The response to taxing the rich is always the same: They just reorganize.
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