Bad Math: Tax Plan Tweet Edition

It's pretty common these days to talk about how much Jeff Bezos could buy for us. Facebook and twitter are both full of people saying things like this:

The idea being that if Jeff Bezos just paid his share of our country's upkeep, we could have a utopia.

There's a problem with this idea, but it's not a political problem. It's a math problem. It's a problem with what people mean when they say "wealth" or "taxes".

He doesn't have the cash

First thing's first: Bezos has somewhere around $200 Billion now (a quarter of his and MacKenzie Scott's wealth went to her in the divorce). That wealth is not cash in a bank account. It's Amazon stock that he owns. There's no way for him to spend that much money, because he doesn't have it as money.

If we wanted to take our 4.7% of his wealth, we'd have to start by selling about $10B worth of his Amazon stock. Selling that much stock would have an impact on Amazon's stock price, so we'd likely have to sell more shares than you'd expect to reach that amount.

Bezos spends around $1Billion a year on his new space company, Blue Origin. He makes a big deal about that, I think, in large part because he has to justify selling that much stock every year. If Bezos just started selling Amazon stock for no reason, especially that amount, the price of the stock would plummet and he'd lose a lot of his wealth. People would assume that he knew something bad about Amazon's business.

Now if he were selling the stock to pay for College For All, that would be a pretty good signal to the market that Amazon was still a stable company. The market price for the stock likely wouldn't drop much from our $10B sale due to a lack of confidence.

I was originally going to write something here about $10B being a lot to sell on the stock market, but it turns out that's not true. The NASDAQ (where Amazon is listed) clears over $100B per day. Bezos could probably find someone to buy his $10B of stock pretty easily.

Normal US Taxes don't work like that

Let's say that we decide it's a good idea. That $10B that people are paying Bezos for his stock wasn't doing us any good before (it was probably just wrapped up in some other big tech stock). We're going to have Bezos fund our College.

The thing is, we can't do this by just taxing Bezos normally. The US has an income tax. That's a tax on income. Bezos actually doesn't have much income, he just has assets that are worth a lot. This means that if President Biden (I hope that's who we have next year!) says that 2021 will have a super high tax on everyone named Jeff Bezos, we wouldn't actually get much money.

Jeff Bezos doesn't pay any taxes on his stock until he sells it, and then he only pays taxes on the appreciation. Though given that he got the stock when it was likely worth a single dollar, the tax will apply to pretty much the entire amount he's selling.

So if Bezos did sell $10B in stock next year, then we'd only be taxing that $10B. The current capital gains tax would be 20% for him, so we'd only get $2B from that sale.

In order to fix this, we'd need to tax wealth, not income. We could absolutely do that, and Piketty has advocated for that kind of tax to help deal with some of the social problems that we're facing now. But I don't really think that Jack Califano, from our original tweet up above, is thinking about it like that. Obviously I don't know what his understanding of our current tax situation is, but if he were proposing something as radical as a wealth tax I'd have expected him to play it up.

Math vs. Politics

Enough of this tax bracket, stocks-vs-cash nonsense. We want our College For All; let's get Bezos to pay for it. We're going to pass a law that says Bezos has to sell enough stock every year to provide 4.7% of his wealth to the US government, each year, effective immediately.

Tomorrow, Bezos sells enough stock to get a grand total of $10B from it (remember that his current wealth is around $200B, so 4.7% is slightly less than $10B). Now can we all have free college?

No, no we can't. Because Bernie Sanders says that he needs $48B per year to pay for his College For All plan. I have no idea where Califano got the 4.7% number, but it makes no sense. Bezos could only pay for College For All for four years, even if we gave him a wealth tax of $50B/yr.

Bezos has a lot of money, but he doesn't have that much.

Why

I'm sympathetic to Califano's argument. It would be really nice for Bezos to pay to improve America. Hell, it would be nice for him to pay to improve Seattle (more directly than he's doing by building nice buildings and bringing in employees who spend money). People have been trying to get Amazon to pay more Seattle taxes for a long time, and I hope that they've finally managed it.

I'm a bit more reluctant about the idea of a wealth tax, but I could be convinced by the right arguments and experiments.

I want free college (and free healthcare, and affordable housing) for everyone in America. I want it so bad that I'm willing to pay attention to reality to find ways to get it. This is why I get so frustrated when people start talking about having Bezos pay for everything.

Bezos has a lot of money, but he doesn't have that much. Simple "tax the rich" schemes also generally won't access most of his money, so saying that we should tax Bezos without specifying that you want to totally change the way taxes are done in America seems disingenuous.

I want people to work towards a better world together. To do that, we all need to know what direction a better world is. If we just ignore the math, I'm afraid of where we'll actually end up.