If non cash rich billionaires have to sell stocks to pay taxes how do they stay in control of their companies?
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So I’m going to explain to you how to do this with real numbers. As some others have said you use loans and pay **almost** no tax.
Let’s say I start a company. Things go well and we go public. I now own 25% of the stock worth 50 billion. 25% is **more** than enough for me to stay in control, so I sell 10 billion in stock. This lets me keep 40 billion or 20% again this is more than enough for me to stay in control. I have to pay 20% capital gains on the 10 billion I sold, so 2 billion. I now have 8 billion in cash.
Now forget about the 40 billion I have in the company it’s not important. All it does is let me retain control. The 8 billion is what matters. I invest this 8 billion is a diversified portfolio. I then get a loan on this 8 billion for about 30% of it so 2.5 billion for a stupid low interest rate. Zuckerberg apparently got about 0.5% when he did this. 0.5% on 2.5 billion is 12.5 million a year. Let’s say I’m 35 if I want to spend 1 million a week 2.5 billion will last me 48 years. or until I’m 83. How do I pay the interest? Well my 8 billion is still there. Making about 3% a year. 3% of 8 billion is 240 million. Every year I sell 15.7 million of that 8 billion+ pay 3.2 million in tax and use the rest to pay off the interest on the loan. So ignoring the 40 billion in my company I “make” 240 million a year and get taxed 3.2 million. That’s a tax rate of 1.3% At 83 my 240 million a year will be well over 20 billion, So I just take out a new loan that covers me till I die. When I die the base points reset my kids pay off the loans with 0 tax owed, they actually get a deduction on the inheritance tax for repaying the loan. Rinse repeat.
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