Zuckerberg's California tax move is a win for Meta - and for him

By Brett Arends

He has bought some good PR and gets to live and work where he wants

Facebook founder and CEO Mark Zuckerberg is staying in California after striking a smart deal that makes it easier for him to pay a 5% "billionaire tax."

Meta and its CEO Mark Zuckerberg just made a really smart move regarding the proposed California billionaire tax. I am not Zuckerberg's biggest fan, but he and the company deserve some credit for finding a way that makes it possible for him to stay in California and pay the tax without losing control of the company.

The move involves creating a new class of shares that he could sell more easily in order to pay the proposed 5% tax on his $240 billion wealth. (That would work out to around $12 billion, if anyone's counting.)

In return, he commits to staying in California for at least another eight years.

Regardless of politics, this is a very good business decision, and very good public relations for Meta (META). (I write this even though I am a critic of this particular wealth-tax proposal.) All other things being equal, the news that Meta is making this smart move should be a net positive for the stock. (So, too, is the successful launch of Meta's artificial-intelligence bot Muse, which even your correspondent is trying out.)

Zuckerberg and Meta have been on the receiving end of a lot of bad headlines over the years, many of them fully deserved. The company just got hit with a $25 billion judgment in New Mexico. (Zuckerberg owns 14% of Facebook, so that works out to around $3.5 billion for his shares.)

But in this latest move, Zuckerberg looks a lot better than all those megabillionaires who have apparently fled to other states to avoid the tax. Nobody likes paying taxes, but if you have $200 billion and you move across the country to avoid a one-off $10 billion tax, you don't look great.

The income taxes I've paid over the years add up to way more than 5% of my net worth, and I'll bet every other middle-class person could say the same thing. Many of the richest people pay little or no tax at all, because their money comes in the form of wealth and appreciating assets, not income, and those are not taxed.

The average annual return on investment on equity is typically inflation plus about 5% or 6% a year, which would work out to around 8% or so right now. So a 5% wealth tax comes to about seven months of personal gains.

Seriously? You're uprooting your family and moving across the country for that?

(Never mind that the Nasdaq Composite Index COMP, one proxy for the kind of high-tech wealth that is so prominent among California billionaires, has risen 400% in the last 10 years - averaging about 17.5% a year. By that measure, a 5% wealth tax amounts to less than four months of gains.)

I would have thought that one of the advantages of being super rich is that you no longer have to let money dictate your choices. You have entered a zero-gravity field where you can do whatever you want, because the actual material impact on you is nonexistent. Your net worth goes from $200 billion to $190 billion: Exactly what choices have now been closed to you and your family? What can you no longer afford?

Those who say they are motivated by pure principle are lying. They may be lying to themselves. You made billions living in California and you refuse to pay taxes "on principle"? What principle, exactly, is that? The Leona Helmsley principle, that taxes are only for the little people?

This move by Zuckerberg and Meta gives the lie to the claim that complying with the tax would just be too difficult: Companies would have to be sold, assets liquidated and so on. It was always baloney, and Meta has just exposed all the people who made that argument as phonies.

I'm not a fan of this particular wealth tax because it's so badly designed. The 5% one-off level is high enough that some people have an incentive to move to avoid it. Meanwhile, as it's only a one-off, it won't solve any long-term financial issues. It's performative politics, and those are almost always bad.

A recurring annual wealth tax of 1% or even half a percent would have produced way more gain for way less pain.

Opinion polls show the wealth-tax proposal losing ground recently. But this makes no sense. Californians have already paid the price for this proposed 5% billionaire tax, because some billionaires have fled the state in response. So residents might as well collect the money by voting for it in two weeks' time.

-Brett Arends

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10-22-26 1248ET