The taxes (what, 20% capital gains?) seems an excellent deal for the ecosystem where he grew his company: a stable political system, strong asset protection enforced by strict laws, an educated workforce in a relatively unpolluted environment, etc.
Ordinary income = salary/wages, bonuses, commissions, etc.
Capital gains are income, but short-term (within a year) are taxed at ordinary income rates, while long-term (greater than a year) are charged at special capital gains tax rate.
It's long term capital gains and does not get taxed at ordinary income rates. If you are in a state with income tax, they will usually tax your capital gains at your ordinary state income tax bracket.
> It is even possible to pay 0% federal rate on sale of stock, I did it on my 2016 return.
Up to the top of the 15% bracket, yes, or $37,950 in total income for single earners in 2017 ($75,900 joint). It's easy to pay little in long-term cap. gains taxes if you are retired (or unemployed) with a cheap-to-moderate lifestyle.
But not possible for ~$1 billion in gains, like Bezos' sale :-).
Quite possible given enough trust lawyers and accountants. Mitt Romney managed to own a lot of his stock in his Roth IRA. The PayPal gang is famous for paying almost zero taxes though the same tricks. Yes, you dont get to spend it until retirement, but he isnt spending the billion, he is just reinvesting it.
> IRA funds are allowed to be invested in private companies. ... The IRS puts restrictions on private equity investments that can be made by an IRA. It cannot purchase stock that the IRA holder already owns. ... In most cases, neither the IRA holder nor any disqualified persons to the plan can be employed by the company while the IRA has an equity position in that company.
It is also possible that he never realized the gain. An example would be to gift the shares directly to a trust which sells and then 'loans' BO the money. Tada! You made a billion dollars disappear. That is, I believe, lawful. Consult a qualified legal representative, however.
One problem with this plan is that the debtor is obligated to repay the principal with interest.
If billionaires could do this, they would be doing it all the time. And the IRS would be screaming about it. Instead, they're stuck with higher risk options like illegal tax evasion or just paying the tax they owe.
As a creditor, you're obligated to pay taxes as if you charged a fair market rate, regardless of what you actually charge the debtor. So the actual floor rate at which the creditor isn't losing money is more like 33% (presuming business tax rate, or higher for individuals) of 3-4% (for 25 year loans), or about 1-1.3%.
Also, 100% + 0.01%^25 is still more than the sum loaned. And realistically, the interest rate must be higher than 0.01% annually. Sure, you could invest it over 25 years and theoretically beat the interest floor, but this adds a lot of unnecessary risk. When you've already won the game, I think paying the 25% in tax for a guaranteed cash return is worth it over dabbling in high risk, gray area legality tax avoidance.
That's not how it works. The capital gains themselves count toward the $37k cap. $1B in cap gains puts him a bit out of range to fall under the $37k max.
20% does seem like a good deal for all those things, but it's important to remember that the top 20% already pays 95% of the taxes. So if those things are good they're only good because he's already been paying for them.
So if you enjoy the stable political system, strong asset protection, your free education, and relatively unpolluted environment it might be time to add Jeff Bezos to your Christmas card list to thank him for funding all that for you.
I don't take incident with the 20% mark. I only take incident with the insinuation that the great societal benefits Bezos enjoys for his 20% was provided by someone else.
That doesn't matter unless you believe that Bezos/Amazon is pulling some unique shenanigans compared to every other wealthy person/company. Because even after the cumulative shenanigans of all the wealthy people they're still paying 95% of the taxes.
I would much rather that Bezos be allowed to keep all of his capital gains but have appropriate antitrust enforcement step in and reduce Amazon's market power a bit.
The recent upsurge of counterfeit products are evidence that Amazon is abusing its market power to the point of harming consumers.
What market does Amazon have a monopoly, and how are they abusing it or what prohibited practices did they use to establish such a monopoly?
It looks like they may have 44% of internet retail by public companies; and that's big, but it doesn't include private companies, and it doesn't fit my definition of a monopoly. It is certainly large enough that they should be scrutinized and attempts to increase share through prohibited practices should result in enforcement actions.
I don't think Amazon has fully crossed any lines just yet, but I do think it's bound to happen fairly soon just due to scale.
My point is meant to compare antitrust enforcement to the other mechanisms that are viewed by some as necessary to prevent large corporations from causing negative externalities.
Arguably if proper antitrust enforcement had been done in the finance industry, then no firms would have become too big to fail and all of the perverse incentives underscored by regulators post 2008 could have been avoided.
The problem is that since our regulatory state rewards size, there is a strong incentive to become large and hence too big to fail. As Amazon becomes a bigger and bigger part of the economy, it could start using the same rent-seeking tactics that financial firms used in 2008 to get major corporate welfare.
Seriously, all the bait and switches happening on Amazon is crazy. So many people getting screwed because a product built up good reviews then switches out for a counterfeit.
Indeed. I've been burned enough times that I'd actually join a class action lawsuit at this point. It's pretty ridiculous.
Amazon needs to take full responsibility for counterfeiting. I'm tempted to charge back certain purchases instead of going through the normal highly annoying process.
Being able to return an item no questions asked is not an appropriate remedy for getting a counterfeit product. It's a major hassle to box something back up and return it, and Amazon does not have a good solution for situations when the product that arrives is completely broken or is total junk/DOA.
The Commerce Clause that protects his sales from state sales tax and made his mail-older company competitive against local stores made him a bundle too.
Most Federal tax revenue is spent on military (low gas prices for Amazon deliveries) and entitlements, not infrastructure projects.
If you wanted the money to go to your foundation, you would donate the stock to the foundation and sell it there. If you sell it first and then donate the cash, I believe charitable donations are phased out as deductions above a certain income level. (Or maybe the AMT wipes them out?)
I know he is basically guaranteed to be running all of these sales off a sale schedule set far in advance for obvious reasons. However, I'd probably be doubling up those $1 billion sales until/unless this market gives out.
Raising $6 or $10 billion - enough to fund Blue Origin for maybe a decade - by selling out of a $94 billion base, sure beats doing the same out of $26 billion (where his net worth was at just ~33 months ago).
Gates went from $10 billion to ~$78 billion ($68b gain; he topped out near $100b around Dec 1999) in about four years from mid 1994 to mid 1998. With an inflation adjustment, it's probably in his favor or very close.
Masayoshi Son went from around $2 billion in early 1995, to $77 billion by the peak in late 1999 / early 2000 or so.
Yasumitsu Shigeta was worth $42 billion briefly in February 2000, up from $1 billion a year earlier. Then basically lost it all just as fast. For just a one year gain, he might hold the record (Bezos is up $29 billion year to date).
"The man sitting across from him, a 40-something businessman with auburn hair, wearing a navy Italian suit jacket with a white shirt, worn casually, spoke in a thick American southern accent that hid the wiseness beyond his years and began with the net worth of various highly wealthy people, comparing their wealth to the time it took to obtain said wealth. Intrigued and slightly astounded, he jokingly asked the man, 'Were you just sitting on this data?' The man just laughed."
I never liked computers growing up in the late 1980s and early 1990s, not really anyway. I loved technology but I was mostly indifferent toward computers, regarding them as boring, constrained tools. Two of my neighbors had Windows 2.x machines, my interaction with them consisted mostly of gaming. At home we had an old commodore and some unusual other system (which had an awesome cartridge based rip-off clone of pac-man), both were about as interesting to me as a toaster. My father had purchased them at some point - in theory for business purposes - they didn't seem to get used much. I liked building things and I hated having other people tell me what to do with my time or brain. From an early age, I knew I wanted to be an entrepreneur of some sort and I thought I might want to go into the aerospace field. Then in late 1994 I was introduced to the World Wide Web. That changed everything about how I viewed the world, I couldn't get enough of it. I grew up in Appalachia, a world apart from the kind of intellectual stimulation I craved. The potential of the Web was immediately obvious, it was like being hit with a sledgehammer. Suddenly you go from feeling disconnected from the world, to chatting with thousands of people from all around the planet on the WebChat Broadcasting System. Ecommerce, primitive streaming, communities, message boards, personal home pages, search, internet time, online gaming, blinking text, spinning gifs, applets, instant messaging, frames, oh man. Working on a solitary PC always felt like I was a TV repairman. With the Internet, the Web, you could be Spielberg, it was a platform seemingly infinite in potential to build upon. You didn't need permission, you didn't have to jump through red tape, you could just dial-in and start doing. I was enthralled by the era in general, it was an epoch, the big bang. Since it was simultaneously my formative teen years, the memories from 1995-2000 or so, are extremely vivid. Everything about the Web seemed incredible, every new site & service, no matter how silly. The stories from that time are permanently imprinted into my brain because of that. I had a pretty good recollection of the specifics, I double checked the exact figures.
They and Telsa in some ways are basically impossible to value.
So, people make difficult guesses.
Though I agree that because AMZN could probably simply 'turn on profit' at any time, and so the classical P/E is not a great measure ... at the same time ... a small dip in something could ruin them.
It only takes just a little bit of return to 'normal P/E' to wipe most of that out.
It's all emotion and intellectual pontification right now, and that's a crazy place to own a stock.
So, this makes their P/E ration quite massive and crazy as well.
Usually companies are based on the present value of all future earnings, kind of implying a P/E multiple of like 8 or 25 or whatever. Amazons is crazy high.
This is because it's assumed that Amazon could, at any time, start declaring massive profits, but they chose to re-invest instead.
I can't help but wonder what it's like to have that kind of money.
Does such a person ever wake up, and wonder how the dice rolled so amazingly in their favor?
Or do they wake up and stand proud, recognizing that they are so successful because of their own hard work and intelligence?
Do they ever think about how insane life is that they ended up with 94 billion, while some people are starving?
I'm not making any moral projection here. I'm not saying there's anything right, or wrong, about that situation. I'm just genuinely curious what it feels like to be in their shoes.
Bezos has taken to recently calling his immense wealth, his "Amazon lottery winnings." Which gives you an indication that he is fully aware of the role good luck has played in his life. I'm sure it's also meant to disarm or preempt criticism to an extent, Warren Buffet has done the same thing the entire time he has been famous & wealthy (using various explanatory concepts such as "the ovarian lottery," and joking about how he'd be dinosaur lunch in a different time given how a vicious carnivore might respond to his capital allocation skills). To the extent that Bezos's wealth is particularly wildly outsized, I'm sure - based on what he has said - that he recognizes it as being well beyond just the result of hard work and intelligence (both of which he usually gets credit for).
I'm just genuinely curious what it feels like to be in their shoes.
The contemplation of this question satisfies ones need for introspection. Whether it's Bezos, or someone you are not there is great value in trying to answer this.
Struggle and pain and want is cleansing. Constant success can be a house of cards for children.
Wealth, enormous, is a burden. Just making it is freedom. Imo.
As he cant understand our life anymore we cant understand his.
I don't know the answer, but how do you feel every morning waking up knowing your top 1% of the world and top 0.xxxx% of the history of all man kind? I don't think you think about it too much and keep doing things... Maybe even wine a bit :))
My initial question was how did he sell $1B and not affect the share price substantially. And sure enough, the share price did drop a bit. But average trading volume is about 2 billion shares, which is about $2B. It's pretty crazy that the market has so much liquidity that $2B of AMZN changes hands every day, and that it could soak up a $1B sale and barely change the price.
Because the market knows ahead of time he's going to do this- it's pre-announced. Any shift caused by it would happen weeks or months ahead of time, slowly, quietly.
And so it's no big deal the day it actually happens.
In the large? Yes, generally and generically speaking they are excellent at pricing in the very short term. On the small they have all sorts of failure modes and perversions - there is no such thing as "the market" there are, however, market conditions in any given area which may or may not follow certain patterns of activity.
Minor correction: Google finance shows average volume at 3.7M shares, which at $1,100 per share is about $4B daily. Selling a billion dollars is still a significant chunk, so your point stands.
To prevent any accusations of insider trading, these sales tend to be announced months in advance and scheduled, so any movements on the sale day are more likely to be naieve investors reacting.
Yea but they can cancel those trades at any time. They can set up a weekly sale of a huge chunk of stock, cancel it every week while the company is doing fine, then right before a terrible quarter hits, allow the sale to go through. This does not stop insider trading.
I witnessed exchange of $300MM of stock for cash in late 90s at my job. You are correct that noone sels $1B of stock and doesn't make dent in trading value.
So to do that right, you get on the phone with broker who agrees to buy such quantity. You put order SELL at $5 and 1,000,000 shares ONLY, which means noone can buy just 10 shares: you take 1MM or none. Once your call reach the market, within seconds the other party puts a BUY call at 1,000,000 shares. 10 seconds later the whole transaction is done. It doesn't affect market at all, because the price fluctuates based on supply and demand. In our scenario X of supply met X of demand immediately, so the market didn't tick. Of course such large volume might be some sort of a signal (buy or sell, depends on party that looks at it), but will not trigger serious movement of stock, immediately.
No you wouldn't. Its not like hundreds of big fish is waiting at their keyboard trying to push "BUY 10MM stock" at the right spot, because it might show up at the stock exchange. These "deals" are secret as of when they take place. As I said, you get on the phone, 3 seconds one party post "BUY 10MM", second party post "SELL 10MM". Done and done.
Market Orders soak up all the liquidity as they need to be executed at the best price available. So, if the price is at $10 and I dump a huge amount of shares, it will go through the bids..$10, $9.9, $9.8...you get the idea.
Limit Orders kind of provide liquidity. It doesn't execute unless a certain condition is met. So I can dump a large sell at $10, it won't change the price. Anyone in the market can bid into $10 and buy shares if they want.
So, trading volume doesn't matter, order type matters. If Bezos had dumped his shares in open market it would cause the price to change dramatically. People will take it as a sign and jump out like rats fleeing a sinking ship.
Most of these trades are pre-planned and are limit orders.
The data has not been updated for the November sells you can see all the Amazon insider trades here (including the March selling noted in the article):
http://www.nasdaq.com/symbol/amzn/insider-trades
Most are automatic sell and are pre planned. Disposition are trades which are off market transaction, selling or buying, directly with the company.
I think you'll find limit orders limit the price while they're executing. Say I place a $10 million MSFT limit buy order at $80, that means that until my $10 million is used up (the order is "filled") the price cannot drop below $80.
Conversely if I place a $1B sell order for $1100 (ought to be close to what happened here) the price cannot rise above $1100 until that amount of money has been extracted out of the market.
Because it was probably traded book to book or via the back-end pools. Most likely bezos' broker called other brokers/hedge funds/etc to gauge interest and one or few of them agreed to take on the position.
This happens all the time when the big boys want to open/close/rebalance large positions within a short time frame.
84 comments
[ 94.6 ms ] story [ 1434 ms ] thread(And another 7.9% to WA under governor Inslee's December 2016 proposal — which, to be clear, has not actually become law.)
Edit: Why downvote a question? I appreciate the answers, and suspect I'm not the only interested party.
No. Capital gains aren't income.
Ordinary income = salary/wages, bonuses, commissions, etc.
Capital gains are income, but short-term (within a year) are taxed at ordinary income rates, while long-term (greater than a year) are charged at special capital gains tax rate.
It is even possible to pay 0% federal rate on sale of stock, I did it on my 2016 return.
Up to the top of the 15% bracket, yes, or $37,950 in total income for single earners in 2017 ($75,900 joint). It's easy to pay little in long-term cap. gains taxes if you are retired (or unemployed) with a cheap-to-moderate lifestyle.
But not possible for ~$1 billion in gains, like Bezos' sale :-).
Quite possible given enough trust lawyers and accountants. Mitt Romney managed to own a lot of his stock in his Roth IRA. The PayPal gang is famous for paying almost zero taxes though the same tricks. Yes, you dont get to spend it until retirement, but he isnt spending the billion, he is just reinvesting it.
https://en.wikipedia.org/wiki/Self-directed_IRA#Permitted_in...
> IRA funds are allowed to be invested in private companies. ... The IRS puts restrictions on private equity investments that can be made by an IRA. It cannot purchase stock that the IRA holder already owns. ... In most cases, neither the IRA holder nor any disqualified persons to the plan can be employed by the company while the IRA has an equity position in that company.
If billionaires could do this, they would be doing it all the time. And the IRS would be screaming about it. Instead, they're stuck with higher risk options like illegal tax evasion or just paying the tax they owe.
Also, 100% + 0.01%^25 is still more than the sum loaned. And realistically, the interest rate must be higher than 0.01% annually. Sure, you could invest it over 25 years and theoretically beat the interest floor, but this adds a lot of unnecessary risk. When you've already won the game, I think paying the 25% in tax for a guaranteed cash return is worth it over dabbling in high risk, gray area legality tax avoidance.
Consult a qualified tax professional and legal council.
If he was under the $37,950 mark, his Long Term Capital Gains rate would have been 0%
So if you enjoy the stable political system, strong asset protection, your free education, and relatively unpolluted environment it might be time to add Jeff Bezos to your Christmas card list to thank him for funding all that for you.
Found some data: https://en.m.wikipedia.org/wiki/Wealth_inequality_in_the_Uni...
Top 20% owned 93% of wealth in 2014, and I don't see why that number wouldn't go up.
It's a bit harder to find numbers for income, though.
The recent upsurge of counterfeit products are evidence that Amazon is abusing its market power to the point of harming consumers.
It looks like they may have 44% of internet retail by public companies; and that's big, but it doesn't include private companies, and it doesn't fit my definition of a monopoly. It is certainly large enough that they should be scrutinized and attempts to increase share through prohibited practices should result in enforcement actions.
My point is meant to compare antitrust enforcement to the other mechanisms that are viewed by some as necessary to prevent large corporations from causing negative externalities.
Arguably if proper antitrust enforcement had been done in the finance industry, then no firms would have become too big to fail and all of the perverse incentives underscored by regulators post 2008 could have been avoided.
The problem is that since our regulatory state rewards size, there is a strong incentive to become large and hence too big to fail. As Amazon becomes a bigger and bigger part of the economy, it could start using the same rent-seeking tactics that financial firms used in 2008 to get major corporate welfare.
Amazon needs to take full responsibility for counterfeiting. I'm tempted to charge back certain purchases instead of going through the normal highly annoying process.
Being able to return an item no questions asked is not an appropriate remedy for getting a counterfeit product. It's a major hassle to box something back up and return it, and Amazon does not have a good solution for situations when the product that arrives is completely broken or is total junk/DOA.
Joining a class action lawsuit usually takes no action at all, but some action is required to opt-out.
So you've basically just said your been burned enough to do precisely nothing about it.
Now, if you were willing to initiate a lawsuit, whether class- or direct-action, that would be saying something meaningful.
And at any rate, most of the money will probably go for an airport that will never be used in some influential senator's state.
The Commerce Clause that protects his sales from state sales tax and made his mail-older company competitive against local stores made him a bundle too.
Most Federal tax revenue is spent on military (low gas prices for Amazon deliveries) and entitlements, not infrastructure projects.
https://mobile.nytimes.com/2017/04/05/science/blue-origin-ro...
I know he is basically guaranteed to be running all of these sales off a sale schedule set far in advance for obvious reasons. However, I'd probably be doubling up those $1 billion sales until/unless this market gives out.
Raising $6 or $10 billion - enough to fund Blue Origin for maybe a decade - by selling out of a $94 billion base, sure beats doing the same out of $26 billion (where his net worth was at just ~33 months ago).
Masayoshi Son went from around $2 billion in early 1995, to $77 billion by the peak in late 1999 / early 2000 or so.
Yasumitsu Shigeta was worth $42 billion briefly in February 2000, up from $1 billion a year earlier. Then basically lost it all just as fast. For just a one year gain, he might hold the record (Bezos is up $29 billion year to date).
Amazon P/E is basically in the clouds.
They and Telsa in some ways are basically impossible to value.
So, people make difficult guesses.
Though I agree that because AMZN could probably simply 'turn on profit' at any time, and so the classical P/E is not a great measure ... at the same time ... a small dip in something could ruin them.
It only takes just a little bit of return to 'normal P/E' to wipe most of that out.
It's all emotion and intellectual pontification right now, and that's a crazy place to own a stock.
I'm confused—Amazon is profitable already, no?
Massive revenue, tiny profit.
So, this makes their P/E ration quite massive and crazy as well.
Usually companies are based on the present value of all future earnings, kind of implying a P/E multiple of like 8 or 25 or whatever. Amazons is crazy high.
This is because it's assumed that Amazon could, at any time, start declaring massive profits, but they chose to re-invest instead.
Does such a person ever wake up, and wonder how the dice rolled so amazingly in their favor?
Or do they wake up and stand proud, recognizing that they are so successful because of their own hard work and intelligence?
Do they ever think about how insane life is that they ended up with 94 billion, while some people are starving?
I'm not making any moral projection here. I'm not saying there's anything right, or wrong, about that situation. I'm just genuinely curious what it feels like to be in their shoes.
How did you wake up this morning?
Also not making a moral projection here. We just tend to look up instead of down.
because no one strives to go down
More likely they wake up thinking about how to further weight dice rolls into their favour, even those stretching years into the future.
I'm just genuinely curious what it feels like to be in their shoes.
The contemplation of this question satisfies ones need for introspection. Whether it's Bezos, or someone you are not there is great value in trying to answer this.
Struggle and pain and want is cleansing. Constant success can be a house of cards for children.
Wealth, enormous, is a burden. Just making it is freedom. Imo.
As he cant understand our life anymore we cant understand his.
And so it's no big deal the day it actually happens.
If it's obviously a loophole to you and me, then what do you imagine the SEC think?
So to do that right, you get on the phone with broker who agrees to buy such quantity. You put order SELL at $5 and 1,000,000 shares ONLY, which means noone can buy just 10 shares: you take 1MM or none. Once your call reach the market, within seconds the other party puts a BUY call at 1,000,000 shares. 10 seconds later the whole transaction is done. It doesn't affect market at all, because the price fluctuates based on supply and demand. In our scenario X of supply met X of demand immediately, so the market didn't tick. Of course such large volume might be some sort of a signal (buy or sell, depends on party that looks at it), but will not trigger serious movement of stock, immediately.
Market Orders soak up all the liquidity as they need to be executed at the best price available. So, if the price is at $10 and I dump a huge amount of shares, it will go through the bids..$10, $9.9, $9.8...you get the idea.
Limit Orders kind of provide liquidity. It doesn't execute unless a certain condition is met. So I can dump a large sell at $10, it won't change the price. Anyone in the market can bid into $10 and buy shares if they want.
So, trading volume doesn't matter, order type matters. If Bezos had dumped his shares in open market it would cause the price to change dramatically. People will take it as a sign and jump out like rats fleeing a sinking ship.
Most of these trades are pre-planned and are limit orders.
The data has not been updated for the November sells you can see all the Amazon insider trades here (including the March selling noted in the article): http://www.nasdaq.com/symbol/amzn/insider-trades
Most are automatic sell and are pre planned. Disposition are trades which are off market transaction, selling or buying, directly with the company.
Conversely if I place a $1B sell order for $1100 (ought to be close to what happened here) the price cannot rise above $1100 until that amount of money has been extracted out of the market.
That should not prevent the price from falling with such an order.
This happens all the time when the big boys want to open/close/rebalance large positions within a short time frame.