The answer keeps shifting:
Facebook, the popular social networking site, has raised $500 million from Goldman Sachs and a Russian investor in a deal that values the company at $50 billion, according to people involved in the transaction. [...] In a rare move, Goldman is planning to create a “special purpose vehicle” to allow its high-net-worth clients to invest in Facebook, these people said. While the S.E.C. requires companies with more than 499 investors to disclose their financial results to the public, Goldman’s proposed special purpose vehicle may be able get around such a rule because it would be managed by Goldman and considered just one investor, even though it could conceivably be pooling investments from thousands of clients.
Once again we’re watching regulatory arbitrage in action as Facebook seeks loopholes around the rule that prevents it from having more than 499 investors without opening its books. But this is also, I think, a reason to believe it would be better to levy a consumption tax with a highly progressive rate structure instead of our current income tax with a modestly progressive rate structure. One can count how much money Mark Zuckerberg is spending in any given year and more or less what he’s spending it on. The ups-and-downs of his notional fortune, by contrast, are pretty unstable and depend in part on things like whether or not Goldman Sachs wants to buy Facebook shares at an inflated value in order to capture a potentially valuable middleman role for itself.
This means it would be technically and economically feasible to levy very very high marginal rates on extremely extravagant consumption in a way that’s just unworkable with investment income.
In bonus rich people news, apparently upper class have less empathy than normal people.
CORRECTION: This wealth valuation problem isn’t actually relevant to American taxation. I had thought that unrealized capital gains are subject to taxation, but they’re not. I apologize for the error and thanks to those who brought it to my attention.