> Do you want a 20% chance at $20 million or a 1% chance at $500 million?
The answer depends on whether I have $1M already. If I don't, a 20% chance at $20M is worth more to me than a 1% chance at $500M.
It also depends on how many bets I'm making. If I've got a couple of reasonably likely shots at $20M, at shot at $500M is more valuable to me than another shot at $20M. If I don't have any other big bets or only have 1% shots at $500M, a lower-risk, lower-reward bet is more valuable.
Expected value calculations don't tell the whole story. (Or, if you'd prefer, they only tell the whole story in a very constrained situation that almost none of us are in.)
BTW - Microsoft started paying dividends when that became a tax-advantaged way for Gates to get money out of Microsoft. He's the poster-child for "the rich don't pay taxes" and none of the "tax the rich" proposals affect that. (Almost none of his estate is subject to the estate tax that he supports.)
This idea that the rich don't pay taxes is somewhat misleading. Yes, certain very very rich people have accountants and tax shelters, but this is not the norm. IIRC, the (income) tax burden is about 40%, this by the top 1%.
So a /few/ rich people /seem/ to not pay any taxes.
They pay some taxes, they just do it at a far lower rate because it's capital gains. It's not the ultra-wealthy paying 40%, it's the working wealthy. Surgeons, who save lives on a daily basis, pay 40%, guys who sold their startup to Yahoo (or who receive it via dividends) pay 15.
I'm not sure how the dividends helped Gates save over just selling the stock though.
Don't forget Gates' charitable activities. They have significant tax consequences.
Gates can collect dividends as long as Microft pays them. He can only sell stock once.
I don't know the details of Gates' finances, but I'll bet real money that his choices make economic sense from his point of view. Maybe it's a coincidence that Microsoft didn't pay dividends until the rates changed, but ...
FWIW, the rate change was intended to increase the dividend payout rate.
Well, it might be a better investment to hang on to the shares, but it's not tax advantageous when either way results in 15% tax. His charitable activities don't lower his personal tax, they lower his wealth.
Giving most of your money to charity doesn't make economic sense form anyone's point of view, and I don't think Microsoft's dividend was in any way designed to save Bill money. It was done because a company only needs so much cash on hand.
Charitable donations definitely reduce taxes paid via the relevant deduction - that effectively shields income from being taxed.
If you donate stock held for longer than a year, you can deduct the full market value. According to http://money.cnn.com/2001/12/07/taxes/q_appreciated/index.ht... the deduction goes against ordinary income, which is taxed at a much higher rate than long term capital gains.
The answer depends on whether I have $1M already. If I don't, a 20% chance at $20M is worth more to me than a 1% chance at $500M.
It also depends on how many bets I'm making. If I've got a couple of reasonably likely shots at $20M, at shot at $500M is more valuable to me than another shot at $20M. If I don't have any other big bets or only have 1% shots at $500M, a lower-risk, lower-reward bet is more valuable.
Expected value calculations don't tell the whole story. (Or, if you'd prefer, they only tell the whole story in a very constrained situation that almost none of us are in.)
BTW - Microsoft started paying dividends when that became a tax-advantaged way for Gates to get money out of Microsoft. He's the poster-child for "the rich don't pay taxes" and none of the "tax the rich" proposals affect that. (Almost none of his estate is subject to the estate tax that he supports.)