- Elon Musk railed against Democrats’ “billionaires’ tax” proposal, but it would still leave him as the world’s richest person.
- Musk warned the government could “come for you” when it runs out of cash, but the US has spent more than it taxes for decades.
- The new tax would still allow Musk to keep $US28 ($AU37) billion from his $US37 ($AU49) billion surge in wealth this Monday as Tesla’s market cap exploded.
Elon Musk this week critiqued Democrats’ latest plans to tax billionaires to pay for their social spending plans, saying on Twitter, “Eventually, they run out of other people’s money and then they come for you.”
But who are the “other people” and the “you” here? For the majority of Americans, income taxes have long been a reality, making up nearly half of the money collected by the US government.
America’s wealthiest, on the other hand, have largely paid a lower rate of taxes by seeing their wealth accumulate in the form of asset worth, not an annual salary. Musk’s argument plays on illogical fears that lawmakers will target everyday Americans next, when the reality is that after the rich have used loopholes for decades, some of those are starting to close.
The wealthiest pay less in taxes
The US has used a progressive tax system since 1862.
Tax brackets and top rates have changed over time as Americans earned more, but the top rates have grown ineffective from an explosion of loopholes. The plan from Sen. Ron Wyden of Oregon doesn’t mark a new era of strict taxation, it just forces billionaires to pay tax on their biggest source of income: soaring stocks.
The world’s richest man ripped into the tax proposal on Monday, saying it unfairly shifted wealth away from America’s richest citizens. The issue comes down to “who is best at capital allocation – governments or entrepreneurs,” Musk wrote in one of several tweets on tax policy.
Yet the richest Americans have long paid a smaller share of their income than those who earn far less. Many billionaires shield their wealth by taking a relatively low salary and placing most of their net worth in assets like stocks, which are only taxed when they are sold and the profit is locked in, or “realized.” But billionaires often hold stocks throughout their lives and pass them on after death, leaving the majority of their net worth completely untaxed, while using their wealth to get ultra-cheap loans from banks where they park their assets.
Musk, for example, saw a $US37 ($AU49) billion spike in his net worth on Monday when Tesla’s stock price surged nearly 13%. Under the current system, he isn’t required to pay taxes on any of those gains.
Wyden’s proposal would levy the usual 23.8% capital gains tax on the increased value of unsold assets, meaning billionaires like Musk, Jeff Bezos, and Bill Gates would have to pay taxes on their massive stock profits. For Musk, the initial bill on his stock gains would amount to roughly $US50 ($AU66) billion, according to an analysis by Gabriel Zucman, a left-leaning economist at the University of California Berkeley. Wyden’s proposal would allow Musk to pay that sum over a five-year period.
-Gabriel Zucman (@gabriel_zucman) October 26, 2021
That would mark a stark change from the tax rates billionaires have paid for several years. Analysis of IRS tax return data published by ProPublica in June showed some of the richest Americans – including Musk – paying nothing in income taxes for a handful of years. Musk in particular paid $US455 ($AU605) million in taxes from 2014 to 2018, just 3.27% of his wealth, according to the report.
If the tax becomes law, Musk would remain the world’s richest man by a healthy margin, at a net worth of roughly $US202 ($AU268) billion, as of Tuesday’s market close. Bezos would be the second-wealthiest American with a net worth of about $US149 ($AU198) billion.
Musk’s Monday stock windfall would still be worth more than most Americans make in their lives. A 23.8% tax on the jump would turn the $US37 ($AU49) billion profit into a $US28 ($AU37).2 billion gain.
If that sum made up Musk’s entire net worth, he’d still be wealthier than 99.5% of Americans.