Don't tax gazillionaires, he says
BOB LORD, WILLIAM RICE by Inequality.org
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This latest disinformation involves the big chunk of Musk’s Tesla shares that he sold last year. Musk is claiming that he made this sale — and incurred a big tax bill in the process — because he polled his devoted fans on Twitter and they told him to make the sale. The reality: Musk was sitting on a stack of Tesla stock options about to expire.
Options give their holders the right to buy shares at a
predetermined, usually below-market price. Musk’s expiring options would have
become worthless if he didn’t exercise them. In 2021 he was also facing a
reasonable chance that federal tax rates on big incomes would be higher this year.
Given all these factors, exercising his options last year made perfect business
sense for Musk.
By claiming otherwise, by claiming his stock trading merely reflected his faith in his followers, Musk scored a disinformation two-fer. He could position himself as a “man of the people” by palming off a clear-eyed business decision as a victory for economic democracy.
Musk also, by publicizing the
tax bill on his stock trades last year, could claim that our current rotten tax
system actually does tax the rich. In fact, Musk typically pays only a tiny
share of his huge annual income in taxes. In one recent year, Musk paid nothing at
all in federal income tax.
Now,
in the wake of this two-fer, Musk and his fanboys are claiming that SpaceX and
Tesla would not exist today had President Biden’s newly proposed Minimum
Billionaires Income Tax been the law of the land back in 2008, the year both
companies were experiencing growing pains and a nasty divorce had Musk on the
financial ropes. This claim turns out to be dishonest, arrogant, and illogical,
all at once.
First, the dishonesty. In social media — and especially inside the right-wing echo chamber — a single bogus claim can quickly compound. In this case, an American Enterprise Institute fellow, James Pethokoukis, wrote a Substack column that conflated Biden’s proposed “Billionaires Minimum Income Tax” with a wealth tax that Sen. Elizabeth Warren proposed before Biden entered the White House.
The two plans actually differ quite markedly. Warren’s approach seeks to annually
tax great wealth, whether that wealth is rising or declining. Biden’s proposal
calls only for taxing the wealth gains of the uber wealthy.
Pethokoukis then went on to cite the opinion of University of Chicago economist Steven Kaplan that either Tesla and SpaceX would have gone under if Warren’s wealth levy had been in effect when Musk was trying to keep the two afloat in troubled times. Pethokoukis tweeted about his column the next day and Musk replied, validating Kaplan’s analysis of Warren’s plan..
The next day, Thomas
Barrabi published a New
York Post story reporting — inaccurately — that Tesla and SpaceX
“likely wouldn’t have survived” if the Biden plan “to impose a
‘billionaires’ tax’ on the wealthiest Americans” had been in place earlier this
century. But Biden’s tax plan would not have endangered the
existence of either Tesla or SpaceX. Let’s follow the money.
In
2002, Musk sold stock he owned in PayPay and made a lot of money. He used much
of that money to get Tesla and Space-X going. If the Biden proposal had been in
effect when Musk held those lucrative PayPal shares, the Musk fanboy case
contends, he would have had to have paid wealth tax annually on those shares
and ended up with much less to put into Tesla and SpaceX.
The
facts: Under Biden’s plan, Musk would have only been paying income tax on the
annual gains in the value of those PayPal shares. But Musk would
have been able, under the Biden plan, to credit those annual tax payments against his
tax liability in 2002, the year he sold those shares and would have faced a tax
bill on the profits he made from that sale.
More facts: According to Musk, both Tesla and SpaceX were tottering on the brink of bankruptcy during the 2008 financial crisis. If that had been the case, the value of Musk’s ownership stakes in those two firms would not have increased.
Without any gains in the value of his Tesla and SpaceX shares, Musk would not
have had on the books any “unrealized” gains that the Biden tax plan could tax.
So Barrabi’s reporting that Biden’s proposed “Billionaires Minimum Income Tax”
would have destroyed both Tesla and SpaceX amounts to pure malarkey.
Let’s add into the mix here the arrogance behind this erroneous claim by Musk and his acolytes. Logically, if Musk had been short on funds to launch Tesla and SpaceX in 2002 or to keep them going in 2008, he could have sought out investors. After all, trillions in venture capital funds are sloshing around, looking for opportunities.
Pethokoukis’ column quotes Musk saying he didn’t “think anybody
else” would have invested $180 million into the two companies in 2002. Really?
No one besides Elon Musk would have had the wisdom to recognize the potential
of his genius?
Let’s also focus on the illogic here. The Musk crowd is claiming that a tax on annual gains in the value of stock holdings — the heart of the proposed Biden billionaires tax — would frustrate entrepreneurial investment. But Biden’s tax really boils down to a prepayment of the taxes billionaires already owe under current law when they sell their appreciated assets.
Presumably, entrepreneurs
sitting on huge gains from a successful venture who wanted to access those
gains to launch a new venture would sell part or all their interest in the
successful venture. Musk did exactly that with his PayPal fortune when he
wanted to launch SpaceX and Tesla.
Under
Biden’s plan, entrepreneurs in Musk’s situation wouldn’t pay any more in
capital gains taxes. They would just pay taxes on their gains as they get them,
just like working people do on their wages, instead of deferring payment until
they sell their shares. Biden’s proposed minimum tax on unrealized gains
only matters to those who don’t sell, not those who do..
Of
course, what Musk and his fanboys really are saying is that we shouldn’t tax
billionaires at all, because they rate as so much more important than the rest
of us. That’s utter malarkey too.
Bob Lord is Senior
Advisor, Tax Policy at Patriotic Millionaires and an Institute for Policy
Studies associate fellow.
William Rice is
a writer and consultant in Washington.