Elon Musk, the world’s richest person, recently bragged about receiving an historic $11 billion tax bill this year, but the tax obligation is only due to large, complicated stock sales over the past months, which he will almost certainly end up profiting from.
Earlier this month, Musk boasted on Twitter that he will owe the most taxes of any individual in a single year (though he is also among the richest people in history). But when the conditions surrounding Musk’s tax bill are detailed, his true intentions become clearer.
In 2012, as part of his compensation as CEO of Tesla, Musk received the option to make future stock purchases at their 2012 value, regardless of their market value at the time of purchase. This allowed Musk, who doesn’t receive a traditional salary from Tesla, to purchase millions of shares in November, setting off a cascade of similar transactions over the next weeks. Early in November, he bought those shares for $13.4 million, despite being valued at $2.3 billion.
The option to buy these shares at this price is set to expire next year. And the Build Back Better Act, if it were eventually passed, could levy further taxes on the transaction if he were to put it off until 2022, making the trade strategically timed.
Since then, Musk has made other similar transactions, which are taxed as income. At that tax bracket, they are subject to a 40.8 percent tax rate. These transactions are what make up the bulk of his $11 billion tax bill, according to tax experts.
He won’t have to reach too far into his bank account to pay these taxes; Musk also sold millions of stock shares in order to help cover the tax liability and has thus far sold about $16 billion worth of stock that could go towards covering taxes, though it’s unclear to what extent. On top of these sales, Musk is set to receive even more in compensation from the company this year depending on its end-of-year performance.
The hundred-billionaire’s tax bill, thus, is a product of a maneuver to further pad his towering $280 billion net worth. It is only about 3.9 percent of his net worth, which may increase due to further stock transactions. It is also only a fraction of the record $36 billion he made in one day in October.
Unless Musk continues to make further large stock transactions in the coming years, it’s also likely to be an outlier for him. Though media outlets are gushing about the tax bill and publishing unqualified headlines on the matter, Musk typically makes these moves to avoid paying taxes, which would explain why he’s bragging about this year’s bill.
Leaked tax documents obtained by ProPublica earlier this year found that Musk paid $0 in federal income taxes in 2018. Between 2014 and 2018, Musk’s “true” federal income tax rate was a mere 3.3 percent – lower than the average middle-income family’s tax rate each year.
By the end of 2018, the 25 richest Americans were worth $1.1 trillion, as much as the combined wealth of 14.3M ordinary wage earners.
The 2018 personal federal tax bill for the 25 richest: $1.9 billion.
The bill for the wage earners: $143 billion.https://t.co/1mPwh3ZYXa
— ProPublica (@propublica) December 29, 2021