SOME INFLUENTIAL US politicians are gunning for the richest man in the world – the pugnacious genius and boss of Tesla and Space X Elon Musk. Recently Senator Elizabeth Warren criticised Musk as “the world’s richest freeloader.” This despite the fact that Warren would have known at the time that, as a result of highly public Tesla stock sales, Musk was on track to have an enormous 2021 tax bill. Musk (who has never knowingly shied away from a fight), in reply called Warren “Senator Karen”.
Looking beyond the petty insults lurks a much more significant question. Has Warren crossed from saying, “Let’s get more money for good things” to “Let’s take money from BAD people”?
Is the consequence of this rhetorical shift going to result in a one time tax windfall BUT the loss of future and ongoing tax revenue from a man who is on track to be the single largest taxpayer in US history?
The Musk Back Story
Elon Musk is rich. Very, very rich indeed. In January 2021 he surpassed Amazon founder Jeff Bezos with $185 billion in assets. A week later, he passed Bill Gates of Microsoft as the world’s richest person. According to Forbes he was the richest person in the world with a net worth of over $300 billion.
Earlier this year, ProPublica reported:
“In 2018, Musk paid nothing in federal income taxes and less that $70,000 in 2015 and 2017.”
However, they failed to talk about other taxes (state, local, property etc.) that Musk did pay in those years. Nor, did they point out that such results were the result of the fact that Musk had not drawn substantial income from his company in those years.
The ProPublica story gave Warren and others the perfect smokescreen to push their various “Tax the Rich” proposals. such as the Wealth Tax or Senator Ron Wyden’s Ultra-Millionaire Tax. In fact, Wyden’s proposal would have called for Musk to pay full capital gains each and every year… even though Musk hadn’t triggered any capital gains by making a sale. Furthermore, Musk would remain fully subject to future US income, gift, estate, and possibly wealth tax.
Although Wyden’s proposal was not included in the current version of the Build Back Better bill, he has not given up. “Next year, when people are sorting this out” he emphasised recently, “after hearing over and over that billionaires are paying little or nothing…we’re going to be staying with it!”
What will Musk do?
Musk and his peers are well aware that if you live in a tax increase ‘Wildfire Zone’, threats like Senator Wyden’s proposal are never permanently extinguished. They simply become embers that will blaze up again with the slightest whiff of political oxygen.
My purpose in looking at this situation is to ask a serious question.
If the Ultra-Millionaire tax is going to tax his unrealised capital gains, and then continue to subject him to future US tax, why would he not just make that same payment and then permanently and legally leave the US tax system behind?
In other words, if Musk is fed up with the Warren (and other) attacks on him and his business affairs, why continue to be a US taxpayer at all?
Will Musk Move out of US Tax Jurisdiction?
Most Americans are unaware of the fact that the US is the only country in the world (aside from the small African country of Eritrea) which taxes based upon citizenship. This means that, unlike other countries, if an American wants to sever their future US tax liability they need to both have another citizenship and give up their US citizenship.
The immediate result of such an act is to trigger the exact same deemed disposition of unrealised capital gains that the Ultra-Millionaire Tax bill proposes.
It is worth remembering that that along with the US citizenship he acquired in 2002, Musk possesses both Canadian and South African citizenship by birth. This means he already has the “Fire Insurance” of an alternative citizenship. He could therefore trigger a “Fire Escape Plan” of renouncing his US citizenship at a moment’s notice, should he feel his fiscal house was at risk of going up in flames.
In pondering whether Musk would make such a bold move, it is worth remembering that he made a number of bold decisions in recent times. This includes his move from California to Texas and the recent sale of $15 billion of Tesla stock. He is certainly going to make up his own mind on where it makes the best sense for him to reside for tax purposes.
One real… and logical choice would be for Musk to decide to pay his last bit of US tax (using $ borrowed against his Tesla stock for anything he had not sold) and permanently and legally leave the US tax system behind. Given this distinct possibility and the permanent loss of such a major contributor to the US tax coffers… toning back the vitriol might be in order.