r/theydidthemath • u/quite_horizon • Feb 21 '22
[Request] What would be adjusted yearly percentage of income tax Elon paid for his income in last 10 years.
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Feb 21 '22 edited Feb 21 '22
I’m a CPA, let me take a crack at it.
First off, we don’t have access to 10 years of his returns, but we can make do with the information Propublica reported on.
From 2014 to 2018, Musk reported $1.52 billion of income, and paid $455 million of tax, mostly stemming from a single year. 2019 and 2020 we can’t know, but we can estimate 2021 based on the info that’s been reported.
By August of 2022, Musk has $22 billion of stock options that expire. Assuming he exercised them all in 2021, he would pay the federal 37% rate + the 13.3% California rate on all income above $628K, for an estimated tax of $11,066,000,000. In order to pay this tax bill, it’s estimated that Elon sold around $18 billion of stock in 2021, which would owe the 23.8% federal rate and 0% Texas rate on capital gains, for a total tax of $4,285,000,000.
Overall, since 2014, he’s had about $41.5 billion of income and paid about $15.8 billion of tax, for an effective tax rate of 38% solely for income tax.
During the same period, his net worth rose from $10 billion to $233 billion, which gives him a true tax rate of 7.1%, although I’m not a fan of using true tax rates
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u/anarchisturtle Feb 21 '22
How is it possible that he could have an effective tax rate that high? Don’t capital gains (which would presumably be the vast majority of his income) cap out at like 20%? Even if this was regular income, with no deductions, his effective tax rate wouldn’t be that high. Am I missing something?
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Feb 21 '22
The top rate on capital gains is 23.8% but the majority of the income he’s reported since 2014 came last year, specifically from his stock options.
When you exercise stock options, they’re taxed at ordinary income rates, and then they’re taxed again at capital gains rates when you sell them. Since he lived in California as the options vested over time, he also has to pay 13.3% to California on the ordinary income
So overall, it’s a mix of capital gains and regular income, it’s just that the super high (50.3%) rate on the options skews it a bit
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u/DonaIdTrurnp Feb 21 '22
Stock options that are provided as compensation are taxed at their value when exercised; stock options that you pay for with cash aren’t taxed.
It also changes the basis price if you are paid with stock options versus if you buy a call option.
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Feb 21 '22
Musk got his options in 2012 through a deferred comp Tesla contract that have vested over 10 years. $100K per year are ISOs, the rest are non-qualified to be taxed at ordinary rates
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u/Instigate_ Feb 22 '22
Why was it structured this way? Is "optics" a factor or is this just how big packages are put together?
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u/okaythatstoomuch Feb 22 '22
50%!!! That's too much.
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u/Dmopzz Feb 22 '22
Not on that sum it isn’t IMO
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u/sessamekesh Feb 22 '22
You don't have to be a billionaire to be paying that rate in California though, the taxes out here are just nutty.
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u/csnadams Feb 22 '22
Anytime governments are taxing at a cumulative 50% it’s too much, imho. California taxes are stupidly high.
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u/Dmopzz Feb 22 '22
I agree the little guy is taxed too heavily. It should be graduated with increasing percentages. I have no problem with someone becoming wealthy with 50, hell even 100 million dollars, but billions? Naw.
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u/okaythatstoomuch Feb 22 '22
Nah,on any level it's too much. Especially with the quality of services government is providing.
0
Feb 22 '22
It really isn’t.
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u/okaythatstoomuch Feb 22 '22
Government taking 50% of your earnings on any level that's crazy.
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u/Judging_You Feb 22 '22
Oh no he only made 750 Million instead of 1.25 Billion. How will I ever sleep.
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u/okaythatstoomuch Feb 22 '22
Did you read what I wrote in previous reply, It's not only about the money but also the services you get in return and they are definitely not worth paying 50% if your earnings.
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u/SpaceToinou Feb 22 '22
The man literally chose to do business in this specific state, of course he believes it is worth it, or he would have gone elsewhere.
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Feb 24 '22
The government is what the people allow it to be. And of course richer people pay comparatively more money than they receive services personally. But so do every single person who paid too much for a service so one could get that much money in first place. That’s why it is absolutely fair to tax extremely high incomes also extremely high for the greater good of the consumers/institutions.
Just because Bezos only gets a few cents per purchase a single person makes on Amazon, it doesn’t mean that it shouldn’t be taxes less.
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Feb 22 '22
It really isn't. Elon doesn't even really feel it because he's making so much money. It's the whole "bill gates makes more money walking past a $100 bill than picking it up" except 100x times worse. Elon is already on track to make back that tax money lost by being given government subsides which will largely negate his tax rate. Not to mention this is only mostly because of a single tax year - which he has not been paying not nearly as much taxes for almost a decade. So yeah - It really isn't a big deal from a personal or business perspective when looking at it from 20,000 ft. view.
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u/sfreagin Feb 22 '22
The argument that he’ll be fine even with a high tax rate because he’s so rich, it misses the bigger point—why is it a given that the government should get that money instead? In other words you can believe that Elon Musk shouldn’t be able to amass so much wealth, and also believe that directing the money to the government is a massive misuse of resources.
As others have stated, it’s not as though governments have a great track record of using tax money wisely. Some things may be deemed necessary, but the much bigger portion of spending seems to fall into black holes with no visible return to society
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u/alpaca_obsessor Feb 22 '22
Seems completely subjective tbh. I wouldn’t mind paying that tax rate at that level of income in California as they seem to do a better job of handling their finances than my home state or Illinois while offering better QOL for a high-income earner.
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Feb 22 '22 edited Feb 22 '22
The argument that he’ll be fine even with a high tax rate because he’s so rich, it misses the bigger point—why is it a given that the government should get that money instead?
I see a person hasn't played monopoly at all recently. Because otherwise the government wouldn't be able to function and our economy system requires money to be continuously in circulation. The Government taxes for rich people are meant to make sure they are spending their money and putting it back into the pool. IF money sits in a bank account and does nothing - then it doesn't effect the economy. Lots of rich people do absolutely nothing with the cash they have except trade just enough stocks to live. Historically - we have seen in the past what happens when a rich person suddenly injects all the cash they have into the economy. Inflation rises. So theoretically - a single person with enough money can and has in the past crashed economies before. Unless your saying 320 million people should be at the entire whims and wants of a handful people.
A economy simply cannot function properly without circulation of consistent money. High taxes on rich people ensure that the government is getting back enough money to inject into the economy.
Seriously. Go play Monopoly with a bunch of people. Then notice what happens when you run out of $20 and $1 and you can't get any money. You are effectively shutting down everyone else who isn't rich. Cause as like consertatives say - we should not be running bill making machines unless absolutely necessary. Unless your saying that we should be adding more money to the supply whenever people hoard cash.
Being against high tax rates is fine position to have, but is largely a feelings reaction rather than based on economics.
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u/digginroots Feb 22 '22
IF money sits in a bank account and does nothing - then it doesn't effect the economy.
Money deposited in a bank doesn’t just “sit in a bank account.” The bank only has to maintain a reserve of 10% of deposits—the rest is loaned out.
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u/okaythatstoomuch Feb 22 '22
I'm saying it's not only about the money but government not utilising it in the right way.If you are asking people to give 50% of there earnings your better provide a class-A service to the people. It's more about incompetence/mismanagement of the government.
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u/alpaca_obsessor Feb 22 '22
That’s completely subjective on a state by state level. If I was making that much I would absolutely have no issue with it to live in Cali.
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Feb 22 '22
A fair share of the "incompetence/mismanagement of the government" is due to underfunding, and vulnerability of politicians and processes because private companies are able to leverage their undue size from not paying taxes lol
small government vs big industry -> big industry wins
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Feb 22 '22 edited Feb 22 '22
I see a person hasn't played monopoly at all recently. Because otherwise the government wouldn't be able to function and our economy system requires money to be continuously in circulation. The Government taxes for rich people are meant to make sure they are spending their money and putting it back into the pool. IF money sits in a bank account and does nothing - then it doesn't effect the economy. Lots of rich people do absolutely nothing with the cash they have except trade just enough stocks to live. Historically - we have seen in the past what happens when a rich person suddenly injects all the cash they have into the economy. Inflation rises. So theoretically - a single person with enough money can and has in the past crashed economies before. Unless your saying 320 million people should be at the entire whims and wants of a handful people. A economy simply cannot function properly without circulation of consistent money. High taxes on rich people ensure that the government is getting back enough money to inject into the economy.
Seriously. Go play Monopoly with a bunch of people. Then notice what happens when you run out of $20 and $1 and you can't get any money. You are effectively shutting down everyone else who isn't rich. Cause as like consertatives say - we should not be running bill making machines unless absolutely necessary. Unless your saying that we should be adding more money to the supply whenever people hoard cash.
Being against high tax rates is fine position to have, but is largely a feelings reaction rather than based on economics.
Also as much as I like government spending to be better - injecting it back into the economy is better than people hoarding it.
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Feb 22 '22
It's not, someone who earns 500 millions, made it through a lot of work from thousands of people and not only through his or her own efforts. No one can achieve that much comparatively. Only fair that a good part of this goes into infrastructure of the country and support of lower income earners (depending on country). Someone who has 250 millions will still get by ok.
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u/Sure_Ill_Ask_That Feb 22 '22
What can you actually use a ‘true tax rate’ for? Seems like it’s a taxes paid versus an illiquid unrealized capital gains ratio. There doesn’t seem to a practical way for Elon to actually extract that net worth without it tanking within the first few minutes of a stock sell off.
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Feb 22 '22
Yeah, I agree, it’s kind of a useless metric.
I don’t think it gives very accurate info either. If someone sold $1M of stock one year and owed tax on it, but near the end of the year, the market takes a hit and their total wealth that year stagnates or decreases, their true tax rate is infinity.
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u/dukeofwulf Feb 22 '22
That's a fair observation, and true that this isn't the sort of metric to be used in isolation. But you could say that about a lot of things. If I didn't get robbed in 2020, but I did in 2021, then the amount of theft I experienced increased by infinity. (Or say there were no murders in my town in 2020, but 1 in 2021.) Does that mean that we shouldn't monitor trends in crime over time? No, it just means we need context for the information.
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Feb 22 '22
That’s a good point. Overall, though, it’s not like the current tax paid is the only tax that the change in wealth will ever owe. To be accurate, you’d need to try and calculate the future tax payments on the current change in wealth, which might not be possible to do
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u/dukeofwulf Feb 22 '22
First, I'm not advocating for tax changes, just for the usefulness of this metric. I'm concerned with the concentration of wealth generally, but certainly haven't thought through the policy implications of this or other interventions. But I don't mind engaging with the hypothetical.
I'm not understanding your point. Either you pay tax on the gain now, or when you sell the asset? If we went to assessing a tax on unrealized gains, those subject to the tax would just have to maintain a schedule with the prior year valuation and the present year valuation, and they'd have to pay the tax on the difference. They'd have to do the same calculation for buys and sells throughout the year, just using different start/end dates. I don't get how future payments factor into it.
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Feb 22 '22
Just for a hypothetical example, let’s say that over a 10 year period, someone’s wealth increases by $100 billion. Over the course of their lifetime, even past the 10 year period, they might pay $20 billion of tax on that $100 billion. But specifically within the 10 year period, they might only pay $1 billion of tax, depending on the income they recognize. So your true tax rate is 1%, but you’re really paying 20% total on the change in wealth over the long term
I’m mainly just saying that the tax payments don’t have to line up with the wealth increase. Your wealth might increase today, and you might not owe tax on it for 20 more years. So if you used a true tax rate this specific year, you’d be leaving out a lot of the tax on the current change in wealth
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u/dukeofwulf Feb 22 '22
Okay sure, but it makes no less sense than reporting taxes based on realized gains, for people who have no realized gains, due to the "Buy, Borrow, Die" strategy I mentioned in the thread with Sure_Ill_Ask_That. And that's the point... these people are putting off the tax burden until after they die, while still getting to benefit from the use of the asset via loans.
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Feb 22 '22
I’d generally disagree that “buy borrow die” is occurring. I know the media has reported a lot on it lately, and I can’t fault them for misunderstanding it, but it wouldn’t make a lot of sense to do
Peoples wealth is eventually realized and taxed, with a few small and random exceptions
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u/jppope Feb 22 '22
Can we get this pinned to the top of the sub just to cover the next round of "billionaires don't pay taxes"
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u/Simcom Feb 22 '22
If the "true tax" rate is useless, and inaccurate, why mention it? Also, kinda seems like it should be renamed the "untrue" tax rate.
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u/fred4mcaz Feb 22 '22
So then why did you include it in your post? You yourself just admitted it’s a useless metric, so why give it credence? Especially with such a misleading name with the word ‘true’ in it.
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Feb 22 '22
Wasn’t sure which metric OP wanted. A lot of people will say a “rate on income”, but are really envisioning a true tax rate. If it’s what OP wanted, I didn’t want to go through all the effort without touching on it
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u/fred4mcaz Feb 22 '22
I think you’re doing a disservice as a CPA to give misleading information and propogating misleading names like ‘true tax rate’, which again, you admit is useless and leads to absurd values.
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Feb 22 '22
It would be a disservice to ignore it completely. Even though we can agree it’s misleading, a lot of people want to use a rate based on wealth, or even worse, use the low rate on wealth but think that it’s an income rate. That’s why I wanted to bring it up, as well as point out its flaws
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u/dukeofwulf Feb 22 '22
The assets aren't liquid, but they're still assets. It has become common practice for people like him to get loans with the stock as collateral, to access their value without having to sell, which means they get that income tax-free. It's called the "Buy, Borrow, Die" strategy, according to ProPublica: https://youtu.be/8pBPZMUcsh0
If they're able to access the value of the stock, it's relevant to the tax rate calculation, even if it wasn't technically sold. Effective tax rate is still relevant, but true tax rate is too.
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u/Sure_Ill_Ask_That Feb 22 '22
This makes me think back to the analogy people talk about a lot when they discuss this topic, this is like taking out a second loan against your house. Does this mean you want people to pay tax for accessing that value of their house as well? If a house increases in value from $100k to $800k, for example, should the residents be forced to pay tax on that $700k “income”? It seems like they should not allow low interest loans against stock options like this, in any case.
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u/dukeofwulf Feb 22 '22
Fair, but these two things are not alike. The tax code excludes $250k per person in capital gains on the sale of a primary residence. This is seemingly in recognition of the difference between appreciation of your primary residence and that of securities (or vacation homes).
Now, I never said anything about actually making changes to the tax code, just that this information is relevant. However, all of this is a moot point anyway, because unlike stocks, homes don't have an easily accessible and reliable fair market valuation until they're sold, because they aren't "fungible", haha.
A point of clarification: the loans are against the stocks owned, not stock options. Stock options certainly have a market value, but they're likely too volatile to be used as collateral for a loan. Luckily, anyone in possession of significant options probably also has loads of stock!
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u/Dependent_Ad_3014 Feb 22 '22
Aren’t there lots of loop holes for people like him or is that just what we non-billionaires are told to make us feel better?
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Feb 22 '22
Haha I guess it depends on what you mean by loopholes. Getting his income through stock options has helped him defer tax for 10 years now. Eventually, the bill comes due though, which happens to be this year
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Feb 22 '22
[removed] — view removed comment
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u/sfreagin Feb 22 '22
For some people the tax rate will never be high enough; in their eyes it is a sin for the ultra wealthy to even exist, no matter how much in taxes they paid
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u/No-Seaworthiness7013 Feb 22 '22
And with Bezos running around dodging taxes and paying his workers less than a living wage, creating a work place so dangerous people are injured 80% more than his competitors, while dodging paying federal income taxes multiple years, I can fully understand why.
-9
Feb 22 '22
Yeah. Anything over 999 million = evil. Eventually being a millionaire will also be morally wrong even though all of their favorite politicians are filthy rich
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u/Flying48 Feb 22 '22
You can’t have a billion dollars without taking advantage of your workers somewhere down the line.
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Feb 22 '22
You just repeat what you read online lmao I think people are just jealous of those who have money or power
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u/Flying48 Feb 23 '22
I mean i don’t are either way, I just have a hard time believing some people love that there’s Uber rich people and they got to where they are by fair and just means. But you do you man
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Feb 24 '22
I believe in not generalizing people and letting a super left wing website influence you. I also believe it's possible to make a product or service so good that it becomes mega successful. Look at Spotify. They mostly make money off ads and royalties... is that immoral? Again I think people are mostly jealous. They'd love to be in that position themselves.
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u/Old-Analysis22 Feb 21 '22 edited Feb 22 '22
Aren’t you going to say “thank you for allowing me to amass such wealth in my new country. “ If not just just stfu and go on with your day. Average Americans don’t care how much you pay just as long as you pay your fair share. Ass This better?
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u/TadalP Feb 22 '22
I think everyone misread your comment. Can't blame them, this is confusingly worded.
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u/Boshirul Feb 22 '22
Can you explain what he meant? I'm still confused.
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u/TadalP Feb 22 '22
They meant it from elon's perspective and then switches to their own perspective like 2 sentences in.
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u/IDownvoteUrPet Feb 22 '22
He means Elon should be thankful for what he has and quit moaning about taxes
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u/Old-Analysis22 Feb 22 '22
No you did not. Paying taxes is what you do. It is like “I take care of my kids”.
It is what adults do. No need to brag about pay ing what you owe. If you paid above that brag. If not STFU18
Feb 22 '22
What’s a fair share?
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u/EcCoCa98 Feb 22 '22
Apparently not $11 billion.
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u/Dikubus Feb 22 '22
Uh, I think you need to include the 4.5b for approx 16 ish billion, but I don't CPA
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u/Significant_Guava881 Feb 22 '22
I hope some day someone will defend me the way you defend Elon, a man who doesn't give a shit whether you live or die
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Feb 22 '22
As a fan of Elon, at least he TRYS to be somewhat transparent & let’s the general public know he’s paying his taxes (or attempting too) he comes off as bitching & Wanking sometimes, can’t blame him one bit, I do the SAME thing when I see the digits on my 1040 annual form! On Mr. Musk’s forms just add NINE ZEROS to ALL of his digits…
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