In taking the free advice of 3.5 million people, the world’s richest man is inadvertently proving the wisdom of the Democrats’ proposed “billionaire tax.”
On Saturday (Nov. 6), Elon Musk put out a Twitter poll. The Biden administration had been pushing for an annual tax on unrealized capital gains—that is, on the rise in value of shares that a small group of billionaires hold in public companies. Musk proclaimed that he took no salary or bonus, and that all his wealth was in stock. So he asked his followers: should he sell 10% of his Tesla stock?
Musk tweets for many reasons—to goose cryptocurrencies, to troll his critics, to promote his projects, and sometimes seemingly out of sheer boredom—so it’s difficult to take any of his social-media posts at face value. But if he really considered selling his stock because of the Democrats’ idea to tax unrealized gains, then he ended up demonstrating why that idea would work.
The Ayes had it. If Musk abides by the results of the poll, as he said he would, he will soon unload $21 billion worth of Tesla into the market—a prospect that depressed the stock price in pre-market trading on Monday.
The tax proposal, if it had survived negotiations, would have required people with more than $1 billion in assets or $100 million in annual income over three consecutive years to pay a capital gains tax on assets that have appreciated in value and haven’t yet been sold.
In total, there are only around 700 such Americans who would fall into this tax bracket. Someone like Musk would end up paying 23.8% on stocks that have risen in value over the tax year, for instance. This tax measure got so much pushback that it ended up being dropped from the Biden administration’s spending bill last week.
The premise behind the tax was simple: billionaires are locking up their wealth beyond the taxman’s reach, and living instead on money borrowed against the typical assets of super-rich: shares, property, art, NFTs. Those loans don’t count as income, so they aren’t taxed. When they die, all the deferred tax on the appreciation of the assets vanishes; their heirs, if they sell these assets at all, only pay taxes on the appreciation that occurred after death. In an investigation of this strategy, ProPublica dubbed it “Buy, Borrow, Die.”
The tax on unrealized gains aimed to make it harder for billionaires to enjoy the fruits of this practice. Its intent was to force the super-rich either to pay the tax on their appreciating assets or to unlock them, pay ordinary capital-gains tax on their value, and then spend the money, boosting both public funds and the economy in the process. This is exactly what Musk portrayed himself as doing.
Musk’s tweet may well have been a facetious take on a pre-meditated decision; he had signaled back in September that he was likely to sell shares later in the year, and by the time he tweeted on Saturday, the tax on unrealized gains had already been dropped. But by juxtaposing the tax with his decision, he offered a vision of the mechanism the Democrats have had to temporarily shelve—a mechanism by which the wealthiest Americans felt compelled to pay their due share.