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, an Institute for Policy Studies associate fellow, currently serves as senior advisor, tax policy, to the Patriotic Millionaires. William Rice is a writer and consultant in Washington.