DYK Elon Musk, world's second-richest person paid $0 in federal income tax in 2018?

SpaceX and Tesla CEO Elon Musk announced earlier yesterday that he expects to pay over $11 billion (Rs 88,000 crores) in taxes in 2021, the largest tax bill out of "any American in history,” according to several reports. Elon Musk is also the first person in the world to hit a net worth of more than $300 billion, and his net worth in October expanded more than the annual GDP of entire Finland, Chile, and Vietnam, and the market value of Netflix, making him the richest man alive.

A ProPublica investigation found that SpaceX boss’ income increased by a whopping $14 billion from 2014 to 2018. But despite being the one-time wealthiest man, Musk’s tax rate at 3.27% was lower than an average American household. He paid only $68,000 in federal income tax in 2015 and $65,000 in 2017, and paid zero taxes in 2018.

"For those wondering, I will pay over $11 billion in taxes this year," SpaceX CEO tweeted on Sunday night. His tweet came after a brief heated argument US Senator Elizabeth Warren over tax evasion.  Musk was named Time magazine's "Person of the Year," and the US Senator Warren took the opportunity to take a dig at Musk’s tax history as he tweeted that the US should change the "rigged tax code so ‘The Person of the Year’ will actually pay taxes and stop freeloading off everyone else." Musk then responded, that if she "opened her eyes for 2 seconds," she would "realize I will pay more taxes than any American in history this year." 

Unlike illegal tax evaders, billionaires do it legally

The argument among the congressional members in the US senate about the possibility of a tax on billionaires has been common, and Democrats, this year, pushed hard to make the rich pay taxes via an arrangement in the US president Joe Biden’s ‘Build Back Better’ plan. A tax was proposed in the bill for those with $1 billion in assets or incomes of more than $100 million for at least three years. But it has since been replaced and would have made 700 of the United States' wealthiest pay their taxes, including Elon Musk, according to Forbes.

Sen. Ron Wyden (D-OR), the chairman of the Senate Finance Committee introduced a "billionaires tax" targeting the ultra-rich as a way to pay for President Biden's agenda. It was, however, cut from the bill because apparently taxing the billionaires is incredibly tough. But unlike the illegal tax evaders, the billionaires do it legally.

Tesla CEO, who paid just $455 million, or 3.27% tax for his wealth growth of $13.9 billion despite that his $1.52 billion income was taxable over 5 year period, argues that he lived off loans made from his stock options and did not take a salary from his company. A median American household that earned about $70,000 annually paid 14% in federal taxes as they lived on a paycheck and had no stock spendings or accumulated wealth. If their income rises, they earn more and hence their entire pay is taxable. A household with earnings above $628,300 was made to pay 37% in federal taxes as there’s a regular tax on income, much less on wealth. 

ProPublica, which obtained a vast cache of IRS information, revealed how the world’s billionaires like Jeff Bezos, Elon Musk and Warren Buffett paid extremely low tax gaming the system, or at times nothing. In 2007, Jeff Bezos, then a multibillionaire and now the world’s richest man, did not pay a penny in federal income taxes. Similarly, billionaire investor Carl Icahn evaded taxes twice, while George Soros paid no federal income tax three years in a row, according to the investigation by the non-profit. The ultrarich “effectively sidestep taxation system,” says the investigation using tax-avoidance strategies, as has been the case with Tesla CEO Elon Musk.