Democrats are seizing on Elon Musk’s $44 billion purchase of Twitter as evidence that the country’s wealthiest people are being taxed too little.
Musk has said he is buying the social media giant in order to take it private and revamp its handling of speech. Some on the Right have praised the move, but some on the Left are using the moment to push to tax him.
“This deal is dangerous for our democracy. Billionaires like Elon Musk play by a different set of rules than everyone else, accumulating power for their own gain. We need a wealth tax and strong rules to hold Big Tech accountable,” Sen. Elizabeth Warren trumpeted on the platform after Twitter’s board announced that it would accept Musk’s offer.
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While a wealth tax isn’t actively being considered by lawmakers and would be unlikely to pass in the evenly divided Senate, some of the more liberal politicians, such as Warren and socialist Sen. Bernie Sanders of Vermont, have advocated some form of tax that doesn’t just hit the annual incomes of the wealthiest people, but also their net worth.
Warren wasn’t alone in her criticism of the purchase. Democratic Rep. Pramila Jayapal of Washington claimed that Musk paid “an effective tax rate” of just 3.27% from 2014 to 2018. She compared that to the average family, which she said pays about 13%, on average.
“It’s time for a wealth tax in this country,” proclaimed Jayapal.
Jayapal’s assertion that Musk only paid 3.27% in taxes is inaccurate and appears to be sourced from what ProPublica defined as a “true tax rate” in its stories about the thousands of pages of leaked tax documents it received.
The tax leak was big news and spurred debate about a wealth tax when the story first broke last year.
Musk was among those whose tax documents ProPublica received and wrote about. It calculated his “true tax rate” by comparing how much in taxes the wealthiest 25 people in the United States paid each year to how much Forbes estimated their wealth grew during that same period.
Thus, the 3.27% figure is so low because it is including Musk’s unrealized capital gains, which are, by definition, not income and not taxed until they are realized.
Rep. Bonnie Watson Coleman, a New Jersey Democrat, pointed out Musk’s massive cash offer to buy out Twitter represents just 17% of his net worth.
“Billionaires like Musk pay lower tax rates than firefighters, teachers, and nurses. If that sounds absurd, it’s because it is,” she said. “We need a Billionaire Minimum Income Tax.”
Despite Musk being the world’s wealthiest person, worth about $242 billion as of Tuesday, much of his net worth comes from his investments and holdings rather than him being cash-rich. He currently holds about $3 billion in cash and somewhat liquid assets, according to an estimate from Bloomberg.
While a wealth tax is unlikely to come to fruition in the near future, some Democrats have recently pushed to collect more revenue from the wealthy through various proposals tied to President Joe Biden’s spending agenda, much of which now appears dead in the water.
Last year, Sen. Ron Wyden, who has been a stalwart advocate of mark-to-market accounting for taxing assets held by the wealthy, proposed a 23.8% annual tax on billionaires’ unrealized capital gains as a way to pay for Democratic climate change and social spending legislation. The Oregon Democrat’s proposal was quickly batted down in favor of a plan to apply a surtax on those earning in excess of $10 million (which also ended up failing).
Following the proposal, Musk weighed in on the matter. The Tesla founder polled his Twitter followers on whether he should sell more than $20 billion worth of Tesla stock as a response to the senator’s push to tax the unrealized capital gains of billionaires.
“Whether or not the world’s wealthiest man pays any taxes at all shouldn’t depend on the results of a Twitter poll. It’s time for the Billionaires Income Tax,” the senator said in response to Musk’s informal poll.
The plan to tax the unrealized gains of billionaires also faced tricky questions about reporting losses.
For instance, if one of the world’s wealthiest people has a bad year financially, under a billionaire tax, the government would conceivably end up being forced to provide some form of a tax refund. The optics of taxpayers subsidizing billionaires would likely lead to popular resentment.
“If you’re worried about the optics of billionaires not paying taxes on unrealized gains, how will it look if they get refunds for losses from the government during a recession potentially?” Garrett Watson, a senior policy analyst at the Tax Foundation, told the Washington Examiner when the proposal was being debated.
Last year, Musk ended up selling a large volume of Tesla stock, including some $1 billion worth of the company in late December. The move came as Musk was expected to pay perhaps the largest single tax bill in U.S. history, with his combined federal and California income taxes estimated to reach $11 billion, according to CNBC.
Twitter’s board accepted Musk’s offer to purchase the company on Monday after previously working to resist a takeover.
Musk agreed to buy the stock at $54.20 per share — a 38% premium over the closing price on the day before news broke that Musk had bought up 9.6% of the company and an 18% increase from the closing price before the proposed purchase was first announced.
The Tesla and SpaceX founder highlighted his desire to support democracy and free speech after the deal was agreed to.
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“Free speech is the bedrock of a functioning democracy, and Twitter is the digital town square where matters vital to the future of humanity are debated,” said Musk in a statement on Monday.
“I also want to make Twitter better than ever by enhancing the product with new features, making the algorithms open source to increase trust, defeating the spam bots, and authenticating all humans,” he continued. “Twitter has tremendous potential — I look forward to working with the company and the community of users to unlock it.”
