Elon Musk has been subject to public scrutiny over his reported tax evasion. The tech entrepreneur and Tesla CEO is one of the wealthiest individuals in the world, and questions have been raised surrounding his financial obligations to the state. Does Musk pay his fair share of taxes? To answer this question it is important to consider Musk’s financial background, available data and the opinions of tax experts.
Musk was born in South Africa in 1971 and showed signs of economic prowess since childhood. After being accepted into universities in the USA he attended and graduated from the University of Pennsylvania with degrees in physics and economics. Not long after completing his education he began developing software and several of his ventures quickly materialized into successful companies. Musk’s wealth has grown exponentially over the years, primarily as a result of his roles at Tesla, SpaceX, The Boring Company and Neuralink.
In a report by the Associated Press, an analysis of Musk’s financial records revealed that the tech guru had paid little in US income taxes. Between the years 2016 to 2018 Musk reportedly paid a total of $68,000 in federal taxes. When compared to his estimated net worth of $169 billion, this tax figure appears negligible. Tax experts from the University of San Diego, however, point out that the value of Musk’s assets are not necessarily equal to the value of his income and often the discrepancy between the two makes it difficult to attribute taxable income.
It is difficult to accurately determine the extent to which Musk pays his fair share of taxes. On one hand, $68,000 paid in taxes out of an estimated net worth of $169 billion appears miniscule. On the other hand, modern tax laws are extremely sophisticated and some may argue that they are too convoluted to be able to easily assess the rate of tax evasion. Additionally, some may believe that if taxpayer’s overall wealth and income streams are accurately recorded federal taxes will be paid accordingly.
Tax experts have expressed that Musk may also be adhering to the spirit of the law by investing in property and technology companies. Furthermore, as a public figure, Musk may also have a responsibility to make philanthropic donations, as opposed to contributing directly to the government’s tax revenue.
What are Musk’s Double Irish Bypass and Dutch Sandwich Strategies?
Tax evasion isn’t always illegal and Musk may have implemented two strategies – Double Irish Bypass and Dutch Sandwich – to reduce his global tax burden. These strategies involve setting up subsidiaries in countries with low corporate tax rates and using them to shift profits from higher tax jurisdictions to lower ones. In Musk’s case, such strategies are legal, as there are no regulations prohibiting businesses from investing in foreign opportunities.
Moreover, the scope of international tax regulations means that multinational organizations like Musk’s Tesla Inc. may be liable for taxes in many different countries. Consequently, reducing the tax burden in some jurisdictions may increase tax payments in others, simultaneously reducing global tax evasion.
What are the Investment Tax Credits Tesla Receive?
Tesla Inc. has also benefited from various government-supported tax credits over the years, such as the Investment Tax Credits (IPC). These credits allow business organizations to reduce their tax payments in specific jurisdictions as an incentive for employing advanced technologies. Musk may have used IPC to reduce his tax burden in the United States and in Mexico, suggesting he is compliant with both governments’ regulations.
Although the use of certain tax credits may appear to be counterintuitive, it could be argued that advanced technologies require investment in order for commercial organizations to remain competitive. For example, Tesla has invested heavily in solar, autonomous vehicles and artificial intelligence technologies and has consequently been able to benefit from investment-based tax credits.
Does Elon Musk Pay Enough in Corporate Tax?
Corporate tax regulations are highly regulated and organizations are required to file and pay taxes as per the regulations. Musk is no exception to this, and since Tesla has been subject to much public scrutiny surrounding the subject of corporate tax, Musk’s attention to detail in this field has likely been more stringent than ever before. According to data released by the Internal Revenue Service, Tesla has paid a total of $2.5 billion in corporate taxes between 2016 and 2020.
The majority of US companies pay far less in corporate taxes than they are legally obligated to. However, according to reports Tesla has paid approximately 10 times more than the industry average. Consequently, Musk may have made a conscious effort to ensure Tesla complied with the corporate tax regulations.
What Do Wealth Tax Regulations Mean for Elon Musk?
Despite feeling the weight of corporate regulation and questioning from society, Musk’s primary form of tax evasion may lie in the form of wealth tax – or the lack thereof. Incredibly high wealth individuals are generally subject to wealth taxes as a means of helping to reduce global inequality. However, the US does not charge wealth taxes and consequently, Musk’s enormous fortune is not being taxed, even at a fraction of his reported wealth.
In addition, Musk has become increasingly innovative with his wealth, investing heavily in different components of the technology industry, reducing conventional investors’ ability to estimate the overall value of Musk’s assets. Consequently, it is difficult to accurately assess the extent of Musk’s wealth and the amount of taxes he avoids as a result.
Do the Benefits Tesla Provide Outweigh the Questions Around Tax Evasion?
Musk’s primary achievement is the pioneering of electric-vehicle technology and the development of clean energy initiatives. His contribution to the industry is immeasurable, with Tesla investments estimated to have supported approximately 370,000 jobs worldwide by 2020. Consequently, it could be argued that Tesla and Musk have done enough to offset any public questions surrounding Musk’s tax evasion.
Moreover, while public scrutiny surrounding Musk’s financial obligations is understandable, it is important to remember the immense economic benefit his investments have had on the US economy. Particularly in the wake of the worst economic crisis since the Great Depression, it is difficult to deny the environmental, technological and economic progress made as a result of Musk’s investments.
What Would be the Impact of Increasing Taxes for Wealthy Individuals?
Increased taxes for wealthy individuals would reduce global inequality and make it easier to determine who is complying with the law, but the implications generated by such a policy change would also be far-reaching. Taxes on high earners could limit the number of investments made in the technology industry and consequently would reduce the amount of jobs available in the sector. Moreover, businesses, whose investments may often lack support from the financial sector, may struggle to continue in the face of increased taxes.
As the fight against climate change continues high technology investment is necessary, and increased taxation may do more harm than good. For this reason, alternative solutions need to be considered that are capable of encouraging wealthy taxpayers to contribute to sustained environmental progress. Only after this is achieved will balance between economic, environmental and tax obligations be reached.
What Qualifies as Legal Loopholes to Evade Tax?
Tax evasion often implies illegality, but the law surrounding the subject is often more complex. Taxpayers have been found to exploit legal loopholes in order to reduce the amount of taxes they are obligated to pay. For example, foreign-earned-income exclusion is a law that allows taxpayers to exclude certain types of income from taxation. Similarly, there are many other forms of legal tax exemption that allow taxpayers to reduce their financial obligations. Consequently, it is important to distinguish between legal forms of tax evasion and illegal activities, in order for the subject to be fully understood.
