Taxation in the USA
Taxes are the lifeblood of government services, helping to fund the infrastructure that makes the United States of America an economic powerhouse. But when it comes to the financial contributions of wealthy individuals, often the most discussed subject is how much their tax obligations are and what strategies they may use to reduce them. Pieces of the puzzle falling into place in the case of Elon Musk, the billionaire entrepreneur and investor, who finally revealed what he paid in taxes for the year.
Musk is no stranger to the public eye, having made epic strides in advancing his companies such as Tesla and SpaceX that have revolutionized technology and transportation. It is only natural to be curious as to how much he shelled out in taxes for the past year, as news sources have suggested his incredible wealth implies a hefty tax obligation.
A Clear Picture of Elon Musk’s Tax Payments
With most taxation information being confidential and inaccessible to the public, it was almost impossible to make an educated guess as to how much Musk paid in taxes in 2020. Until he recently revealed his total tax payments on Twitter in early 2021. Musk reported that his tax payments totaled to an impressive $100 million.
Taking a closer look at Musk’s tweet also reveals a few other interesting statistics. According to his post, his corporation payments exceed that of his own personal payments, with his company paying 102.5 million dollars. Furthermore, Musk further clarified that the forty percent tax rate that was generally accepted was incorrect, as he personally paid only 24.6 percent.
Following this, there has been much talk from financial experts on the details of exactly how someone as wealthy as Musk would pay so little in the way of tax payments. According to Senior Contributor for Business Insider, Aaron Holmes, many wealthy individuals take advantage of various strategies, typically known as ‘tax loopholes’, that allow them to pay less, with the accountants of the rich being highly specialized in such work.
The Implications of Tax Cut Strategies
While much of Musk’s financial decisions remain unknown to the public, he and many of the other wealthy individuals do not bear the burden of financial guilt or face legal repercussions for taking advantage of tax laws. In the big picture, the implications of such strategies can be paramount.
Tax loopholes, budgets, incentives and other strategies all offer means for higher income earning individuals to take advantage of the tax system, thus reducing the funds that can be allotted to projects as simple as infrastructure and education. Such a shift in taxation funds can also have a negative effect on lower earning individuals, as funds from more effective programs decrease due to the influence of wealthy individuals’ tax strategies.
The Role of Expenditures
On the flipside, the argument does exist that the extra cost savings resulting from tax strategies, do, in fact, go to investments that strive to improve the economy. Common investments made by wealthier individuals take the form of investments in up-and-coming companies, offering further jobs, or to other ways of increasing economic growth and development such as creating a direct job market, leading to increased opportunity.
Elon Musk’s Initiatives and Donations
Though his particular tax strategies remain unclear and open to speculation, Elon Musk goes above and beyond in his commitments to helping others financially. He oftentimes donates his own money to charities in pursuit of helping the plight of others. According to the Giving Pledge, led by Musk and his wife, Priscilla Chan, the couple has committed to giving away over $1 billion dollars.
Impact of Income Taxes on Low-Income and Middle-Income Earners
Income taxes are the primary revenue sources for governments across the globe. It is of great importance that taxes are not only enforced with integrity and fairness, but that the burden is also evenly dispersed among all income earners. Low- and middle-income earners are especially affected, as income taxes are based off of what they earn. Many struggle to make ends meet already and are at risk of falling below the poverty line due to increasing tax burdens.
Tax Benefits for Low-Income Earners
In order to ensure fairness, many governments across the globe have implemented multiple tax relief and benefit systems for low-income earners. For example, the Earned Income Tax Credit (EITC) is a refundable credit that provides additional relief to low-income families. The Tax Cuts and Jobs Act (TCJA) has also introduced tax breaks such as the Child Tax Credit and the Standard Deduction , both of which aid taxpayers in reducing their taxes.
Government Regulation of Tax Strategies
Government regulation of tax strategies is an area of frequent debate, with some arguing that taxes should not be reduced for the wealthy, while others make the case that loopholes should not be stopped or regulated, as they can be beneficial to the economy in the long run. Congress has its own regulations in place in regard to taxes, such as having limitations in order to prevent the creation of cronyism and accumulation of wealth.
Progressive Tax Systems
In terms of the fairness of taxes, many countries have implemented a progressive tax system. This system is based off of the concept that those who make more money should pay a greater amount of taxes than those who make less. Thus, an individual’s income tax rate increases as income increases, with higher tax brackets of earners contributing a greater amount. While this system does promote fairness, there are still challenges associated with enforcing it.
The Duty of Taxpayers
It is integral for all taxpayers to have a basic understanding of the tax system they are subject to so they can make informed decisions when filing their taxes. Taking the time to educate oneself on taxes, can prove to be beneficial in saving yourself both a financial and temporal burden. Being aware of various tax deductions, credits, and regulations are all elements of gaining financial health.
