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Inside Elon Musk's Twitter Poll to Sell Tesla Shares

Editor, TRANSFIN
Nov 10, 2021 8:21 AM 5 min read
Editorial

On November 7th 2021, the world woke up to a brand new Elon Musk epiphany: letting the public dictate his sovereign tax obligations!

The world's richest man put out a poll on Twitter soliciting responses from users on whether he should sell 10% of his Tesla stock. 

At the time of instituting the poll, this stock was valued at $21bn. But thanks to his social media theatrics, Tesla stock price soon went into a depression, by as low as 7.5% on Monday and almost 12% by the end of Tuesday's trading. 

So, the big question. As much as the world likes to indulge Mr. Musk and his idiosyncrasies on the internet, what moved him to seek a referendum on his wealth gain/loss? Was it just another idiosyncrasy or a calculated step to challenge the new Billionaire Tax proposed by the US government?

A great many indications seem to suggest it is the latter. Let's see how. 

The Billionaire Tax Rage

The premise behind the Billionaire Tax proposal is this - to stop super-wealthy Americans from locking up their wealth beyond the taxman's reach and from living on the money borrowed against assets like shares, property, art, NFT etc. These are essentially loans that don't count as income so they aren't taxed. 

So, the solution is to tax "unrealised gains" so that super-rich would be forced to pay taxes on these assets when their values appreciated (i.e. Gained) even if they didn't sell (i.e. Realise) them.

Now, THAT is a serious predicament for people like Elon Musk who hold close to 23% of a company like Tesla which recently breached a market cap of $1trn. He receives no salary from Tesla and the shares he holds are worth $298bn. In addition, he has the option to buy another 73.5 million shares. 

Part of these holdings are used as collateral for Musk's personal obligations. As per a December 2020 filing, he has an outstanding loan of $500m from three US banks. 

And then there is SpaceX, a privately-held company valued at $100bn, 54% of which is owned by Musk through a trust. In 2019, he also admitted to have pledged a part of his shares in SpaceX for reasons unknown. 

So, even though it seems like most of Elon Musk's wealth is made up of the stocks he owns, getting an extant figure on his worth is difficult, especially his private wealth. The portion of his wealth that is ascertainable, however, is the stock value of his holdings which fluctuate mercurially, often on a daily basis. 

Take the $36bn single-day surge in his personal fortune, for instance, which occurred after Tesla stocks climbed by nearly 15% pursuant to reports of Hertz Global Holdings placing an order for 100,000 cars. 

It is instances like these, among others, which have pushed his current net worth to $323bn as per the Bloomberg Billionaires Index. Just to draw a parallel, that much wealth equals 1.54% of the GDP of the US and is higher than the total GDP of Greece. 

 

Making America Unequal Again 

In June, ProPublica published a cache of IRS (Internal Revenue Service) documents which showed that Musk and other billionaires carefully structured their incomes to build them into billions more while paying next-to-nothing in income taxes at the same time. 

And to top it off, the sheer pace at which the wealth of Musk and other moguls like him has appreciated is nothing short of marvelous. Musk saw his wealth more than quintuple during the pandemic while the majority of the workforce found themselves at the loss of jobs and livelihoods.  

During the first 19 months of the pandemic, the wealthiest Americans added $2.1trn to their collective wealth, a number that continues to rise. And yet, they paid meagre amounts in taxes. Jeff Bezos, for instance, has paid zero dollars in federal income taxes in the years 2007 and 2011 despite being the second-wealthiest person on the planet today. 

In fact, by 2018, the 400 richest Americans paid a lower overall tax rate than almost anyone else. 

A spectrum of wealth inequality this size and a desperate attempt to scrounge for funds necessary to rebuild a pandemic-ravaged economy perhaps contributed to the Billionaire Tax idea in the first place. Supporters of the tax

bill have often justified its need to bring an end to the "Second Gilded Age" in American History - where a handful of barons monopolised the economy, kept wages down and maximised their wealth. Not an ideal déjà vu to wish for!

 

Musings of the Musk Deer

Here's the thing. Ordinary people may hate the socio-economic class of extremely wealthy people but they evidently admire individual billionaires like Musk (more so when they offer to pledge $6bn to solve the problem of world hunger). His tweets may be intended for several reasons - to goose cryptocurrencies, troll his critics, promote his ventures or profess his pet love - but as indifferent they may seem at face value, they are usually quite pointed in approach and objective. 

Musk's idea to sell his shares isn't new. It dates back to September when he contemplated doing so in public. But by timing the poll with the highly controversial tax provision, he managed to offer an insight into the mechanism in which the 700-odd wealthy American families would have had to part with their capital gains.

The provision may have been temporarily shelved for now, but in case legislators choose to revive it in the future, they could face more pushback than they do already, thanks to Musk's motivated social media stunt. 

However, the stunt could cost him dearly, given his history of regulatory discipline by the SEC. Following his Twitter banter to take Tesla private in 2018, he was required to have all material future tweets about the company "cleared and vetted" by a lawyer. If he is found in violation of this rule (which he has already violated before), it could lead to further regulatory trouble for the richest man on Earth. 

Considering the depreciation in Tesla stock since his Twitter poll and the large turnover in Tesla's legal department lately, the chances of the SEC stepping in for some good old-fashioned dressing-down still loom large for Musk. But given that the poll is nothing short of a theatrical exercise with no regulatory filing to indicate an actual sale of shares yet, it is possible that Musk could have slipped the net again. 

In any case, should Mr. Musk exercise his options (which would expire by August 2022), he could be looking at a tax bill of $15bn, give or take. 

Now he could borrow against his shares to clear the tax liability (as Prof G suggested) or sell his holdings to pay in cash. If the latter - does he think that Tesla stock is overvalued?

It's a "ticking tax time bomb", as a New York Times analyst says. 

FIN.
 

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