A war of words,
Entrepreneur Elon Musk and Independent Vermont Senator Bernie Sanders engaged in what can be characterized as a Twitter tussle. This tussle triggered a heated debate over taxes, taxpayers, billionaires, and social welfare in general.
The Background: A bill that will become an Act if signed into law
On August 6, Sanders, alongside Democrat Senators Ed Markey and Kirsten Gillibrand, introduced the “Make Billionaires Pay Act”.
The Act states that 5.4 million American citizens “lost their health insurance”. The act also claims that “467 billionaires […] increased their wealth by an estimated $731.8 billion”.
The Act also argues that those billionaires “pay a lower effective tax rate than teachers or truck drivers”.
The legislation proposes a 60% tax on “the gains in wealth billionaires made between March 18th, 2020, and January 1, 2021”.
If passed, approximately $731 billion in wealth that has been collected by those billionaires would be collected in taxes.
The legislation cited examples of billionaires who would have to pay a specific amount during this timetable. Elon Musk was explicitly mentioned, alongside Jeff Bezos, Mark Zuckerberg and the Walton family. According to the legislation, Musk would have to pay a one-time tax of $27.5 billion.
Where did it go from here?
Sanders did not sit idly by. The Senator hit back via Twitter, calling out Musk for benefiting from government subsidies that were allocated to his companies. Senator Sanders stated that Musk “l-o-v-e-s corporate socialism for himself, rugged capitalism for everyone else”.
Sanders also linked an article from the Los Angeles Times that detailed the government assistance received by Musk’s companies.
The article claims that Musk’s companies have benefited from an estimated $4.9 billion in government subsidies and tax rebates.
Sanders also posted another tweet in retaliation to Musk. The Senator argued that Musk tripled his wealth whilst 40 million American citizens “face eviction”.
Our take on the matter
The United States is the country that has been hit the hardest by the COVID-19 pandemic. It has the highest number of casualties, alongside the highest number of active cases by far.
The economic impact of the coronavirus and the lockdowns meant to contain it has been devastating as well. The U.S. Economy is expected to shrink by 6.5% in 2020.
According to Statista, monthly unemployment rates peaked in April at 14.7% before dropping down to 10.2% in July.
Thousands of businesses have been forced to shut down and/or declare bankruptcy. Millions of american workers have either been furloughed or were laid off outright.
As Senator Sanders pointed out, many of those workers lost their health coverage as well. They do deserve to be taken care of especially considering all the medical and hospital bills that they may have accrued in the past months.
And Senator Sanders is right to point out that some wealthy billionaires should in fact contribute more. But there is a more adequate, more informed way to do so.
On paper, yes, Elon Musk “tripled his wealth”. But it isn’t so much his wealth as it is the valuation of his companies. Musk’s $70 billion net worth mainly comes from his stake in Tesla and SpaceX.
Elon Musk is obviously not going to the poorhouse anytime soon. But unlike many corporate raiders and/or CEOs, Musk is not a quick-buck artist.
According to an article by Forbes, around 99% of Musk’s wealth is tied in shares of both Tesla and SpaceX. According to disclosed financial documents to the SEC, Musk owed more than $500 million in debts during 2019.
The Tesla CEO pledged approximately 54% of his Tesla stake as collateral on those loans. Additionally, the bulk of his compensation is in the form of stock options, and Musk already declines to accept a base salary of approximately $56,500.
Long-story short, Elon Musk’s compensation is entirely performance-based, and his net worth is subject to the fluctuations of the stock market. This means Musk does not have $70 billion in liquid assets. The Tesla CEO is worth that much in paper only.
If any of his companies fail to achieve their missions, Musk walks away with literally zero dollars, as their missions cannot be achieved without growth.
As far as government subsidies are concerned, this topic has already been discussed ad infinitum. Nonetheless, further clarification is in order.
It is no secret whatsoever that Elon Musk’s companies receive assistance in the form of subsidies, tax credits, rebates etc. The latest one being for Tesla’s planned Gigafactory in Austin, Texas, to the tune of $14.7 million.
As a public servant and legislator, Senator Sanders should be aware that subsidies are LEGAL, and offer several benefits.
Manufacturers are able to increase their production output. Their supply and consumption grows. This enables them to grow their companies, which leads to the creation of more jobs, and offer more affordable prices of either consumer or capital goods.
When it comes to putting these tax credits to good use, Elon Musk already has a proven track record. SpaceX rockets, spacecrafts are manufactured in a way that they become reusable, driving down the cost of space access.
Tesla has expanded at a dramatic pace over the past few years. In light of the increase in production output and sales, the company cut its Model S, 3 and X prices by up to $5,000 in North America.
Economics aside, when it comes to the environmental impact, the benefits are simply incalculable. Tesla is accelerating the trend of purchasing environmentally friendly EVs. Senator Sanders would do well to take that into consideration.
In conclusion, American workers and families hit hard by the aftershocks of COVID-19 deserve to be taken care of. They should not be left out in the wind to twist.
Senator Sanders’ heart may be in the right place, but attacking Elon Musk without doing a thorough due diligence hurts his credibility. In that respect, analyzing and debunking unsubstantiated attacks is necessary to maintain public discourse.