Proposal to stop billionaires avoiding income tax could raise several hundred billion dollars
Much of the growth in Mr Musk’s personal wealth is due to a large increase in the stock price of his companies.
Under a proposal led by the Senate Finance Committee chair, Ron Wyden of Oregon, the new tax would target those with $1bn in assets, or who earn at least $100m in income for three consecutive years.
It would focus on unrealised capital gains such as stocks, currently only taxed when sold for profit, effectively taxing the value as it grows, not the final amount at which it is sold.
The rationale behind such a system is to stop the ultrawealthy from lowering the amount of tax they owe by being paid in stock options rather than a salary. Those stocks would be taxable under the proposal.
One estimate is that such a new tax would only impact 700 Americans, but could theoretically raise hundreds of billions of dollars.
Much of Mr Musk’s wealth is in unrealised capital gains due to holdings in his companies, and it appears he is not a fan of the proposal, according to a tweet on Monday.
Podcaster Rick McCracken fears that such a tax will creep downwards through billionaires, millionaires, and then to those with modest investments and retirement funds, and tweeted out a letter for concerned citizens to send to their elected officials.
Mr Musk, who was tagged in the tweet along with Amazon founder Jeff Bezos, replied: “Exactly. Eventually, they run out of other people’s money and then they come for you.”
Senator Wyden calls the proposal a way to consistently tax billionaires who typically avoid annual income taxes. It would also be a way of funding a large proportion of the proposed infrastructure and social welfare plans currently being negotiated in Congress.
In addition to stocks, non-tradeable assets such as business interests or real estate would be taxed when sold but would also include a fee similar to an interest payment.
There are additional plans to stop billionaires from moving money into private companies or trusts or by giving it away as a gift.
In addition to fears that such a tax could eventually be levied on non-billionaires, there are also critics who believe it could be a logistical nightmare and want to know exactly how it will be administered.
If the proposal were to be passed into law it will almost certainly be challenged in court due to the Constitution’s restrictions on so-called direct taxes that can be applied to one group of people but not another.
The 16th Amendment allows Congress to tax earnings, so any court case would likely focus on whether the tax proposal counts as income tax.