Tax the rich. Exhibit A: Elon Musk

Elon Musk has contracted to buy Twitter for $44 billion. That’s an astronomical amount, but clearly within the reach of the world’s richest man.

But thanks to a quirk in the federal tax code, Musk, worth over $200 billion, is spending less than $20 billion of his own money while taking out over $27 billion in loans to finance his takeover of Twitter. He can clearly afford to purchase the company himself, but by taking out loans instead of selling his Tesla stock and paying for Twitter in cash, Musk stands to save potentially billions of dollars in federal taxes.

It’s time for us to stop tolerating billionaire tax avoidance, especially when it comes to unrealized capital gains. Elon Musk’s purchase of Twitter demonstrates how billionaires are able to utilize their wealth tied up in capital, and should therefore be taxed on the gains. If he can afford to spend $44 billion to buy Twitter, he can afford to pay his taxes.

If billionaires like Musk were properly taxed annually on the increase in value of their assets which have not been sold, there wouldn’t be any issue with such purchases or the borrowing to finance them. This is not to focus only on Musk: he has recently paid some significant taxes and is far from the worst tax avoider. In fact, with his wealth, he would still be able to borrow enough against remaining stock after paying capital gains taxes to finance his purchase, if he wanted to. Musk may be a high-profile example, but this is a wider, more systemic problem.

The vast majority of billionaire wealth is tied up in assets like stock or real estate whose gains are only taxed when investors decide to sell them. No matter how much these billionaires gain in “wealth” from their investments, they owe taxes on none of it unless they sell those investments. It doesn’t matter how much an asset increases in value; if it isn’t sold, its owner pays no taxes whatsoever.

This state of affairs is justified by the wealthy with claims that capital gains don’t mean anything until they’re realized (or sold). According to billionaires like Musk, it doesn’t matter how much they’re technically worth on paper when all of that wealth is in assets like Tesla stock rather than cash, so they shouldn’t have to pay taxes on it until it’s sold and converted to cash.

This was always an absurd argument, but Elon Musk’s purchase of Twitter should finally put it to rest. In using his Tesla stock as collateral for tens of billions of dollars of loans, Musk is proving that billionaires’ unrealized assets are just as valuable, and perhaps more importantly, accessible, as cash.

Musk’s loans aren’t unique by any means, he’s simply following a tried-and-true billionaire strategy called “Buy, borrow, die,” in which the ultra-wealthy hold onto appreciating assets without selling them while using them as collateral for low-interest loans to live off of. They are able to use this strategy to keep cash on hand to spend on luxuries like yachts, private jets, and purchasing social media companies while declaring very little (or even negative) actual income for the year.

This strategy has proven to be extremely effective for the richest Americans. Last year, ProPublica reported that between 2014 and 2018 the 25 richest people in America paid an average effective tax rate of just 3.4% on over $400 billion in collective gains. To make matters worse, some of the very richest – including Elon Musk, Warren Buffett, Jeff Bezos, and Michael Bloomberg – paid even lower rates than this, and sometimes even got away with paying nothing in income tax at all.

This needs to change. Thankfully,  the solution is simple: we need to institute a “mark-to-market” tax that taxes capital gains as they accrue, not just when assets are sold. This common-sense policy has already earned support from Senator Ron Wyden, the Chair of the Senate Finance Committee, and President Joe Biden, and it’s no wonder why. It would raise hundreds of billions of dollars from only the absolute richest Americans, while also being an enormous step in the right direction for tax fairness.

If Elon Musk wants to buy Twitter that’s his business, but the American taxpayer should not be subsidizing his decision. I’m just arguing that Musk and every other billionaire should be paying capital gains taxes every year, just like virtually every working American does on their ordinary income.

— Dale Walker

Dale Walker is a retired financial services executive living in San Francisco, and an active member of Patriotic Millionaires.