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Comment by tdehollain | Hacker News Reader

That's $593M taxes on $1.34B earnings on exercising stock options...44% tax rate is pretty harsh!

44% tax rate is not too bad. Note that people with lots of money got their money by leveraging the system. A well run system is not cheap. The court system, the legal system, law enforcement, the education system, welfare, defense, etc all cost money. The higher percentage tax is only fair to pay back to the system that generates the big gain.

Especially if you take into consideration how much Musk has personally benefitted from a well funded government.

>Tesla Motors Inc., SolarCity Corp. and Space Exploration Technologies Corp., known as SpaceX, together have benefited from an estimated $4.9 billion in government support, according to data compiled by The Times.

http://www.latimes.com/business/la-fi-hy-musk-subsidies-2015...

And that's just direct subsidies! Don't forget that rockets, autonomous driving[1] and solar power[2] were developed by the government.

[1] https://en.wikipedia.org/wiki/DARPA_Grand_Challenge

[2] https://en.wikipedia.org/wiki/National_Renewable_Energy_Labo...

The idea that he personally used $593M, much less $4.9B worth of government services in 2016 is pretty silly.

He is far from being the sole owner of those companies.

The idea isn't that he personally cost the government that much money in service fees. It's that, without those services, he could never have made his money in the first place.

Here is a good breakdown of that $4.9bn number https://electrek.co/2015/06/02/complete-breakdown-of-the-4-9... Incentives for creating jobs & tax credits.

Not bad compared to the $12 billion cost for the GM bailout and $4 billion+/yr for oil & gas subsidies.

If you look at money invested, govt should have let GM go under the bus. Bailouts aren't a great long term fix. They just encourage shitty management

I think there's a big flaw in this argument, because it doesn't get applied universally. In my opinion people who would have starved to death or died from some medical problem except that the government stepped in and took care of them gained far more than Musk did. I'm not saying I know what Musk's tax rate should be, but the argument that it's somehow related to the benefits provided to him by government seems spurious. If that were the case then surely you'd support a pay-as-you go funding plan for all government services, right?

I got interested in the utility of money a while back and how the "value" of money is roughly logarithmic as it goes up. I found a couple of thought experiments regarding a "logarithmic flat tax". Anyway, going by that I think it's about right - it might still be a little bit high, though. Depending on how you calculate it those plans can be configured so that he should have paid more in the 35-40% range.

Basically, you take revenue, divide it by the poverty level (he's got six kids, so around $45k - $50k), take the log base 10, and multiply by some constant that would be the same for everyone to match the government spending level - that constant these days is probably around 9 or 10. The result is your fair tax rate.

Sounds like reasonable policy but incredibly obtuse. All taxpayers should be able to calculate and file their own taxes. The more complicated the easier to game and manipulate.

I'll go as far as to say simplicity should be the driving motivation, not equality.

The proposed system seems a whole lot simpler than the existing one to me.

It's implemented as a literal table lookup anyway, so it wouldn't be any different from the taxpayer's standpoint.

This proposal, given it can be described in a single HN post, is vastly simpler than the present tax code. It would similarly be trivial to make a calculator for this and present it on the IRS site for those who don't feel like calculating it.

Do you mean "fair" in the sense that it tries to be equally painful for everyone?

That seems like a reasonable interpretation of fair.

It taxes an equal amount of utility-of-money, I suppose.

https://en.wikipedia.org/wiki/Marginal_utility#Diminishing_m...

Interesting.

Can you add a little detail, perhaps a formula?

Do you mean that if someone earns R, they pay $C*log10(R/P), where P is some poverty level for them and C is a constant around 9?

Yeah. It's a bit simple - like, we're not going down to infinite negative income tax for people below poverty, just assume zero tax paid for them.

To find C, you have to sum up the log10(R/P) for everyone (including corporations) in the nation and divide that into what the government needs. There's various ways to calculate what the government needs, perhaps you separate FICA and payroll tax income entirely if you keep that, or perhaps you just look at entire Federal spending, I believe around 3.8 trillion.

But to sum up the log10(R/P), you need income distribution data. Someone else did that very roughly with a spreadsheet, I haven't tried it myself. A few years ago when they did that, they figured 3.7 trillion for spending, and C was something like 8.86.

C would also be a bit higher if you were also trying to pay down the debt over a period of time.

Unfortunately, I don't understand the logic behind this. I would have thought that a flat tax in terms of utility would solve for the amount of taxes T in log10(R/P) - log10((R-T)/P) = C for some constant C across the population. That would correspond to taxing everyone an equal amount of utility, assuming a logarithmic model of utility.

If the tax itself is proportional to the utility function, that has the effect of taking much less utility from people with greater R. I'm also unclear on how your C works out. The largest company in the world makes less than $1 trillion per year, so even if P is $1, log10(R/P) is bounded above by 12. Given a US budget of several trillion USD, that seems to make C multiple orders of magnitude bigger.

Sorry if I'm missing something. That was my original reason for asking for a formula above.

For the US maybe. Income tax in the Netherlands (my country) in the top bracket is 52%. On the second hand, we have no capital gains tax so he might come out ahead when exercising options. On the third hand, we have a wealth tax of 1.2% on your entire capital above a certain floor (of about 20k) so he might not come out ahead in the end.

It's always interesting to see the opinions of different cultures about how much tax is reasonable :)

>It's always interesting to see the opinions of different cultures about how much tax is reasonable :)

I think you're missing his point. The raw percentage isn't as unreasonable as the difference between the parent-poster's and Musk's tax rate.

I'm not sure if the figure in the piece is only federal tax, but if so there's another 13% for California state taxes.

Not bad, but doesn't that come with social services like free medical care and greatly subsidized education?

Here in he US the middle income pays taxes and receives almost no directive social benefit, as most social programs are geared towards lower income and the rich can afford accountants and lawyers to keep their tax burden very light.

I'm not sure how you can say that the rich keep their tax burden light when the topic of this thread is how Musk paid tax amounting to 44% of his income totalling over half a billion dollars.

If it were common for rich people to pay 44 percent of their income in tax, it wouldn't be a newsworthy story.

Are there people who receive millions of dollars in income via stock options who pay a lower rate? If so, how does that work?

Here's a Bloomberg article from 2012 that lists ten techniques: https://www.bloomberg.com/news/articles/2012-04-17/how-to-pa...

It's worth mentioning that none of these techniques actually apply to the case where you exercise stock options - other than the one that says basically "take options as compensation if you can because you don't pay taxes until you exercise them" which is true for everyone who gets options (because you don't get any liquidity) not just rich people with expensive accountants.

The only techniques that apply to income taxes are the "borrow against stock technique" (has a big caveat about a rich person who lost in court when he used it) and the deferred compensation example (which is also zero liquidity; presumably you pay all of the income taxes when you actual get the money).

The article makes a better case for ways to avoid death taxes or real estate taxes though.

I think the story here was the dollar amount, not the percentage.

>rich can afford accountants and lawyers to keep their tax burden very light.

The top 5% in the US pay 55% of all Federal income taxes.

The top bracket is 52.9% in California. Of course, the Netherlands' tax brackets are much less progressive than those in the US/California; the top bracket is around ~$80K vs. ~$1M.

In the Netherlands, his bonus and income would have been structured differently, he'd have had a personal holding to 'catch' the money before it would have been taxed income or capital taxes, and he'd have paid next to nothing (yet). He could have delayed selling off stock to pay taxes for as long as he'd have wanted.

I'm not sure how entrepreneurs do this in the US, is Musk being patriotic paying so much taxes, or is there really no way to delay/avoid having to sell stock to pay taxes?

There's a big difference between tax rate and effective tax paid.

Not really. Go look at the tax-rates of the 1950's. The only way he was able to acquire that much money was because of the infrastructure paid for by tax revenue. The only reason he wasn't robbed by someone else was because of the law enforcement paid for by tax revenue. I could go on, but I think you get the point. His wealth is built upon the shoulders of tax revenue.

There was no income tax in the US prior to 1913. Did people go around murdering and stealing? Was everyone poor?

Traditionally, all the things you mention are NOT paid for by income taxes even now.

> There was no income tax in the US prior to 1913.

Did I say income tax revenue or just tax revenue?

After you look at the tax rates of the 1950's, go look at the tax code. The nominal rates were higher, but there were many more ways to shelter your money.

In 1958, the top 3% of taxpayers earned 14.7% of all adjusted gross income and paid 29.2% of all federal income taxes. In 2010, the top 3% earned 27.2% of adjusted gross income and their share of all federal taxes rose proportionally, to 51%

https://www.wsj.com/articles/SB10001424127887324705104578151...

Worth noting that he'd likely have netted about the same in the 1950s. Despite the constant assertions of those who fondly reminisce about the days of 90%+ income tax rates, there were so many more deductions that it all basically came out the same, while disincentivizing the outright hiding of wealth.

Moreover, the law enforcement that prevents him from being robbed is paid for by tax revenue, but not federal tax revenue, and the amount he's paid is in addition to the $593 million he paid in income tax (assuming that doesn't account for state income tax - the actual article isn't available for me to read right now due to server load).

FBI? Also, who mentioned federal tax revenue or income tax? It wasn't me.

I'm not sure I understand the point. Are you asserting that the FBI is keeping muggers and highwaymen away from Elon Musk's money?

Edit, to respond to your edit, which added "Also, who mentioned federal tax revenue or income tax? It wasn't me."

The title of the article we are ostensibly discussing.

It's funny that you mention highways since they wouldn't exist w/o tax revenue.

You clearly aren't aware of the many and myriad forms of highways we've had in America, including private toll highways, and the National Road, which was funded by the federal government, but predates the federal income tax by more than 100 years.

Again, I never mentioned income tax. Secondly Merriam-Webster defines a highway as "a public way" (e.g. not private).

By that definition, there are many government-run highways that must be excluded from the definition. Further, privately owned does not mean publicly inaccessible.

If your assertion is that you're referring to all forms of tax revenue, then your original post should probably not refer to tax rates. Otherwise, if you're just arguing in favor of all taxes, then it seems overly broad for a discussion on income tax revenue.

Either way, we've had public ways that existed without having been funded by any forms of taxation. Unless you're specifically attempting to pick the only definition of the word that bolsters your argument, while ignoring all other definitions, then it remains a truism that highways themselves do not exclusively originate from tax revenues, and are in fact capable of existing without taxes altogether... and it remains true whether or not one considers taxes to be universally good, bad, or anywhere in between.

> Are you asserting that the FBI is keeping muggers and highwaymen away from Elon Musk's money?

Assuming some keeps some share of his money in US banks, or invested in firms which keep their money in US banks, absolutely. Well, "bank robbers" instead of "muggers and highwaymen", but I'm assuming that Musk doesn't carry enough cash on him that the latter are nearly as important as the former in terms of risk to his money, though they might be a bigger threat to his personal safety.

https://www.fbi.gov/investigate/violent-crime/bank-robbery

> the law enforcement that prevents him from being robbed is paid for by tax revenue, but not federal tax revenue

Not only are his financial institutions protected by federal law enforcement, but state and local law enforcement recieves federal funds, so the above claim is false on several grounds.

I agree that it's a lot, but I disagree that it's harsh.

That leaves him with $747M for the year.

>That leaves him with $747M for the year.

I'm not sure what this is supposed to suggest/demonstrate.

Surely you agree that taxing (say) 20% of 60k is different from taxing 20% of 1B. Namely: the former has a much more significant impact on quality-of-life then the latter...

Figuratively speaking, what can you do with 747M that you can't do with 300M?

(Before the pedants inevitably pick this rhetorical question appart: the point is that it's not prima facie unreasonable to tax extreme wealth significantly more heavily than the median income)

Edit: the first of the pedants have arrived... sigh...

Have a much greater chance at purchasing a controlling stake in a US sports franchise (likely still need to go in with some partners).

>>Figuratively speaking, what can you do with 747M that you can't do with 300M?

Invest in starting brain-computer interface and rocket companies

And I believe a boring company, hyperloop, other efforts in AI, etc.

A more substantive question is how that money would be spent by the relevant parties. I would argue that Musk would spend it better than the federal government and as such, he should have it.

Then you'd end up having a fairly stupid argument about the semantics of "better".

Far better to have that conversation than to sit and argue fairness, equity, and justice. The alternatives are dumber.

Downvoted because, well, you didn't make much of a point really.

The idea that the argument is stupid should be presented with an argument as to why. For what it's worth, we have existing law in most (American) municipalities that support the argument that if Musk can be shown to be a better steward here, then he might have a claim to make, i.e., adverse possession, which is basically a claim against the state that says "I can tend to this property better than you, and my doing so provides social and financial utility to the state, to my would-be neighbors, and to myself as well.

To be sure, it's an argument in abstracts, but there's precedent enough that it clearly isn't an entirely meritless (or stupid) argument to be made.

How could that be? Suppose Musk controlled all the resources in the world. What motivation would he have to allocate them fairly?

What motivation does he have right now to do all the things he does? So he got about $100M from the sale of Paypal a while back. He could have easily coasted on that and led an easy life and never have to work a day any more. Why didn't he? (I'm not glorifying him here by saying that he would allocate all the resources in the world fairly, neither that he should or should not be given that power, in our little thought experiment here.)

Whatever his motivations may be, we couldn't possibly allow any one person to decide over our finite resources. So, how to stop that from happening? Should there be a some kind of cap? Or maybe take some progressive amount from everyone based on some rules? And so forth.

Yes, what motivates somebody like musk after they earned 100m? Money? Or doing something relevant, challenging, satisfying? Real innovators aren't homo economicus, they don't do everything just to maximise future earnings...

Isn't this is case in point that you're wrong?

Worth noting: the gain on those share from here on out will be taxed at the capital gains rate, assuming he holds onto them for a year. In California I think that tops out at 33.3%.

Also, in the mid 20th century (a very high growth time for the US) personal income tax topped out around 90%. "Harsh" is definitely a matter of perspective.

The United States used to have over a 90% income tax, and many other countries even now have much higher tax rates than the current US rate. 44% is not harsh at all.

He lives in California. 9% of that was to the state.

13.3% actually... this is why I don't understand why anyone starts a company in California when you can go to other states like WA that have no income tax

And yet the roads in WA are still better than most of CA.

That's a pretty big stretch. Roads in WA are awful.

Ha ? CA has much better roads than WA outside of Bay Area. Also, if you look at the average tax burden it will come out to be the same. CA has very little property tax for commercial property for example and has lower alcohol and cigarette taxes. There are probably a few other areas where taxes in CA are lower than WA

Good point, he was subject to the extra wealth tax.

As someone who just started a company in California, I can tell you why I did it. The main reason is because I already live here. My family lives here, as it has for the last three generations.

I like the fact that I get great weather year round, that I live amongst a diverse group of people, and can get just about any kind of food I want very close by. I like that my child will go to school with people of all colors and religions and beliefs. And my cost of living is lower in the sense that I don't have to pay a ton of money for heating in the winter and cooling in the summer, nor for a bunch of clothes I can only wear 1/2 the year.

As for the business, yeah, it's not great, I'll admit that. I don't like paying extra corporate taxes for no apparent reason (I'm incorporated in Delaware, why am I paying CA tax?). And I may not even hire here, since I'm fully remote and hiring in other states is viable for me.

But if I were going to open an office and hire local, I would most definitely do it here in California, where a lot of the talent live and a lot of the people I would want to hire who like the same things I do.

Top Fed capital gains rate of 20% + NIIT (3.8%) + California (13.3% top rate) — where does the other 6-7% come from? FICA?

I don't think there's anything harsh about living off of hundreds of millions of dollars of income after taxes.

Not that long ago we had 90% tax rate (70% effective) in USA. It's been plummeting since WWII https://en.wikipedia.org/wiki/Taxation_history_of_the_United...

That was a nominal but not realistic rate for the very wealthy / high income. IIRC, dividends were not taxed at that rate. More info from this commentor: https://news.ycombinator.com/item?id=14168781

70% effective as I wrote.

Today's top rates are no different, in that people including corporate artifcial ones don't pay it.

I know, poor guy has to scrape by on only $700 million.

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