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Comment by guardiangod | Hacker News Reader

>High earners pay an effective tax rate of > 50%.

Musk has not paid any tax because he hasn't cashed out any of his stock options yet. Some of his options will expire next year so he will pay tax then, but I am sure California will get the lion share of the tax revenue (as Musk lived in California up to 2021.)

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Tesla employees lots of people who pay income tax.

Capital gains is taxed on the residence at time of sale, not time of purchase. So if Musk sells when he’s not a resident of CA, he won’t pay CA taxes.

CA already came up with a convoluted way to tax even that: https://www.upstartwealth.com/blog/will-you-owe-ca-tax-after...

And yes indeed, the taxable event is vesting, it indeed happens outside of ca, and yes CA still intends to tax you! They will even come after you in another state for it, after you permanently move out.

!!!

That's not actually true - California will probably consider this California income because he earned it while in California.

Are you a tax lawyer by any chance? or is this just guessing?

This is somewhat unique to CA but it was in the news recently.

https://www.sambrotman.com/personal-income-tax-residency-cal...

https://www.ftb.ca.gov/forms/misc/1004.html

I know people who have been harassed by CA franchise tax board many years after leaving the state, and had to prove they had left.

Sure, though, they probably weren't one of the wealthiest people on Earth that could afford ton of accountants and lawyers. Billionaires aren't known for paying taxes, so pardon me for being skeptical.

Isn’t any equity he is awarded for the period of work he did as a tax resident of California, taxable in California, regardless of whether those gains are realized today or in 20 years?

Equity is taxed on sale. He will never sell it. He will give it to a bank and take a loan against it. When he dies bank can sell it and pay itself back.

I really don’t think this is true. Being granted the stock is a taxable event, even if you don’t liquidate any of it, and even if that means you have to sell some to pay the taxes.

Also, the methodology you’ve described for avoiding taxes is used to benefit from offshore holdings, not avoid paying taxes on locally held assets.

This scheme finances the personal spending of every American worth more than $50M. Sure, any time they're sloppy enough to personally receive real income, they pay taxes on it. Usually they are not that sloppy. The income goes to shells or other assets in which they've "invested". The assets become more valuable, and thus can be used as collateral for larger loans.

I’ve worked with organisations that trade SLOCs other types of instruments that are typically used for these types of transactions. They can be used to defer taxable events in some cases (by taking a loan today instead of selling your shares/options), but there’s no way to use them to avoid paying taxes on local assets. This is especially true with Musk, because he’ll have to sell expiring options soon, which will be a taxable event no matter what.

The only way they can be used to avoid paying taxes all together is if you’re trying to derive income from assets held (usually secretly) offshore, and this is almost always criminal tax evasion. The only thing they’re achieving in this circumstance is basically an international fund transfer without creating any taxable income. There are no secret tricks you can do to transfer your assets beyond the control of the IRS, you can’t “give” them to a bank, and if they’re collected as collateral on a defaulted loan, that’s a taxable event too.

Companies can get away with moving their profits to other jurisdictions, because a collection of subsidiary companies can exist in as many different tax jurisdictions as you want. Individuals can’t (legally) do this, especially not US citizens, because they remain US tax residents for their entire lives, regardless of where they live or work.

A lot of billionaires don’t pay a lot of taxes every year, because they don’t have a lot of income every year. The only way to turn it into a scandal is if you ignore all the years in which they do pay a lot of taxes. Which is, of course, fundamentally stupid.

From the link in sibling thread:

His tax avoidance is even more striking if you examine 2006 to 2018, a period for which ProPublica has complete data. Bezos’ wealth increased by $127 billion, according to Forbes, but he reported a total of $6.5 billion in income. The $1.4 billion he paid in personal federal taxes is a massive number — yet it amounts to a 1.1% true tax rate on the rise in his fortune.

Why should we ignore these 13 years over which Bezos made $127B? Who would benefit from that?

Because the wealth of Jeff Bezos according to Forbes is just the amount of Amazon shares he owns, multiplied by the price of the stock on whatever day it was that somebody at Forbes decided to work out how much he was worth. Bezos, just like you and I, pays tax on his income. He only gets taxable income from the value of his Amazon shares when he sells them, which like most founders, he doesn’t do very frequently.

You’re literally just getting upset at him for not liquidating his entire position of Amazon shares (or options) every year. If he ever wants to turn the theoretical number some Forbes intern came up with for his net worth into income, then he’ll have to pay tax on it. He could theoretically live the rest of his life without selling his shares if he wanted to, just like you or I never have to sell any shares, or property, or any other type of asset we own. However if he did that, the IRS is going to come and take the tax he owes from his estate.

There is no tax evasion taking place here, this isn’t even a loophole. It’s the same treatment everybody gets.

You don’t have to sell your assets if you don’t want to, and you don’t make a taxable profit from selling your assets… unless you sell them. The propublica article you’re quoting is designed entirely to rage-bait people who don’t want to think about the topic long enough to figure that very basic fact out.

I am not "upset". Since there is no literate reading of this thread that would yield such a conclusion, I suspect you might be projecting... I don't claim this is tax evasion. ProPublica didn't claim this is tax evasion: "Certainly, there are illegal tax evaders among them, but it turns out billionaires don’t have to evade taxes exotically and illicitly — they can avoid them routinely and legally." When rich people write laws, they usually don't write laws they'll need to violate.

Since most people don't own billions of dollars worth of shares in giant firms, this "treatment" is certainly not what "everybody gets". Not even the billionaires' most ardent online white knights get this treatment.

Wouldnt the interest on the loan be greater than the taxable event?

Even with interest rates low, the prime rate is 3.25 [0]. So isn’t it worse to pay 3% interest per year than a 15-25% capital gain once? I assume Musk thinks he’ll live more than 10 years.

[0] https://www.bankrate.com/rates/interest-rates/wall-street-pr...

Interest payments are deductible. [0] The scheme was described by ProPublica earlier this year. [1] If they sell stock they lose the control over the firm that stock represents. That would be fine for normal humans, but not for the super control freaks under discussion. The interest, which is certainly lower than "prime" for borrowers like this in the era of zero-benchmark [2], is typically paid by future loans. It doesn't hamper the lifestyles of the rich any more than it benefits the public treasury.

[0] https://www.irs.gov/taxtopics/tc505

[1] https://www.propublica.org/article/the-secret-irs-files-trov...

[2] https://www.federalreserve.gov/releases/h15/

Not sure why the downvotes, this is 100% what is going on the the top of the top 1%.

Which is why the current congress push to ramp up capital gains to get money back from the rich is super super misguided. It screws startup founders like myself, but it literally has no impact on the mega rich.

Eh, downvotes happen. (Admittedly, I'll be less enthusiastic about sourcing in the near future...) I suspect 'AmericanChopper has learned something ITT, which was the point. He had a particular understanding of this practice, which had been imparted by someone he trusted. Now he knows that understanding was... incomplete, let's say.

ProPublica can bang the drum all they want. In USA, the big media firms are all controlled by very rich people who don't want this sort of story to stay in the mainstream consciousness for more than a couple of days. So, information like this disappears more quickly than the average citizen can understand it.

He will pay gains on where the stock vested. So CA in this case.

Nope. CA taxes you on the shares you earned in the state, regardless of where you sold it.

They don't tax it at the time you recieved the shares?

Depending on the grant type receiving it might not be a taxable event. And even otherwise, in a lot of cases the majority of income is realized in the form of capital gains.

I think OP meant Tesla's workforce being the overly-taxed. Maybe it's easier to recruit talent there?

Maybe, although I would imagine Tesla's the premiere destination for fresh triple-star college graduates that don't mind taking a pay hit to work for Tesla (and burn out after 3 years.)

Or California's housing market is just too fucked. I think this is more plausible than the income tax too high theory.

Every talented meche or swe I know either gets paid multitudes more somewhere else. Or has worked there and didn’t want to work 7 day weeks anymore.

It’s all anecdotal but I’ve only heard negative things about working at a Musk co.

I was on the job market a few years ago and on a whim decided to look at the careers sites of SpaceX and Tesla. While there were openings that were interesting to me, both companies' listings had spelled out in clear terms – this job is for people who are passionate about the work. You will be expected to work long hours, nights and weekends. This is an exempt position so there will be no overtime pay.

I backed away real quick.

Musk isn't eligible for ISOs, so any options he gets are taxed in the year they are exercised. Sure, he can avoid exercising them, but options nearly always have an expiration date. And assuming the stock price has gone up since the options were granted, the taxable amount will be even higher upon exercise.

CA also has some fairly unique (and IMO unfortunate) tax rules where they will still require you to pay taxes on some things even after you've moved out of state. I believe option exercise (for options granted+vested while living in CA) is one of those.

i did not know there was only one high income employee at Tesla.

The Propublica article said Musk paid $500M in tax on a $1.5B options exercise.

Is that incorrect?

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