Elon Musk’s news-making Twitter poll claims a surprising history – Inverse
It could be because of a move back in 2012.
Elon Musk’s online poll has finished, and he looks set for a hefty tax bill.
Over the weekend, the world’s richest person held a Twitter poll that asked whether he should sell 10 percent of his Tesla stock, a percentage that Reuters calculates could be worth nearly $21 billion. The move would see Musk pay taxes on the amount gained from the sale. The poll results were emphatic: of the 3.5 million votes, 57.9 percent supported the move.
A Tesla decision back in 2012, however, may suggest Musk was always going to sell.
The poll came in response to criticisms around Musk’s compensation arrangements, where instead of taking a cash salary and paying income tax, he receives Tesla stock. Musk, who promised to abide by the results of the poll, claimed that selling stock is “the only way for me to pay taxes personally.”
A ProPublica report from June explains how Musk and other billionaires would borrow money from banks by using shares as collateral. This came under the spotlight again last month, when U.S. Senate Democrats proposed a tax on unrealized gains in wealth.
At the time of writing, Tesla’s stock price was down nearly six percent before the markets opened.
How it relates to Build Back Better — President Joe Biden’s Build Back Better plan is estimated to cost $1.75 trillion. It includes better support for children and parents, healthcare, climate, education, and more.
To fund the plan, Senate Democrats shared a proposal that would tax unrealized gains. That means, instead of waiting for Musk and others to sell stock before taxing the gains, they would pay tax on the gains before selling.
This would target individuals with over $1 billion in assets or $100 million in income for at least three consecutive years. An estimate from the Washington Post suggested Musk would pay $50 billion under the tax in the first five years.
But the proposal seemed in jeopardy just hours after publication, after Democratic senator Joe Manchin told reporters that he didn’t like “the connotation that we’re targeting different people.” With the Democratic caucus holding exactly half the seats in the Senate, Manchin’s support would be key.
Why Musk is at the center of the story — Musk and other billionaires received criticism in June when ProPublica revealed how little they paid in tax. From 2014 to 2018, Musk’s wealth grew $13.9 billion. But over that period, Musk only reported $1.52 billion in income, which resulted in $455 million in taxes.
The discrepancy comes from the fact that Musk and others are only taxed when they sell their stock. In 2020, the Wall Street Journal explained how Musk used 92 million shares, around 40 percent of his shares at the time, as collateral to borrow money from banks.
Last month, Musk responded to the Democrats’ proposal:
Why people didn’t want him to sell — One argument against Musk selling was that it would cause the stock price to drop. This appeared to be confirmed in pre-market trading, as Tesla stock dropped almost six percent.
“I can’t believe people are saying yes,” Iyinoluwa Aboyeji, a general partner at Future Africa who co-founded two startups, wrote on Twitter. “I hope they aren’t Tesla shareholders too.”
Some of Musk’s followers also did not want to see the CEO give more money to the government.
“From a diversification and valuation perspective the sale makes a lot of sense,” financial commentator Peter Schiff wrote on Twitter in response to Musk. “The fact that you’ll have to pay taxes on the proceeds however is not a net benefit to society. The public would be better served by you wisely investing that money rather than government wasting it.”
Why people want him to sell — Some argued that, rather than selling 10 percent, Musk should sell more. Stock trade Timothy Sykes wrote on Twitter:
Others were less concerned about whether he should sell or not, but criticized the circumstances. Senator Ron Wyden, who drafted the plan to tax unrealized gains, wrote on Twitter that “whether or not the world’s wealthiest man pays any taxes at all shouldn’t depend on the results of a Twitter poll.”
In response to Wyden’s post, Musk wrote:
What’s next — Musk is now expected to sell the stock, but timing is unclear. Musk’s Twitter posts did not outline a timescale.
It wouldn’t be the first time that Musk ultimately went back on a Twitter declaration — he famously declared in 2018 that he had “funding secured” to take Tesla private. However, evidence suggests Musk will sell the stock.
The Inverse analysis — The move is one that Musk was likely to make all along. The way he did it could buy him some warm publicity, or at least act as a defense against criticism that he doesn’t pay his fair share.
Musk wrote on Twitter in June that the only time he sells Tesla stock is when his stock options are expiring and “I have no choice.” Quartz notes that Musk was given the option to buy 22.86 million shares at $6.24 each back in 2012, and that option will expire in August 2022. Tesla’s stock price is currently over $1,000, making that 2012 price an impressive discount.
CNBC notes that Musk is expected to face a $15 billion tax bill for exercising those stock options. Bryan Springmeyer, an attorney at Springmeyer Law, told Reuters that it “seems crazy” to borrow a large amount to pay his taxes.
In fact, Musk already suggested selling Tesla stock last month. On October 31, he told Twitter he would “sell Tesla stock right now” if the United Nations’ World Food program could describe on Twitter how $6 billion would solve world hunger.
As far as stock sales go, it’s perhaps one of the most highly publicized.
SUBSCRIBE TO MUSK READS+, A PREMIUM NEWSLETTER THAT COVERS THE WORLDS OF ELON MUSK, SPACEX, TESLA, AND EVERYTHING BETWEEN.