Recently, the two wealthiest people on earth engaged in transactions that received attention from the press. Bezos donated $100 million to the Obama Foundation and Musk sold some $5 billion of his Tesla stock. The consequences of these two transactions show some of what is wrong with our tax system.
By donating $100 million, Bezos will presumably take a charitable deduction on his tax return and reduce his taxable income, saving him as much as $37 million in federal taxes. In other words, his “charitable” donation will likely be heavily subsidized by taxpayers. The government is deprived of money it might otherwise be receiving. Bezos presumably gets the blessings of the Obamas and some good PR over his “generosity.” I have seen no reports about him thanking Amazon employees and customers for making his donation possible as he did after his space flight.
The tax break for making donations is a regressive deduction since it generally reduces the taxes of those with the biggest taxable incomes the most. Those with incomes below $50,000 donating $100, at most, save $12 while people with a $1 million dollar income, who can easily afford to donate $100, could save $37 in their federal income taxes. Donations should be made for their own sake, and not be subsidized by the government.
Musk’s Sale of Tesla Stock
Musk is reported to have sold some $5 billion of his Tesla stock. Assuming it is all subject to taxation, poor Elon might end up paying as much as $2.04 billion in taxes on this transaction. If the entire $5 billion is considered long term capital gain, he could pay much less, $1.19 billion. Then there may be loopholes he can take advantage of such as donating money and wiping out at least part of the tax.
Additionally, Musk’s $5 billion transaction occurred after he moved from California to Texas, a state that does not impose individual incomes taxes. With this move, he will presumably avoid having to pay what could have been over $660 million in state income taxes to California.
On November 26, there was a downturn in the stock market in response to news about the Omicron coronavirus variant. As of November 26, according to the Bloomberg Billionaires Index , Bezos is worth $201 billion having gained $10.8 billion so far this year. The wealth of Musk stands at $296 billion having increased by $126 billion in 2021 after subtracting his loss of $8.38 billion on November 26.
Since the beginning of 2020, the wealth of Musk has increased by $268 billion, more than enough to cover a year of the watered-down Build Back Better Act. The wealth of Bezos has gone up $86.4 billion indicating that some people, especially rocket men, have done quite well during the pandemic.
That means that Bezos’s rather hefty $100 million donation to Obama’s Foundation is less than the amount that his wealth has increased on a single average day since the beginning of 2020, a bit more than $124 million.
As for Musk, the taxation on his $5 billion sale in a worse-case scenario is equivalent to what he has accumulated in a little more than 5 average days since the beginning of 2020.
Our government has allowed the super-wealthy to accumulate billions. At the same time, it fails to tax most of their accumulated wealth while simultaneously providing them with tax loopholes and low rates of taxation on their income. This is occurring at a time when millions of people live in poverty. Many suffer from inadequate or no housing, are hungry, and lack needed medical care; an ongoing absurd and irrational situation brought about by the operations of a capitalist system in which the primary organizing goal is to maximize profits to be able to accumulate more capital rather than plan and organize the economy to meet peoples’ needs.