“Twitter told me to”: Elon Musk sells $5bn worth of Tesla shares after Twitter poll
November 21, 2021
4 min read
What's going on here?
Elon Musk, chief executive officer of electric vehicle and clean energy company, Tesla, pledged to sell approximately $5bn worth of shares in the company after taking to Twitter to ask followers whether he should sell 10% of his stake.
What does this mean?
Filings with the US Securities and Exchange Commission (SEC) show that a sale of about a 5th of those shares was related to a pre-arranged trading plan created in September, which indicates that the question to Musk’s Twitter followers was not as sudden as it initially seemed. The sale of the remainder of the shares has not yet been scheduled.
The thread of tweets ostensibly provides a response to the increasing scrutiny faced by the world’s wealthy to pay their fair share of taxes. Musk boldly declared that the reason why he was making the suggestion was because “much is being made lately of unrealised gains being a means of tax avoidance.” American billionaires are experiencing particular scrutiny from those like Democratic Senator Ron Wyden, who hopes to introduce a “Billionaire Tax” that the wealthiest would pay on the annual increase in the value of their stocks and shares.
Musk does not take a cash salary or bonus for his involvement with Tesla, his compensation package being mainly stock-based. Individuals like this currently only pay tax on the gains made on these stock assets when this gain is “realised” (meaning when the asset is sold).
What's the big picture effect?
When the result of the poll was made live, stocks in Tesla fell in value by around 16%. It is no secret that investing in the stock market comes with its fair share of risk, nor that the value of stocks may be influenced by the decisions or statements of a CEO. What was unusual is the fact that this volatility came as a result of a seemingly spur-of-the-moment decision to allow 63m Twitter followers to have a say in Musk’s financial affairs.
However, as the SEC filings show, Musk had been planning to sell a portion of his shares for some time, and also has around 23m vested stock options with the company that are due to expire in August 2022. These options have been described as a “ticking tax time bomb”, as exercising them will result in a tax bill of approximately $15m at today’s market price, regardless of any Twitter poll.
Musk has been very vocal about his criticism of the “billionaire tax”, which would end the tax “loophole” wherein wealthy individuals could indefinitely defer capital gains taxes while retaining the benefit of being able to borrow by using their wealth as collateral. Media outlets were quick to pick up on the fact that the third tweet in Musk’s thread stated that “the only way for me to pay taxes personally is to sell stock”, seemingly confirming that income taxes are essentially optional for the country’s wealthiest. Internal Revenue Services records collected in a report by the newsroom organisation ProPublica show that Musk and other billionaires are paying income taxes that represent a minute amount of the grand degree to which their fortunes expand each year – all completely legally. According to Forbes, the collective worth of the 25 richest Americans increased by $401bn from 2014 to 2018. During that period, they paid $13.6bn total in income taxes – an eye-watering figure in and of itself, but in reality, amounting to a tax rate of only 3.4%.
If Musk does not follow through with his promise, he may find himself in trouble with the regulators, because publicly stating his intention to sell the shares has affected the share price. It wouldn’t be the first time: in 2018, Musk and Tesla were fined $20m for misleading investors with a series of tweets which announced he was considering taking the company private at $420 per share, and had secured funding. However, whether any regulatory threat will sway Musk this time is uncertain – after the privatisation tweets, he took to Twitter again with two words: “Worth it.”.
Musk’s wealth is derived from the value of his assets, and those gains do not come within the bounds of taxable income under US law unless and until they are sold. For critics, his tweets are sure to be seen as treating the symptom rather than the cause of the issue. The overarching tone of critical responses seems to be that this isn’t enough. Certainly, the levy that campaigners envision will not be one in which a billionaire can decide to “pay taxes” as and when they please, to an amount they decide, and on the final authority of their Twitter followers.
Report written by Laura Wiles
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