In the news recently: Elon Musk’s US tax bill: $11 billion. Tesla’s: $0.
Elon Musk has repeatedly bragged (or, perhaps, complained) that he’ll pay more in federal taxes for 2021 than anyone has ever paid — about $11 billion. But Tesla apparently won’t pay a cent.
Tesla may not plan to pay federal taxes any time in the foreseeable future – even though the company just reported by far its most profitable year ever. In 2021, Tesla recorded net income of $5.5 billion, and adjusted income of $7.6 billion.
Wait, so Elon Musk is a good guy now who pays taxes? Well, maybe not quite:
Musk has a history of using the US tax code to pay little or no personal federal income taxes. A report from ProPublica shows that for 2018 Musk and many other Americans near the top of the world’s richest people paid no income tax.
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But that could well be the last time for years to come that he’s paying a substantial federal tax, unless Congress passes one of the various proposals to tax the net worth of the nation’s wealthiest individuals, rather than just their income. Several Democratic Senators, including Elizabeth Warren, Bernie Sanders and Ron Wyden have proposed that, but so far it hasn’t come close to passing.
Not surprisingly, Musk opposes such efforts, and has mocked all three senators on Twitter.
I’ve long been annoyed by the taxation system as an employee, that is to say, as a regular person (being a freelancer or small business is not significantly different overall). You earn an income, and you immediately pay 20 - 50% of that as income tax. Then you got pay an extra 9 - 27% on everything you buy due to VAT, plus extra on alcohol, gas, and tobacco. Then you go pay your different fees and taxes, such as the mandatory health insurance, water tax (different from the utility costs!), garbage tax, etc. Then you pay tax after properties that you have in most places, and/or you pay tax after any savings you actually managed to gather. It’s insane.
Anyway, the primary offender here is income tax. Why? Because it’s tax paid almost exclusively by the working class; that is to say, the group of people that make up 99.99% of all adults who have to work in order to be able to live (barring social services like disability benefit, etc.). The remainder, the ones that do not have to work to be able to live, are the effective ruling class. This includes, but is not completely limited to billionaires. (You do not actually need billions to be free from ever having to work.) They by and large do not pay income tax, as you could read above with Elon Musk.
This is puzzling, because it creates the opposite as what tiered income tax is supposed to achieve: for more tax to be paid by those who can afford to. For a while, tiered taxation works like it is supposed to: the more you make, progressively the higher percentage income tax you pay. This is fine and fair. But at some point the progression not only stops but reverts and reverts quickly: when you stop relying on income to live. The richest pay the least taxes, primarily due to being able to avoid income tax completely. Other taxes such as property tax, corporate tax, dividend tax, inheritance tax, capital gains tax, and wealth tax all in theory exist to try and close this gap, but they clearly do not work very well.
Part of the reason for that is the taxation system is extremely complex, and so loopholes can be found by those who are able to afford it. Hence tax havens, and clever tax optimization strategies. But taxation systems are that complex not by accident, but by design; and part of that reason is specifically to enable this sort of thing. (The other reason is corruption; see the excellent Rules for Rulers for details.) Obviously; the same people who make the laws that govern taxation are the ones that are benefiting from it.
The end result is that corporations and the ultra-rich pay next to no taxes, but woe be you if you get a 10K EUR yearly bonus from your company: you pay 50%+ income tax over that.
I usually try to cite only English sources, but I’m going to make an exception for once to reference the article Let the poors pay (taxes) that is in Hungarian (original title: Fizessenek a szegények). The article points out, with lots of references and graphs, that in the 1950s, about 30-40% of all tax that the government collected was from the income of companies. This then began dropping, and now it is at 6-10%; while at the same time, the tax burden on normal people grew hugely to compensate.
This goes a long way to explain why, with technology enabling ever-greater productivity and leading to more and more wealth being created, the quality of life of the average person has barely risen in all those decades: the average person is getting a lower and lower share of the wealth being created. One of the main goals of taxation would specifically be to minimize or eliminate dysfunctions like this: redistribute wealth to prevent the usual “the rich get richer, the poor gets poorer” phenomenon and maintain social cohesion.
Well, since the 1980s, taxation has come to serve the exact opposite purpose: ensure that the working people subsidize the richest ruling class, allow the richest to maintain their wealth while keeping the working class working.