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- South African–born American entrepreneur
Elon Musk's vast fortune increased by $37 billion on Monday alone after Tesla's stock price surged nearly 13%.
Senate Democrats are drafting a plan to tax exactly that kind of wealth gains for billionaires.
Musk ripped the plan on Twitter the night of his one-day wealth surge: "Eventually, they run out of other people's money and then they come for you."
The same day, news leaked that Democrats were drafting a new tax proposal, under which exactly those kinds of capital gains could mean multibillion-dollar tax bills for Musk and the world's other wealthiest people.
According to the Bloomberg Billionaires Index, Musk's net worth increased from around $252 billion on Sunday to $289 billion on Monday as Tesla's stock price surged nearly 13% on the news that car rental firm Hertz announced a deal to buy 100,000 electric cars from it.
The overwhelming majority of the Tesla CEO's wealth comes from his ownership of a large share of the electric automaker's stock; its market capitalization exceeded $1 trillion after the surge on the Hertz news.
Under current tax law, Musk's $37 billion increase in wealth doesn't count as income: Appreciation in the value of an asset, like a stock or a privately held business, is only taxed after the asset is sold. As long as Musk holds the bulk of his Tesla stock without selling, he won't pay taxes on those unrealized capital gains.
Indeed, most of the world's richest people have paid a relatively small share of their fortunes in taxes as a result of this policy. In June, ProPublica published an analysis based on IRS tax return data showing that centibillionaires including Musk and Amazon founder Jeff Bezos have paid absolutely nothing in income taxes in some recent years.
That could change in the near future under a proposal from Sen. Ron Wyden for a "billionaires' income tax" that would target these kinds of unrealized capital gains for the wealthiest Americans. While the details of the plan are still being hammered out and are expected to be released in the next few days, the basic idea would be to treat increases in the market value of assets like stock holdings as taxable income for billionaires and super-high earners.
If you own a billion-dollar share of a company at the start of the year and the price of that stock goes up 50% by the end of the year, you would have $500 million of income subject to the new proposed tax, even if you don't sell a single share.
This proposal would hit someone like Elon Musk pretty hard. As noted above, the details of the plan are still forthcoming, but assuming that unrealized gains would be taxed at something like the current 20% top rate for realized long-term capital gains, Musk's one-day $37 billion haul could lead to a tax bill in the range of $7.4 billion.
Musk disparaged the tax proposal on Monday night, warning that even though the plan is strictly limited to billionaires and ultra-high earners - likely under 1,000 Americans would be targeted by the tax - it could open the door to similar taxes for those with more modest fortunes. "Eventually, they run out of other people's money and then they come for you," he wrote on Twitter.
Still, it's rather unlikely that most Americans will end up making $37 billion in unrealized capital gains in a single day. Wyden hit back at Musk on Tuesday evening. "The people who are clearly trying to be tricky are people who are trying to find a way to not pay taxes," he told reporters.
Read the original article on Business Insider