There’s something darkly funny about one of the richest men in the world using Twitter to poll his 60 million followers to see if he should pay taxes.
It wasn’t just the flippant way Tesla’s Elon Musk (@edgeLorde) asked his followers to vote on whether he should sell $ 21 billion in stock and, in doing so, pay billions in taxes. on its capital gains. It’s the fact that for the tech baron, paying taxes is indeed something he can choose to do. Or what not to do.
This is a direct consequence of a tax system in the US and UK that poorly taxes wealth. As another American billionaire, Warren Buffett, pointed out, the richest often pay lower tax rates than their cleaners.
The pandemic has been favorable to the very rich. Musk is part of a crop of US billionaires who have added an additional $ 1 billion to their wealth since the start of the pandemic.
It was partly in response to this that US Treasury Secretary Janet Yellan introduced a plan to tax the unrealized wealth gains accumulated by Musk.
The new tax on unrealized capital gains would be an annual levy on the capital gain on assets held by the wealthiest Americans. This would apply to people who earn more than US $ 100 million per year for three consecutive years or if one earns US $ 1 billion in annual income.
The Yellan proposal is in part a recognition that the status quo was not sustainable. If the fabulously rich choose to withdraw their income from their private stores, then they should be taxed like everyone else.
Here in the UK, the financial pain of Covid-19 has not been equally shared. Even before the pandemic, wealth inequality was more than double the income inequality.
During the pandemic, the richest 10% of households earned more than £ 50,000 in additional wealth per adult on average, the poorest 30% earned just £ 86.
A well-functioning economy shouldn’t be hard-wired to make inequalities worse in a downturn. Yet our approach to taxing income from wealth means that the average tax rate for someone with £ 10million a year is lower than for someone with median income according to research by the University of Warwick.
It is intuitively unfair that a person who derives his income from wealth pays lower tax rates than someone who must earn his income by working. It is also not fair that for the richest, taxation is often effectively voluntary.
In 1988, then Chancellor Nigel Lawson said: “There is little difference between income and capital gains and many people do have the option of choosing which one to receive … clear case why one should be taxed more heavily than the other. . “He equalized the tax rates on capital gains and wealth.
The government estimates that doing the same now could bring in up to £ 14 billion a year. A recent poll found that 61 percent were in favor of aligning CGT rates with income tax rates.
To maintain public support for taxation, it is essential that the system is seen to be fair, with similar things taxed in similar ways. HMRC – which has considerable leverage behind it in collecting tax on regular income – must have the muscle to do the same for billionaires who skate the rules.
Elon Musk is one of the few tech billionaires to be a lot of fun to follow on Twitter. But his flippant approach to whether he should pay tax reveals just how incapable we are of collecting the tax owed to us.