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How did Elon Musk legally avoid paying taxes for so long?

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Elon Musk, the CEO of Tesla and SpaceX and one of the world’s wealthiest men, increased his fortune by $13.9 billion between 2014 and 2018, reporting $1.52 billion in revenue and paying $455 million in taxes. Musk paid a genuine tax rate of 3.27 percent throughout that time, according to ProPublica. By way of comparison, the average American earns $70,000 annually, with a tax rate of 14%. What’s worse, he has previously paid so little by way of federal taxes as to recently earn the ire of US Senator Elizabeth Warren, among others.

“In 2015, he paid $68,000 in federal income tax. In 2017, it was $65,000, and in 2018 he paid no federal income tax,” according to ProPublica.

“The results are staggering. According to Forbes, the 25 richest people saw their worth rise a collective $401 billion from 2014 to 2018,” the ProPublica report states. “They paid a total of $13.6 billion in federal income taxes in those five years, the IRS data shows. That’s a staggering sum, but it amounts to a true tax rate of only 3.4%.”

Incredibly, Musk’s true tax rate, which measures the taxes paid in proportion to the growth of his total wealth (including things like unsold stocks), is among the highest of the billionaire class that ProPublica examined, which brought to the fore the loopholes exploited by the ultra-rich.

Borrowing money is a common method used by the ultrarich to avoid paying taxes. While wages over $400,000 are taxed at roughly 37% and stock sales at 20%, loans are not considered income and thus taxed at 0%, while you only have to pay a single-digit interest rate. Elon Musk committed about 92 million Tesla shares worth $57.7 billion as personal loan collateral in 2020. Musk can simply borrow money using his company’s equity as collateral when he needs money. Some lawmakers, however, have condemned this technique as a tax loophole for the super-rich.

However, after receiving criticism, Musk announced that he will pay more than $11 billion in taxes this year, perhaps setting a new record for the amount of annual tax paid by a single individual.

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