6 ms·

That's $593M taxes on $1.34B earnings on exercising stock options...44% tax rate is pretty harsh!

tunesmith 9y ago
I got interested in the utility of money a while back and how the "value" of money is roughly logarithmic as it goes up. I found a couple of thought experiments regarding a "logarithmic flat tax". Anyway, going by that I think it's about right - it might still be a little bit high, though. Depending on how you calculate it those plans can be configured so that he should have paid more in the 35-40% range. Basically, you take revenue, divide it by the poverty level (he's got six kids, so around $45k - $50k), take the log base 10, and multiply by some constant that would be the same for everyone to match the government spending level - that constant these days is probably around 9 or 10. The result is your fair tax rate.
- matt_wulfeck 9y ago
  Sounds like reasonable policy but incredibly obtuse. All taxpayers should be able to calculate and file their own taxes. The more complicated the easier to game and manipulate. I'll go as far as to say simplicity should be the driving motivation, not equality.
  - hsod 9y ago
    The proposed system seems a whole lot simpler than the existing one to me.
  - enthdegree 9y ago
    It's implemented as a literal table lookup anyway, so it wouldn't be any different from the taxpayer's standpoint.
  - Fomite 9y ago
    This proposal, given it can be described in a single HN post, is vastly simpler than the present tax code. It would similarly be trivial to make a calculator for this and present it on the IRS site for those who don't feel like calculating it.
- BurningFrog 9y ago
  Do you mean "fair" in the sense that it tries to be equally painful for everyone?
  - loeg 9y ago
    That seems like a reasonable interpretation of fair.
  - tunesmith 9y ago
    It taxes an equal amount of utility-of-money, I suppose.
- mrkgnao 9y ago
  https://en.wikipedia.org/wiki/Marginal_utility#Diminishing_marginal_utility https://en.wikipedia.org/wiki/Marginal_utility#Diminishing_m... Interesting.
- areyousure 9y ago
  Can you add a little detail, perhaps a formula? Do you mean that if someone earns R, they pay $C*log10(R/P), where P is some poverty level for them and C is a constant around 9?
  - tunesmith 9y ago
    Yeah. It's a bit simple - like, we're not going down to infinite negative income tax for people below poverty, just assume zero tax paid for them. To find C, you have to sum up the log10(R/P) for everyone (including corporations) in the nation and divide that into what the government needs. There's various ways to calculate what the government needs, perhaps you separate FICA and payroll tax income entirely if you keep that, or perhaps you just look at entire Federal spending, I believe around 3.8 trillion. But to sum up the log10(R/P), you need income distribution data. Someone else did that very roughly with a spreadsheet, I haven't tried it myself. A few years ago when they did that, they figured 3.7 trillion for spending, and C was something like 8.86. C would also be a bit higher if you were also trying to pay down the debt over a period of time.
    - areyousure 9y ago
      Unfortunately, I don't understand the logic behind this. I would have thought that a flat tax in terms of utility would solve for the amount of taxes T in log10(R/P) - log10((R-T)/P) = C for some constant C across the population. That would correspond to taxing everyone an equal amount of utility, assuming a logarithmic model of utility. If the tax itself is proportional to the utility function, that has the effect of taking much less utility from people with greater R. I'm also unclear on how your C works out. The largest company in the world makes less than $1 trillion per year, so even if P is $1, log10(R/P) is bounded above by 12. Given a US budget of several trillion USD, that seems to make C multiple orders of magnitude bigger. Sorry if I'm missing something. That was my original reason for asking for a formula above.
idbehold 9y ago
Not really. Go look at the tax-rates of the 1950's. The only way he was able to acquire that much money was because of the infrastructure paid for by tax revenue. The only reason he wasn't robbed by someone else was because of the law enforcement paid for by tax revenue. I could go on, but I think you get the point. His wealth is built upon the shoulders of tax revenue.
- maratd 9y ago
  There was no income tax in the US prior to 1913. Did people go around murdering and stealing? Was everyone poor? Traditionally, all the things you mention are NOT paid for by income taxes even now.
  - idbehold 9y ago
    > There was no income tax in the US prior to 1913. Did I say income tax revenue or just tax revenue?
- WillPostForFood 9y ago
  After you look at the tax rates of the 1950's, go look at the tax code. The nominal rates were higher, but there were many more ways to shelter your money. In 1958, the top 3% of taxpayers earned 14.7% of all adjusted gross income and paid 29.2% of all federal income taxes. In 2010, the top 3% earned 27.2% of adjusted gross income and their share of all federal taxes rose proportionally, to 51% https://www.wsj.com/articles/SB10001424127887324705104578151601554982808 https://www.wsj.com/articles/SB10001424127887324705104578151...
- bmelton 9y ago
  Worth noting that he'd likely have netted about the same in the 1950s. Despite the constant assertions of those who fondly reminisce about the days of 90%+ income tax rates, there were so many more deductions that it all basically came out the same, while disincentivizing the outright hiding of wealth. Moreover, the law enforcement that prevents him from being robbed is paid for by tax revenue, but not federal tax revenue, and the amount he's paid is in addition to the $593 million he paid in income tax (assuming that doesn't account for state income tax - the actual article isn't available for me to read right now due to server load).
NegativeK 9y ago
I agree that it's a lot, but I disagree that it's harsh. That leaves him with $747M for the year.
- omginternets 9y ago
  >That leaves him with $747M for the year. I'm not sure what this is supposed to suggest/demonstrate. Surely you agree that taxing (say) 20% of 60k is different from taxing 20% of 1B. Namely: the former has a much more significant impact on quality-of-life then the latter... Figuratively speaking, what can you do with 747M that you can't do with 300M? (Before the pedants inevitably pick this rhetorical question appart: the point is that it's not prima facie unreasonable to tax extreme wealth significantly more heavily than the median income) Edit: the first of the pedants have arrived... sigh...
  - quicksilver 9y ago
    Have a much greater chance at purchasing a controlling stake in a US sports franchise (likely still need to go in with some partners).
    - deleted 9y ago
      [deleted]
  - bsbechtel 9y ago
    >>Figuratively speaking, what can you do with 747M that you can't do with 300M? Invest in starting brain-computer interface and rocket companies
    - maratd 9y ago
      And I believe a boring company, hyperloop, other efforts in AI, etc. A more substantive question is how that money would be spent by the relevant parties. I would argue that Musk would spend it better than the federal government and as such, he should have it.
coldpie 9y ago
I know, poor guy has to scrape by on only $700 million.
WJW 9y ago
For the US maybe. Income tax in the Netherlands (my country) in the top bracket is 52%. On the second hand, we have no capital gains tax so he might come out ahead when exercising options. On the third hand, we have a wealth tax of 1.2% on your entire capital above a certain floor (of about 20k) so he might not come out ahead in the end. It's always interesting to see the opinions of different cultures about how much tax is reasonable :)
- omginternets 9y ago
  >It's always interesting to see the opinions of different cultures about how much tax is reasonable :) I think you're missing his point. The raw percentage isn't as unreasonable as the difference between the parent-poster's and Musk's tax rate.
- MicroBerto 9y ago
  > It's always interesting to see the opinions of different cultures about how much tax is reasonable :) Realize none of these numbers include the local, county, state, sales, and property taxes he pays. At some point, theft becomes a more suitable word for it.
  - ska 9y ago
    At some point, theft becomes a more suitable word for it. No, because confounding usefully distinct concepts makes them less useful.
    - MicroBerto 9y ago
      If Taxation at 100% is slavery, at what percentage is it not?
      - ska 9y ago
        You answered yourself - slavery is not taxation, full stop. Fiddling about with numbers after a false premise is not going to lead you to truth.
ww520 9y ago
44% tax rate is not too bad. Note that people with lots of money got their money by leveraging the system. A well run system is not cheap. The court system, the legal system, law enforcement, the education system, welfare, defense, etc all cost money. The higher percentage tax is only fair to pay back to the system that generates the big gain.
- taketaketake 9y ago
  Asserting your right to the fruits of another person's success is super easy! Why bother providing anything but the assertion, I say. And apparently you as well.
- frgtpsswrdlame 9y ago
  Especially if you take into consideration how much Musk has personally benefitted from a well funded government. >Tesla Motors Inc., SolarCity Corp. and Space Exploration Technologies Corp., known as SpaceX, together have benefited from an estimated $4.9 billion in government support, according to data compiled by The Times. http://www.latimes.com/business/la-fi-hy-musk-subsidies-20150531-story.html http://www.latimes.com/business/la-fi-hy-musk-subsidies-2015...
  - abalone 9y ago
    And that's just direct subsidies! Don't forget that rockets, autonomous driving[1] and solar power[2] were developed by the government. [1] https://en.wikipedia.org/wiki/DARPA_Grand_Challenge https://en.wikipedia.org/wiki/DARPA_Grand_Challenge [2] https://en.wikipedia.org/wiki/National_Renewable_Energy_Laboratory https://en.wikipedia.org/wiki/National_Renewable_Energy_Labo...
  - mason240 9y ago
    The idea that he personally used $593M, much less $4.9B worth of government services in 2016 is pretty silly. He is far from being the sole owner of those companies.
    - csallen 9y ago
accountyaccount 9y ago
I don't think there's anything harsh about living off of hundreds of millions of dollars of income after taxes.
jedberg 9y ago
He lives in California. 9% of that was to the state.
- 824ueirwfjd 9y ago
  13.3% actually... this is why I don't understand why anyone starts a company in California when you can go to other states like WA that have no income tax
  - snowpanda 9y ago
    And yet the roads in WA are still better than most of CA.
    - seattle_spring 9y ago
      That's a pretty big stretch. Roads in WA are awful.
    - dmode 9y ago
      Ha ? CA has much better roads than WA outside of Bay Area. Also, if you look at the average tax burden it will come out to be the same. CA has very little property tax for commercial property for example and has lower alcohol and cigarette taxes. There are probably a few other areas where taxes in CA are lower than WA
  - jedberg 9y ago
    Good point, he was subject to the extra wealth tax.
  - jedberg 9y ago
    As someone who just started a company in California, I can tell you why I did it. The main reason is because I already live here. My family lives here, as it has for the last three generations. I like the fact that I get great weather year round, that I live amongst a diverse group of people, and can get just about any kind of food I want very close by. I like that my child will go to school with people of all colors and religions and beliefs. And my cost of living is lower in the sense that I don't have to pay a ton of money for heating in the winter and cooling in the summer, nor for a bunch of clothes I can only wear 1/2 the year. As for the business, yeah, it's not great, I'll admit that. I don't like paying extra corporate taxes for no apparent reason (I'm incorporated in Delaware, why am I paying CA tax?). And I may not even hire here, since I'm fully remote and hiring in other states is viable for me. But if I were going to open an office and hire local, I would most definitely do it here in California, where a lot of the talent live and a lot of the people I would want to hire who like the same things I do.
njharman 9y ago
Not that long ago we had 90% tax rate (70% effective) in USA. It's been plummeting since WWII https://en.wikipedia.org/wiki/Taxation_history_of_the_United_States#Tax_rate_reductions https://en.wikipedia.org/wiki/Taxation_history_of_the_United...
- loeg 9y ago
  That was a nominal but not realistic rate for the very wealthy / high income. IIRC, dividends were not taxed at that rate. More info from this commentor: https://news.ycombinator.com/item?id=14168781 https://news.ycombinator.com/item?id=14168781
  - njharman 9y ago
    70% effective as I wrote. Today's top rates are no different, in that people including corporate artifcial ones don't pay it.
loeg 9y ago
Top Fed capital gains rate of 20% + NIIT (3.8%) + California (13.3% top rate) — where does the other 6-7% come from? FICA?
abalone 9y ago
Worth noting: the gain on those share from here on out will be taxed at the capital gains rate, assuming he holds onto them for a year. In California I think that tops out at 33.3%. Also, in the mid 20th century (a very high growth time for the US) personal income tax topped out around 90%. "Harsh" is definitely a matter of perspective.
pmoriarty 9y ago
The United States used to have over a 90% income tax, and many other countries even now have much higher tax rates than the current US rate. 44% is not harsh at all.

I got interested in the utility of money a while back and how the "value" of money is roughly logarithmic as it goes up. I found a couple of thought experiments regarding a "logarithmic flat tax". Anyway, going by that I think it's about right - it might still be a little bit high, though. Depending on how you calculate it those plans can be configured so that he should have paid more in the 35-40% range. Basically, you take revenue, divide it by the poverty level (he's got six kids, so around $45k - $50k), take the log base 10, and multiply by some constant that would be the same for everyone to match the government spending level - that constant these days is probably around 9 or 10. The result is your fair tax rate.

matt_wulfeck 9y ago
Sounds like reasonable policy but incredibly obtuse. All taxpayers should be able to calculate and file their own taxes. The more complicated the easier to game and manipulate. I'll go as far as to say simplicity should be the driving motivation, not equality.
- hsod 9y ago
  The proposed system seems a whole lot simpler than the existing one to me.
- enthdegree 9y ago
  It's implemented as a literal table lookup anyway, so it wouldn't be any different from the taxpayer's standpoint.
- Fomite 9y ago
  This proposal, given it can be described in a single HN post, is vastly simpler than the present tax code. It would similarly be trivial to make a calculator for this and present it on the IRS site for those who don't feel like calculating it.
BurningFrog 9y ago
Do you mean "fair" in the sense that it tries to be equally painful for everyone?
- loeg 9y ago
  That seems like a reasonable interpretation of fair.
- tunesmith 9y ago
  It taxes an equal amount of utility-of-money, I suppose.
mrkgnao 9y ago
https://en.wikipedia.org/wiki/Marginal_utility#Diminishing_marginal_utility https://en.wikipedia.org/wiki/Marginal_utility#Diminishing_m... Interesting.
areyousure 9y ago
Can you add a little detail, perhaps a formula? Do you mean that if someone earns R, they pay $C*log10(R/P), where P is some poverty level for them and C is a constant around 9?
- tunesmith 9y ago
  Yeah. It's a bit simple - like, we're not going down to infinite negative income tax for people below poverty, just assume zero tax paid for them. To find C, you have to sum up the log10(R/P) for everyone (including corporations) in the nation and divide that into what the government needs. There's various ways to calculate what the government needs, perhaps you separate FICA and payroll tax income entirely if you keep that, or perhaps you just look at entire Federal spending, I believe around 3.8 trillion. But to sum up the log10(R/P), you need income distribution data. Someone else did that very roughly with a spreadsheet, I haven't tried it myself. A few years ago when they did that, they figured 3.7 trillion for spending, and C was something like 8.86. C would also be a bit higher if you were also trying to pay down the debt over a period of time.
  - areyousure 9y ago
    Unfortunately, I don't understand the logic behind this. I would have thought that a flat tax in terms of utility would solve for the amount of taxes T in log10(R/P) - log10((R-T)/P) = C for some constant C across the population. That would correspond to taxing everyone an equal amount of utility, assuming a logarithmic model of utility. If the tax itself is proportional to the utility function, that has the effect of taking much less utility from people with greater R. I'm also unclear on how your C works out. The largest company in the world makes less than $1 trillion per year, so even if P is $1, log10(R/P) is bounded above by 12. Given a US budget of several trillion USD, that seems to make C multiple orders of magnitude bigger. Sorry if I'm missing something. That was my original reason for asking for a formula above.

idbehold 9y ago

Not really. Go look at the tax-rates of the 1950's. The only way he was able to acquire that much money was because of the infrastructure paid for by tax revenue. The only reason he wasn't robbed by someone else was because of the law enforcement paid for by tax revenue. I could go on, but I think you get the point. His wealth is built upon the shoulders of tax revenue.

maratd 9y ago
There was no income tax in the US prior to 1913. Did people go around murdering and stealing? Was everyone poor? Traditionally, all the things you mention are NOT paid for by income taxes even now.
- idbehold 9y ago
  > There was no income tax in the US prior to 1913. Did I say income tax revenue or just tax revenue?
WillPostForFood 9y ago
After you look at the tax rates of the 1950's, go look at the tax code. The nominal rates were higher, but there were many more ways to shelter your money. In 1958, the top 3% of taxpayers earned 14.7% of all adjusted gross income and paid 29.2% of all federal income taxes. In 2010, the top 3% earned 27.2% of adjusted gross income and their share of all federal taxes rose proportionally, to 51% https://www.wsj.com/articles/SB10001424127887324705104578151601554982808 https://www.wsj.com/articles/SB10001424127887324705104578151...
bmelton 9y ago
Worth noting that he'd likely have netted about the same in the 1950s. Despite the constant assertions of those who fondly reminisce about the days of 90%+ income tax rates, there were so many more deductions that it all basically came out the same, while disincentivizing the outright hiding of wealth. Moreover, the law enforcement that prevents him from being robbed is paid for by tax revenue, but not federal tax revenue, and the amount he's paid is in addition to the $593 million he paid in income tax (assuming that doesn't account for state income tax - the actual article isn't available for me to read right now due to server load).

NegativeK 9y ago

I agree that it's a lot, but I disagree that it's harsh. That leaves him with $747M for the year.

omginternets 9y ago
>That leaves him with $747M for the year. I'm not sure what this is supposed to suggest/demonstrate. Surely you agree that taxing (say) 20% of 60k is different from taxing 20% of 1B. Namely: the former has a much more significant impact on quality-of-life then the latter... Figuratively speaking, what can you do with 747M that you can't do with 300M? (Before the pedants inevitably pick this rhetorical question appart: the point is that it's not prima facie unreasonable to tax extreme wealth significantly more heavily than the median income) Edit: the first of the pedants have arrived... sigh...
- quicksilver 9y ago
  Have a much greater chance at purchasing a controlling stake in a US sports franchise (likely still need to go in with some partners).
  - deleted 9y ago
    [deleted]
- bsbechtel 9y ago
  >>Figuratively speaking, what can you do with 747M that you can't do with 300M? Invest in starting brain-computer interface and rocket companies
  - maratd 9y ago
    And I believe a boring company, hyperloop, other efforts in AI, etc. A more substantive question is how that money would be spent by the relevant parties. I would argue that Musk would spend it better than the federal government and as such, he should have it.

coldpie 9y ago

I know, poor guy has to scrape by on only $700 million.

WJW 9y ago

For the US maybe. Income tax in the Netherlands (my country) in the top bracket is 52%. On the second hand, we have no capital gains tax so he might come out ahead when exercising options. On the third hand, we have a wealth tax of 1.2% on your entire capital above a certain floor (of about 20k) so he might not come out ahead in the end. It's always interesting to see the opinions of different cultures about how much tax is reasonable :)

omginternets 9y ago
>It's always interesting to see the opinions of different cultures about how much tax is reasonable :) I think you're missing his point. The raw percentage isn't as unreasonable as the difference between the parent-poster's and Musk's tax rate.
MicroBerto 9y ago
> It's always interesting to see the opinions of different cultures about how much tax is reasonable :) Realize none of these numbers include the local, county, state, sales, and property taxes he pays. At some point, theft becomes a more suitable word for it.
- ska 9y ago
  At some point, theft becomes a more suitable word for it. No, because confounding usefully distinct concepts makes them less useful.
  - MicroBerto 9y ago
    If Taxation at 100% is slavery, at what percentage is it not?
    - ska 9y ago
      You answered yourself - slavery is not taxation, full stop. Fiddling about with numbers after a false premise is not going to lead you to truth.

ww520 9y ago

44% tax rate is not too bad. Note that people with lots of money got their money by leveraging the system. A well run system is not cheap. The court system, the legal system, law enforcement, the education system, welfare, defense, etc all cost money. The higher percentage tax is only fair to pay back to the system that generates the big gain.

taketaketake 9y ago
Asserting your right to the fruits of another person's success is super easy! Why bother providing anything but the assertion, I say. And apparently you as well.
frgtpsswrdlame 9y ago
Especially if you take into consideration how much Musk has personally benefitted from a well funded government. >Tesla Motors Inc., SolarCity Corp. and Space Exploration Technologies Corp., known as SpaceX, together have benefited from an estimated $4.9 billion in government support, according to data compiled by The Times. http://www.latimes.com/business/la-fi-hy-musk-subsidies-20150531-story.html http://www.latimes.com/business/la-fi-hy-musk-subsidies-2015...
- abalone 9y ago
  And that's just direct subsidies! Don't forget that rockets, autonomous driving[1] and solar power[2] were developed by the government. [1] https://en.wikipedia.org/wiki/DARPA_Grand_Challenge https://en.wikipedia.org/wiki/DARPA_Grand_Challenge [2] https://en.wikipedia.org/wiki/National_Renewable_Energy_Laboratory https://en.wikipedia.org/wiki/National_Renewable_Energy_Labo...
- mason240 9y ago
  The idea that he personally used $593M, much less $4.9B worth of government services in 2016 is pretty silly. He is far from being the sole owner of those companies.
  - csallen 9y ago

accountyaccount 9y ago

I don't think there's anything harsh about living off of hundreds of millions of dollars of income after taxes.

jedberg 9y ago

He lives in California. 9% of that was to the state.

824ueirwfjd 9y ago
13.3% actually... this is why I don't understand why anyone starts a company in California when you can go to other states like WA that have no income tax
- snowpanda 9y ago
  And yet the roads in WA are still better than most of CA.
  - seattle_spring 9y ago
    That's a pretty big stretch. Roads in WA are awful.
  - dmode 9y ago
    Ha ? CA has much better roads than WA outside of Bay Area. Also, if you look at the average tax burden it will come out to be the same. CA has very little property tax for commercial property for example and has lower alcohol and cigarette taxes. There are probably a few other areas where taxes in CA are lower than WA
- jedberg 9y ago
  Good point, he was subject to the extra wealth tax.
- jedberg 9y ago
  As someone who just started a company in California, I can tell you why I did it. The main reason is because I already live here. My family lives here, as it has for the last three generations. I like the fact that I get great weather year round, that I live amongst a diverse group of people, and can get just about any kind of food I want very close by. I like that my child will go to school with people of all colors and religions and beliefs. And my cost of living is lower in the sense that I don't have to pay a ton of money for heating in the winter and cooling in the summer, nor for a bunch of clothes I can only wear 1/2 the year. As for the business, yeah, it's not great, I'll admit that. I don't like paying extra corporate taxes for no apparent reason (I'm incorporated in Delaware, why am I paying CA tax?). And I may not even hire here, since I'm fully remote and hiring in other states is viable for me. But if I were going to open an office and hire local, I would most definitely do it here in California, where a lot of the talent live and a lot of the people I would want to hire who like the same things I do.

njharman 9y ago

Not that long ago we had 90% tax rate (70% effective) in USA. It's been plummeting since WWII https://en.wikipedia.org/wiki/Taxation_history_of_the_United_States#Tax_rate_reductions https://en.wikipedia.org/wiki/Taxation_history_of_the_United...

loeg 9y ago
That was a nominal but not realistic rate for the very wealthy / high income. IIRC, dividends were not taxed at that rate. More info from this commentor: https://news.ycombinator.com/item?id=14168781 https://news.ycombinator.com/item?id=14168781
- njharman 9y ago
  70% effective as I wrote. Today's top rates are no different, in that people including corporate artifcial ones don't pay it.

loeg 9y ago

Top Fed capital gains rate of 20% + NIIT (3.8%) + California (13.3% top rate) — where does the other 6-7% come from? FICA?

abalone 9y ago

Worth noting: the gain on those share from here on out will be taxed at the capital gains rate, assuming he holds onto them for a year. In California I think that tops out at 33.3%. Also, in the mid 20th century (a very high growth time for the US) personal income tax topped out around 90%. "Harsh" is definitely a matter of perspective.

pmoriarty 9y ago

The United States used to have over a 90% income tax, and many other countries even now have much higher tax rates than the current US rate. 44% is not harsh at all.