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California is actively looking for ways to extract more money from Elon. It likely posed an appreciable risk to his business ventures that CA at some point wil

• bob33212 6y ago
  It would be interesting to know how Larry Ellison is handling that risk. If CA was to go down that path he seems like an obvious target.
• nickthemagicman 6y ago
  What are unrecognized capital gains?
  • epa 6y ago
    Stock that has gone up in value for which you have not yet sold.
  • ls612 6y ago
    He means unrealized capital gains, those are gains on stock you have bought and are holding, but have not sold yet.
    • zaroth 6y ago
      Apologies for the typo, and thank you for the correction!
  • jcampbell1 6y ago
    Let’s say you are a painter, and you paint 20 pictures and sell 10 for 100,000 each. You pay taxes on the 1m you receive. The other 10 painting are sitting in a storage unit. Then at some point in the future someone, one of you previous customers sells their painting in a private sale for 10M. They pay capital gains on $9.9m. Now you as the painter hypothetically have $100M worth of in paintings in your storage unit. Traditionally this net worth is considered unrealized capital gains and is untaxed. It will be taxed when sold. Replace paintings with ownership of a company (equity) and you should get the idea.
    • pjettter 6y ago
      This is how it works (or at least used to work) in The Netherlands. If you receive Stock options, you pay taxes over the gains, i.e. the money you would have made if you exercised on that date. Even if you have not exercised. So the options were free, but suddenly you have to find a lot of money to keep them. Or you exercise a part of them.
      • apta 6y ago
        Sounds like a terrible system.
    • beerandt 6y ago
      Put another way, it's taxing money (value) that you haven't actually made yet.
      • ISL 6y ago
        More-dangerously, it is taxing theoretical money that you haven't yet made. There is no guarantee that the current market-clearing price for a given object is equivalent to that at which a larger inventory can be sold. Taxing capital gains at the time of sale makes sense -- there is actual revenue available for taxation. Taxing unrealized gains can be a path to really-negative outcomes. This is particularly so if the government doesn't give matching credits for unrealized capital losses.
        • jcampbell1 6y ago
          There are some loopholes that should be closed however. You can go to a bank and borrow against your shares, using them as an asset without realizing capital gains. In my mind, if you use the shares (gains) as collateral for your benefit, you should have to recognize the capital gains as mark-to-market immediately payable.
          • ISL 6y ago
            Presumably the bank won't accept them as collateral for more than can be realized at the time of sale? I'm no expert, but I would guess that, if shares are foreclosed upon, the bank's basis is zero (and their taxation short-term)? (Edit: the downside here is that the government doesn't see any revenue from this approach, which it might otherwise. The shareholder must pay interest, though, which might not be to their advantage.)
  • aantix 6y ago
    Imagine the house you live in is worth $250,000. And imagine paying "asset" taxes on that $250,000 home even though you still live there.
    • kec 6y ago
      isn't that literally what property taxes are?
    • RobRivera 6y ago
      Thats...not unrealized cap gains tax, at all. That's property taxes and is a real thing to home owners. My tax bill grows every year bc my home gets assessed at higher values
    • nickthemagicman 6y ago
      But but does the gov't pay you if the house price goes down?
  • RobRivera 6y ago
    Forget metaphors, here's a real example. You have stock in amzn, say you buy at 3200 a share. A year from now it's 4k a share. 800$ capital gains...you get taxed on that. It is a terrible tax law bc it is unrealized. What happens when you get taxes on that 800$, then the share drops down to 3300, you sell at 3300, making a REAL profit of 100$? Do you feel fairly taxes at 800$ profit despit having only 100$ profit?
• cma 6y ago
  How much in subsidies did he get from California?
  • dimitrios1 6y ago
    Nothing in comparison to what states offered. Giving businesses subsidies to attract more employers isn't anything unique to California.
    • cma 6y ago
      He got something like $180 million from California for the faked/minimal battery swap effort alone. Basically $180 million to make this commercial and a couple scrapped demo stations: https://www.youtube.com/watch?v=H5V0vL3nnHY https://www.youtube.com/watch?v=H5V0vL3nnHY
      • atomi 6y ago
        HN is not immune to political biases especially when it comes to taxes. Nobody likes taxes and if you can either avoid them or recoup them through subsidies it makes you "smart."
        • southeastern 6y ago
          You make it sound like they don't argue their hardest that it's destructive to the economy, and not that they just don't like it. Yes HN is susceptible bias and no that's not okay. This idea that we just have to be relegated to accepting bad ideas cuz everyone wants to do it is.. dangerous.
    • itsoktocry 6y ago
      >Nothing in comparison to what states offered. For the factories, maybe. What about the rebate to car purchasers for many years, making California Tesla's biggest market? That is substantial.
      • 6y ago
• sidlls 6y ago
  It likely posed an appreciable risk to his business ventures that CA at some point will try to tax unrecognized capital gains, People like Musk leverage their paper wealth into real (risky) loans and the like to support their business ventures (and personal lives)--part of the "socialize risk, privatize profits" model of pseudo-capitalism they practice. A thoughtless approach to taxing unrecognized gains is not a good idea, but I certainly understand why it might be considered, at least for some minimum threshold. There's already something like this in the way some stock options are handled: individuals are taxed at exercise on the difference between the FMV and the strike price, whether they sell or not. I don't see why a similar principal couldn't be made to work with actual equities, at least for some high-value accounts/holdings.
  • gradys 6y ago
    Why does taking private loans against his private assets count as socializing risk? The banks he gets these loans from understand the risk and do not represent "society".
    • InitialLastName 6y ago
      As we've seen, when banks' habits of making bad loans catch up with them they tend to get bailed out by the federal government.
      • gradys 6y ago
        If you mean 2008, yeah, you're right, but those were mostly loans to relatively low income people buying homes, not loans against billionaires' unrealized capital gains.
        • sidlls 6y ago
          Those were mostly covering obligations in the huge CDS market that grew up around bad loans, not the loans themselves.
  • elindbe2 6y ago
• busterarm 6y ago
  Or, framed differently, California is looking for deep pockets to bail out their failing budget rather than adjust their policy to match what they can afford. The same has been happening in New Jersey with its insane taxes that don't really go to pay for services anymore and have diverted from transportation & infrastructure projects for decades now to bail out their severely underfunded pension funds...where the pensioners have almost entirely moved out of New Jersey to avoid the same taxes. There's a point where what you get out is not worth what you put in. I don't blame Musk at all for doing what's best for himself, his company and (probably) his employees.
  • apcragg 6y ago
    Failing budget? I get that it's super popular right-wing talking point but it just hasn't been true for years. Prior to COVID (which has decimated state budgets Red and Blue) California had a huge surplus and massive rainy-day fund.
    • busterarm 6y ago
      California has a $54B deficit this year. It's been all over the news, including very left-wing sources like NY Times and Politico. The state _projected_ a surplus and was off by an entire order of magnitude into the red. The state has been campaigning to Congress all year for about $14B in bailout money.
      • bosswipe 6y ago
        > very left-wing sources like NY Times and Politico. Those are not very left-wing sources. Edit: to the downvoters, this is objectively true. In actual leftist media NYT is considered conservative. The reality is that they are mostly mainstream.
        • chokeartist 6y ago
          > In actual leftist media NYT is considered conservative. The reality is that they are mostly mainstream. "Actual leftist"? Nice No true Scotsman you got there.
• TuringNYC 6y ago
  >> unrecognized capital gains Could you reference the law please? This sounds like the wealth tax which was raised but didn't pass committee. Is there a new proposition?
  • gnopgnip 6y ago
    AB-2088
• dglass 6y ago
  Where is the source that CA is likely to tax unrealized gains?
  • pokstad 6y ago
    I don’t know about this, but California law makers were discussing an asset tax at one point. The discussed law would have worked across state lines for up to 10 years to catch rich people who leave state lines. Just the discussion of such a law probably spooked the ultra rich. More details: https://weaver.com/blog/california-proposed-wealth-tax-impacts-beyond-states-border https://weaver.com/blog/california-proposed-wealth-tax-impac...
    • da_big_ghey 6y ago
      It's questionable whether such a law is actually enforceable, and I'd hope it wouldn't hold up in court. That said, I can't blame Musk et al. for being worried by it.
      • chucknthem 6y ago
        Being unenforceable doesn't stop a state from passing it (see AB5 recently with most industries getting exceptions). And once it passes, it posses serious business risk to operate in that state.
• Traster 6y ago
  >Basically akin to a hostile government takeover. Or, you know, taxes to pay for the government subsidies that have funded all of Musk's current business operations.
  • perryizgr8 6y ago
    Aren't those federal subsidies though?
    • nouveaux 6y ago
      California subsidized every Tesla sold. I'm not complaining about it but it should be on record that California helped to give Tesla a boost. It was definitely the right move. I can't think of another state in this country where Tesla would have thrived nearly as well as California. Do you think Tesla would have done well in Texas back in 2003? All those oil guzzlers would have laughed Elon Musk out of the state.
      • perryizgr8 6y ago
        I'm just asking. I didn't know Tesla was getting subsidies from CA on top of the federal stuff.
      • watwut 6y ago
        Maybe it is dumb to subsidize entrepreneurs without guarantee they will be paying taxes after.
        • deleted 6y ago
          [deleted]
        • tomjakubowski 6y ago
          Yeah, a bit of a free rider problem where California has now paid to bootstrap the US electric car industry, to the whole country's benefit, and won't get quite the tax payment rewards for their investment that they are due. Just lots of smug scorn from Elon and the commenters here.
• atomi 6y ago
  > CA at some point will try to tax unrecognized capital gains Where is the evidence for this? Effectively, Elon has avoided future California capital gains taxes by moving. Those are the facts of his move. Personally, I would rather pay a few points extra on capital gains and income taxes to avoid Texas. Just look at what the Texas AG is doing right now: https://www.dallasnews.com/news/politics/2020/12/08/texas-ag-paxton-challenges-election-result-in-four-key-battleground-states/ https://www.dallasnews.com/news/politics/2020/12/08/texas-ag...
  • misiti3780 6y ago
    Here is the thing though - it's not just a "few extra points". By my calculation its 13.3% more living in California in state income tax savings alone. That is a huge amount of money for Elon, but is also a huge amount of money for people working on a SV salary. It could be more than a mortgage payment. There are probably additional savings with less regulation etc California is not a state anyone should want to do business in in 2020.
    • ohazi 6y ago
      > for people working on a SV salary Most Californians don't get to keep their SV salary when they move to Texas.
      • misiti3780 6y ago
        What data are you basing that on - Austin is not cheap, and it's probably getting a lot more expensive now that everyone is moving there.
        • pchristensen 6y ago
          I looked at Austin a few years ago, and after seeing the salaries I could find vs the cost of housing for 5 in a highly rated school district, I didn't even apply anywhere.
          • 6y ago
• wolverine876 6y ago
  Many, many billionaires live, have lived, and thrive in CA - probably more than any place in the world. In fact, I'd guess that more billionaires have made their fortunes in CA than any other place. The grievance rhetoric has gone too far (and had awhile ago) when it's used by billionaires. There is also strong reactionary political rhetoric here, the premise that taxes on wealthy people are nearly criminal theft, and nobody would want to live someplace where they democratically invest in their community (i.e., pay taxes). There's also the economic assumption that taxes, whatever their current level, are always too high; AFAIK, taxes on wealthy people are at historic lows.
  • Voloskaya 6y ago
    I am speaking for myself here, but the way I see it, the issue is more the way in which taxation is exercised than the taxation itself. If I was in Elon's seat, I personally wouldn't mind paying 20 or 30% of my income in taxes. But vesting shares should not qualify as income. What should qualify as income is me selling those shares. In other words, If I am awarded 1B$ in shares that I have no plan on selling short term, I still have to liquidate 20-30% of those shares just to pay taxes, which may have a pretty high negative impact in term of voting rights. Why could the taxation not occur when I am selling instead?
    • nrmitchi 6y ago
      > But vesting shares should not qualify as income. What should qualify as income is me selling those shares I believe that the logic here is the same reason AMT was introduced in the past. I vest $1M in shares. I get a loan against those shares for 500k. I now have 500k in cash, that I have paid no taxes on. Someone will definitely give me that loan because _worst case_ I have to sell the underlying shares, pay tax, and still pay back the loan. When that loan is due? Refinance against the same shares that I still haven't sold. If you have a lot of assets, you can always get a loan against those assets. You can kick the can down the road long enough to, effectively, never pay taxes. Or you just kick it long enough for some sort of "tax holiday". Real estate lets you do this with refinances and 1031 exchanges all the way until you die (at which point the cost basis resets, and your heirs will most likely pay no tax).
• SV_BubbleTime 6y ago
  > If CA were to aggressively pursue such a policy, they would likely go after anyone they perceived as fleeing just ahead of it. Sure makes me want to run a business and be successful in CA.
• muskmelon_91 6y ago
  Its funny to see how effective the PR of Musk is! Tesla benefited the most from california's policies and budget. Now, as tesla scaled and succeeds California is the villain. Its easy to see that Musk is more worried about the Income tax. Please dont fall for the PR.
  • justanotherhn 6y ago
    You created your account 1 hour ago to make this comment?
• tomjakubowski 6y ago
  You know that CA subsidized Tesla to the tune of billions of dollars right?
  • missedthecue 6y ago
    And they would have done so if Musk went home to Texas every night from the start. What's the point you're making? It seems like the problem you have is with the folks in Sacramento, not Musk or anyone else.
• apex3stoker 6y ago
  I think SALT deduction is an overlooked factor. It is unlikely that CA taxes or will tax capital gain more than the amount taxed by federal government. Before the 2017 tax act from, CA residents could have unlimited deduction on their state tax. This means that Musk would pay the same amount of total taxes whether he lived in CA or Texas or almost anywhere in the US.