Fact Check: Is Elon Musk’s Tax Rate Only 3 Percent?

A congresswoman cites a misleading figure.

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Democratic Rep. Pramila Jayapal claimed in a recent tweet that billionaire Elon Musk paid an effective tax rate of only 3.27 percent from 2014 to 2018.

The data point comes from a 2021 ProPublica article that divulged tax information of some of America’s wealthiest citizens. 

As the ProPublica article notes, much of billionaires’ wealth is derived from the value of their assets, such as stocks or property, not cash on hand. When those assets increase in value, so does the wealth of the owner. This does not correlate into actual money, however, until the assets are sold. Once an asset is sold, the money received qualifies as taxable income. 

Under current tax law, taxpayers pay taxes only on the income derived in a year, not increases in the value of assets. ProPublica, however, “compared how much in taxes the 25 richest Americans paid each year to how much Forbes estimated their wealth grew in that same time period.” (Emphasis added.) 

In other words, ProPublica used a definition of taxable income that is not the same as  that used by the U.S. government. According to the data obtained by ProPublica, Musk reported $1.52 billion in income from 2014 to 2018, during which time he paid $455 million in taxes, a tax rate of 30 percent. The value of his assets during that time increased by $13.9 billion, and using this instead of Musk’s $1.52 billion in income led ProPublica to calculate a “true tax rate” of 3.27 percent.

ProPublica’s “true tax rate” may have some value in the ongoing debate over whether unrealized gains should be taxed, but Jayapal distorted the truth  by comparing that figure  to the tax rate of the average American household. Jaypal noted that the “average working family pays an average tax rate of 13%.” This number aligns with analysis performed by the Tax Foundation. 

But those tax rates are calculated using the typical model of taxes as a percent of gross income, not ProPublica’s “true tax rate,” giving an apples and oranges comparison between Musk’s “true tax rate” and the average American’s federal income tax rate. The value of property, stocks, retirement accounts, and other assets for the average American household would have to be included to get an accurate comparison by the standard ProPublica creates.

Jayapal did not respond to a request for comment.

If you have a claim you would like to see us fact check, please send us an email at factcheck@thedispatch.com. If you would like to suggest a correction to this piece or any other Dispatch article, please email corrections@thedispatch.com.

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  1. Deleted Comment

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  2. Brilliantly Oblivious

    There should be a discussion about margin loans and whether they should be taxed. The tax on the loan could be added to the basis of shares securing the loan. That way we derive some tax on unrealized gains but only when there is actual cash involved.

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  3. Avatar photo
    Saied

    Wealth tax, unrealized gains tax and all other non cash based taxes on individuals are proposed only by demagogues, unserious, or stupid people. We must call them what they are.

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  4. Vermin8

    Remember just a few weeks ago when Musk was in negotiations regarding the purchase of Twitter and he had to come up with the cash? There was a statement issued saying that he didn't want to sell a bunch of stock and make the stock price go down. There was also capital gains which would have increased the number of stocks sold to ensure he had the cash for the amount needed.
    My point is that one's net value based on assets is just an estimate and is really quite meaningless. Just ask anyone who bought a house in 2005-07 and tried to sell it circa 2009-10.

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  5. AndrewC

    I don’t know how I feel about taxing stocks or no. On the one hand, I get why we don’t; it’s not cash in hand and the value can change up or down until it’s sold, where it is then taxed. On the other hand, I’m taxed on my home every year based on its value (locally) which is also an asset I won’t directly profit off of unless I sell it. I also don’t get a tax write off if I sell my home at a loss. I don’t know, I’m torn on this. I’d love to hear a deep dive on the topic.

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    1. Vermin8

      The property tax is different than the wealth tax, though, although they would both be based on market value (approximately, I've seen counties play with the assessment rate to avoid raising the property tax rate).
      The purpose of the property tax is to provide for goods and services (allegedly) used by the owner and/or resident of the property.
      Other assets such as stocks and bonds don't require services so taxing the value is just a money grab. You can tell by my statement that I don't support a wealth tax :)
      And here is something to consider - if we tax equity increase every year then we'd probably have to issue refunds on the loss when the market is on the downslide. I'm picturing a major recession, much of the middle class is out of work, and the federal government is handing out huge checks to the wealthy. I don't think that will go over well but neither will taxing wealth when it's up and expecting the stock or bond holder to eat the decrease when it's down.

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      1. AndrewC

        Appreciate the response thank you

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  6. Avatar photo
    The Bell Tower

    I’d love to see ROI figures on government outlays. Government doesn’t have an income problem, it has an expense problem.

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  7. Avatar photo
    Tom B.

    > The value of property, stocks, retirement accounts, and other assets for the median and average American household would have to be included to get an accurate comparison by the standard ProPublica creates.

    From ProPublica's report, the median American household earned $70k and paid 14% annually (around $9.8k) of that in federal taxes. Using data from the same report, the median American household gained around $7.5k in wealth annually from 2006-2018 (mostly of it in the value of their homes).

    Adding that into their annual income brings it to their effective tax rate to around 13%, right in line with Jayapal's numbers, assuming you trust ProPublica's numbers.

    Are we sure that Jayapal's figure is misleading?

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    1. Robert Robison

      But the main point at issue isn’t what the median taxpayer’s rate is, it’s what Elon Musk’s tax rate is. The misleading part is claiming that Musk’s “true” tax rate is 3 point something percent.

      That would only be true in we accept in advance that paper wealth should be taxed every year, regardless of whether those theoretical gains are realized.

      So, yes, her figure is misleading.

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