Friday, June 10 2022
(Photograph by Kevin Dietsch/Getty Images.)

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

The data point is from a 2021 ProPublica article that leaked the tax information of some of America’s wealthiest citizens.

As the ProPublica notes the article, much of the wealth of billionaires comes from the value of their assets, such as stocks or property, not cash on hand. When these assets increase in value, the wealth of the owner also increases. However, this does not correspond to real money until the assets are sold. Once a property is sold, the money received is considered taxable income.

Under current tax law, taxpayers only pay tax on income earned in a year, not on increases in the value of assets. ProPublicahowever, “compared how much tax the 25 richest Americans paid each year to how much Forbes felt that their wealth had increased over the same period.” (Emphasis added.)

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

ProPublica’s The “effective tax rate” may have some value in the ongoing debate over whether unrealized gains should be taxed, but Jayapal twisted the truth by comparing that number to the US household tax rate. median and middle. Jaypal noted that “the average working family pays an average tax rate of 13%”. This figure corresponds to analysis carried out by the Tax Foundation.

But these tax rates are calculated using the typical tax model as a percentage of gross income, not ProPublicaMusk’s “effective tax rate”, giving an apples and oranges comparison between Musk’s “effective tax rate” and the median and average US federal tax rate. The value of property, stocks, retirement accounts, and other assets for the median and average U.S. household should be included for an accurate comparison to the norm ProPublica creates.

Jayapal did not respond to a request for comment.

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