Too Much?
By Patrick F. Cannon
In what has now become a constant refrain, CBS Sunday Morning last Sunday had a piece on the income gap. They trotted out the usual figures on how much of the world’s wealth was held by the top one percent as opposed to the bottom 50 percent. As we all know, the gap is real, real big.
I have long been on record as believing that the highest earners among us should pay more in income taxes. The current top rate is 37 percent. I believe it should rise in increments to as high as 50 percent. Alas, with the current political situation, this is unlikely to happen.
But most people don’t understand the difference between net worth and income. Because the information is confidential, we don’t know what Elon Musk’s actual taxable income was last year. We do know that he’s the world’s richest man. At one point last year, he was reportedly worth $300 billion. Some people seem to think – and the media supports this view – that all that dough is in Elon’s grubby hands. In fact, most of his fortune is tied to the stock price of Tesla, which has a market value (as of Monday) of $944 billion.
Instead of being worth $300 billion, as of January 22 the poor guy was worth only $244 billion. You see, his wealth is actually tied to the worth of Tesla stock, which has declined in the short term. As it goes up and down at the whim of the markets, so will Musk’s net worth. Somebody – was it that font of good ideas, Elizabeth Warren? – came up with idea of taxing net worth, in addition to income. But what if the market crashes after the tax is paid? Does the government give it all back? Or does the poor tax payer have to start selling apples?
The Tesla stock price is based on some formula of fantasy vs. reality. While it fluctuates from day to day, Tesla’s market capitalization (total value of its stock) was (on Monday) about $950 billion. Late last year, it had actually reached a trillion! Estimated sales last year were $52.5 billion, with a profit of roughly $7 billion. Now, with a market cap of $78 billion, General Motors had sales of $127 billion, with profits estimated to be about $13 billion. If you do the math, you’ll see that Tesla had a better profit margin, but is it really worth more than 10 times what GM is?
If I were a betting man, I would wager that Tesla’s stock price may well come back to earth in the years to come. With the exception of some lame competitors, whose batteries gave them only a fraction of Tesla’s range, up until recently they had a virtual monopoly in the practical electric car market. No more. The big legacy automakers have entered the fray in a big way. What will Tesla look like when faced with competition from Mercedes, GM, Toyota and Ford? All of them (and more) are making massive investments in electric vehicle technology.
Back to the point – there is often a significant difference between stock-based wealth and income. Instead of heaping abuse on Musk, Bezos and Gates, maybe we should complain about overpaid sports figures and corporate nabobs. As an (admittedly minor) stockholder, I think that many corporate executives are compensated far beyond their actual value to the company. One of the reasons for this is boards of directors made up of – you guessed it – corporate executives from other, non-competing, companies. It’s a “I’ll take care of you if you take care of me” mentality.
By the way, in what has become a cliché, CBS couldn’t resist illustrating its story with a shot of mega yachts riding at anchor in some exotic port. Are they a vulgar display of wealth? Indeed they are (see last week’s article). On the other hand, they provided jobs to the people who built and now man them. And perhaps to a lesser extent, the folks who make the skimpy bikinis that are such a feature of their topside decoration.
Copyright 2022, Patrick F. Cannon
cannonnadedotcom 
Nice boats. I bet there are Ferraris that go with them.
I have no problem with people having vast wealth, provided they or their families built it through private enterprise. I don’t care if they spend it on caviar and truffle sandwiches, gold plated toilets or Kentucky race horses. It’s their money. A proponent of the flat tax, I don’t even think they should pay a higher percentage of their incomes in taxes. They already are paying more than people like me. Musk and the others are rich because they’ve created products valued by society, for better or worse. I would make an exception for Zuckerberg because Facebook is a menace and I don’t like him. But otherwise, why the need to seek retribution on them just because they’ve been successful?
Sports people are entertainers. Their time in the center court spotlight is fleeting. Let them enjoy it while they can.
Warren, she of the Puritanical cheekbones and attitude, wants to tax wealth as a way of getting more tax money for programs she thinks will get her more votes and keep her in the Senate. Pelosi, who likely owns one of those yachts and a private jet to go with it, preaches Marxism and caring as a means of avoiding criticism of her filthy lucre. Biden, who never did an honest day’s work in his life, owns luxury properties and has a few million stashed away, apparently from deals on books he didn’t write, over-priced speaking engagements and generous benefactors in Ukraine and China. He should be taxed double for all the screwups he’s inflicting on American society.
The reporters at CBS and elsewhere are tormented by envy. They think they are better educated and smarter than those stupid, rich people and should be living in villas in the Hamptons instead of some cramped, grubby apartment on Manhattan’s lower East side. Didn’t Tom Wolfe do a story about them?
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Envy is a powerful force!
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Envy, pride, lust, wrath, gluttony, greed and sloth make the world go ‘round (okay maybe not sloth!).
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And, of course, are the source of all great literature!
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Taxing net worth is a horrible idea but think that actual spendable annual income should be taxed more than 37% in excess of over a million or two. I have no problem with athletes and entertainers being paid a lot because a great percentage of them have very short earning lives. I don’t want professional players paid less so that team owners make more; the owners are very well compensated.
The excessive pay of CEO’s and other corporate executives is obscene. Their pay should be tied to their corporation’s profitability.
Agreed that shrewd inventing, investing, or providing a good service or product should be well compensated ie; Warren Buffet or Jeff Bezos but they should not have loopholes or be allowed offshore investments that mean they pay very little income tax. Warren Buffet’s statement that he pays less income tax than his secretary is illustrative of the need for reform of our tax laws. I don’t know enough about flat tax to be pro or con but it sounds like a subject that should be explained and explored.
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You make a good point about team owners. Unfortunately, the whole system is rigged against the average fan, who can’t afford to take the family to the old ballpark (or stadium).
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I read yesterday that football players are unhappy about playing the Super Bowl in California as they will be subjected to that state’s income tax in contrast with Florida which has none. From yesterday’s WSJ:
The Super Bowl of Taxation
Whichever teams meet in Super Bowl LVI next month at Inglewood, Calif.’s SoFi Stadium, players may be wondering why the big game couldn’t have been played again in Florida. Wolters Kluwer Tax & Accounting notes in a press release today:
The typical player in the Super Bowl can owe state income taxes not only to the state where the Super Bowl is played. This year, this means they will owe state income taxes in California, which is a relatively high tax state, and also to the state of residence of the teams playing (this year’s remaining possibilities, prior to the AFC and NFC championship games, are from California, Missouri, and Ohio). In addition, state income taxes will be owed in the player’s state of domicile and to many other states in which the player has played a game that year, if the state has an income tax as all except nine do…
After two years of playing the Super Bowl in Florida, a state without an income tax, Super Bowl LVI is being played in California, which requires withholding from athletes based on “duty days” in the state. California also has a withholding requirement for performance bonuses, which would apply to any players who have contracts with bonuses for making it to or winning the Super Bowl. California also requires withholding on any endorsement income of the players or coaches associated with the state. California has the highest top marginal individual income tax rate in the country at 13.3 percent for those earning over $1 million…
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Open up that Golden Gate, the taxes here they come! They should make Goodell an honorary citizen.
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