Chief Executive Officers in the U.S. can’t win. First the political class thought they were paid too much in salary, at which point compensation shifted to stock. The idea behind the shift was to align CEOs with shareholders more. The alleged problem was that CEOs succeeded too much on the way to even larger pay packages. Most would celebrate this kind of achievement. Politicians disdain it all the while helping themselves to the proceeds of what they claim to disdain.
In Elon Musk’s case, Tesla’s CEO doesn’t take a salary. All his pay comes in Tesla shares. While enriching his shareholders Musk has become arguably the world’s richest man. "No fair" say politicians. Get ready for him to be hauled before Congress to “explain” himself. Until then, Musk owes a lot in taxes for having had the temerity to do well. The bill varies with report, but supposedly it’s in the $9 to $15 billion range.
Whatever the number, let’s be clear up front that it eviscerates the popular notion on the Left that corporations pay no taxes. As this column made plain several weeks ago, as taxpaying entities corporations are a fiction. Shareholders pay all the taxes. Musk is a large Tesla shareholder. He’s about to hand over billions to Treasury. The owners of corporations pay gargantuan amounts in taxes.
After which, let’s assume for the sake of simplicity and brevity that Musk’s federal bill is $15 billion. From there, let’s go over the economy-sapping economics of Musk sending billions to Treasury. To vivify this it’s useful to reference Nike co-founder Phil Knight’s brilliant 2017 memoir, Shoe Dog. In it, he recalled how “Any dollar that wasn’t nailed down I was plowing directly back into the business.” Every huge, globally prominent business operating today can claim humble origins like those of Nike. Money is endlessly scarce. Please remember this. The $15 billion that members of Congress will carelessly waste would be precious to CEOs for whom every day is a near-death experience in a financial sense.
At which point it’s useful to consider Facebook. Peter Thiel famously purchased a 10% stake in the once nascent social networking company for $500,000. This is the norm. Rarely are the amazing businesses of tomorrow amazing today. Precisely because they aim to disrupt the commercial present, they’re often dismissed. That 10% of Facebook could once be had so cheaply vivifies this truth. Let’s now divide $15 billion by $500,000. If not for Treasury’s long fingers, Musk could direct precious capital to tens of thousands of entrepreneurs eager to experiment with an eye on rushing a much better future into the present. Never asked by self-righteous politicians and thoroughly confused economists (who believe government spending boosts growth) is what businesses are not being funded so that Congress can spend carelessly.
Needless to say, the $15 billion will be spent. Politicians exist to spend. Which means $15 billion that might otherwise have been directed to energetic entrepreneurs will be allocated in politicized fashion. In other words, Musk’s staggering tax bill will enhance the control that Elizabeth Warren, Josh Hawley, Kevin McCarthy, and Nancy Pelosi have over the economy. And it doesn’t stop there.
A dollar spent today by Congress multiplies over time as a consequence of federal spending programs developing political constituencies. Don’t you know, federal spending “creates jobs.” Which means Musk’s billions will set the stage for the introduction of new forms of federal waste that will grow and grow. Don’t worry, the story gets even worse.
Every dollar Treasury collects renders that same Treasury an even better credit risk to global investors. You see, there’s this myth promoted by Left and Right that we have federal “deficits” because Treasury doesn’t collect enough (Left), or because Congress spends more than Treasury collects (Right). No, we have deficits because Treasury takes in enormous tax revenue now, and is expected to collect much greater amounts down the line. Borrowers that can claim enormous revenues now and in the future can borrow easily. In short, Musk’s billions will enable even more borrowing by Treasury; the borrowing an extraction of precious resources from the private sector that will enhance the power that Warren, Hawley et al enjoy over the economy.
Stating what should be obvious, Musk’s remarkable genius will enable substantial growth of political control over the economy, and at the expense of both existing businesses and ones that are merely visions of forward-looking entrepreneurs. The economic growth that won’t happen, the experiments that would otherwise enable little and big leaps in transportation, communication, and health that won’t happen will be unseen. But real they will be. Think Facebook. Think Nike. In the early days for innovative ideas, money is once again precious.
Which brings us to the final tragedy of Musk’s tax bill. Why is it that a government that produces nothing but costs a lot must always enjoy windfalls when the productive oversee great commercial advance? This is a question worth asking, and that will hopefully be asked as Elon Musk is shamefully relieved of $15 billion by politicians obnoxiously promising to make you better off with the money of those who actually do.
