Should Elon Musk Sell 10% of His Tesla Stock?

U.S. Senate Democrats have announced their plan to fund President Biden’s spending agenda. The plan would tax billionaires on their stocks and other tradeable assets. Taxes on these assets have long been tax-deferred which has allowed the richest people in the United States to avoid taxes indefinitely.

President Biden has proposed aggressive social development and climate change plans, both of which require significant funding. Biden’s climate change agenda has been the focus of much attention recently thanks to the 2021 United Nations Climate Change Conference (also known as COP26) which is currently being held in Glasgow, Scotland. At the conference, Biden reiterated that “climate change is already ravaging the world,” and recommitted to fighting the devastation. Biden’s platform during his presidential campaign and beyond has been for the U.S. to become a 100% clean energy economy and reach net-zero emissions no later than 2050.

But back to Musk…the world’s richest man has asked the Twitterverse whether or not he should offload some of his Tesla (NASDAQ:TSLA) stock in order to aggregate his impending tax bill. Musk committed to acting based on the will of the masses. With over 3.5 million votes, 58 percent of respondents replied in favor of Musk selling his stock, while 42 percent voted against. Analysts believe that regardless of the vote, Musk will likely opt to sell his stock due to the $15 billion tax bill that he faces on his current stock options.

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Elon Musk does not currently take a salary for the work he does as the CEO of Tesla, but he has profited significantly from the options he received, and the gains in the company’s stock price. In 2012, for example, Musk was awarded 22.8 million shares at a price of $6.24 per share. The company’s stock closed last week at just over $1,222 per share, putting Musk’s profit at around $28 billion. Musk’s options expire at the end of August 2022. However, in order to exercise these options, Musk will be required to pay income tax on the gains, in the top ordinary income tax levels. This would amount to 3 percent plus 3.8 percent net investment tax. Since most of the profit was earned when Musk was a resident of California, he will also be obliged to pay 13.3 percent top rate tax in the state of California. His total tax bill would be 54.1 percent, or $15 billion at the current stock price. Musk has since relocated to Texas, a state with no income tax.

As of June 30, 2021, Musk’s shareholding in Tesla sat at about 170.5 million shares. Selling these shares at the current price would give Musk approximately $21 billion in profit. Analysts believe that if Musk makes good on his promise to sell his stock (a move which would likely be done partially now and partially in early 2022), Tesla stock prices would drop modestly in the short term but would likely rebound quickly as buyers may be eager to purchase the stock at a ‘discount’.

Another option Musk has to pay his impending tax bill is to borrow against the stock to pay the bill. However, the billionaire has said that this is not his preferred option, as the stock price could go down.

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