Serve Your Country? Pay No Tax
Elon Musk adds a new wrinkle to one of America's most powerful tax provisions
With the election over and a new presidential administration taking over in January, many people will be jockeying for a high-profile role. Certain ultra-wealthy Americans are making their final pitch to join Team Trump as a Cabinet member or senior official1.
Why do the ultra-wealthy want to join the government? Is it for love of country? Is it for power? Is it to steer policy to help their own private interests? The answer is probably varying levels of yes to all of these.
If power isn’t enough, joining the government in a high-ranking position provides one of the biggest tax breaks in America.
It would be a problem if you worked for the President and owned a bunch of stock in a single company. Your judgment might be impaired if you could easily affect policy decisions that would affect the company in which you hold a bunch of stock2.
These senior officials are allowed to sell their company stock, with the proceeds going into treasuries or certain money market funds. The capital gains tax on selling the stock, which can sometimes be quite substantial, is deferred until the treasuries are sold (important note: they never have to be sold).
A 2016 article in the New York Times highlighted this strategy for several of Trump’s previous senior officials, including Rex Tillerson and Gary Cohn. Tillerson owned ~$167 million of Exxon Mobil shares. Cohn owned ~$245 million of Goldman Sachs shares. They could have sold their shares and deferred capital gains tax of roughly $33 million and $50 million respectively. And if they never sold out of the treasuries they would have invested in, they would never owe tax on the gains upon death. If you had to choose between keeping $50 million or paying $50 million to the government, which option would you pick?
The Post Election Investing Ideas podcast from The Compound on 11/6/24 discussed this strategy starting around minute 41. Josh Brown, who worked the CNBC 2024 election night special, saw Gary Cohn at the New York Stock Exchange that evening. He confirmed that Gary Cohn was able to dump his Goldman stock tax-free back in 2016 and was quite pleased about it. Thank you for your service, Gary!
In 2024, this tax provision is going to come up in the news again. As Josh Brown notes right after his story about Cohn, it is very possible Elon Musk gets appointed in the Trump administration. I don’t know what his title will be. Tsar of the Department of Governmental Efficiency? Federal Employee Executioner? Whatever, it doesn’t matter. But you better believe Musk will have access to this tax provision.
How would it work if Elon Musk, who owns something like $172 billion of Tesla stock, sells? The stock market barely notices if someone liquidates between $100 and $200 million of a large stock. But $172 billion?
Surely, as Josh Brown points out, Musk won’t want to sell it all3. Musk has proven that he can pick and choose which rules to follow and which to not follow and get away with it. Selling his entire Tesla holding to avoid “conflicts of interest” seems like a rule Musk will not follow. Who would tell him no? He’ll try to keep it all or maybe half of it, while being in Trump’s ear pushing his agenda. Musk keeping his shares as an appointed official would signal to others to do the same. It would be open season for a Soviet-style oligarchy in America4.
The next time you hear of a business titan who wants to become treasury secretary or secretary of state to serve their country, just know that in addition to seeking power, there is also an extremely attractive tax incentive to do so. So how much of it is “serving your country” versus preserving as much of your wealth as you can? Will that question even matter anymore if Elon keeps his shares?
What do you think?
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Every position has definitely been promised to four different people by now, so don’t stop boot-licking if you really want it.
How about if the President himself didn’t give up his private interests? Oh wait, that happened already between 2016 and 2020. Oops!
Potentially saving billions of $ in taxes and earning ~$7 billion in treasury interest every year from selling shares sounds like the best scenario imaginable. Musk is probably not interested in that, and he might be the ONLY person alive who would say that. Not a great deal for him if he wants to be a trillionaire and get to Mars. I can respect the ambition!
Again, the current President-elect has already opened that can of worms during his first go around.