Part 2: The billionaire who earns nothing and borrows money to survive6 min readReading Time: 5 minutes
Head to part 1 of this story to learn about how Elon Musk got to be the richest man on this planet.
Elon Musk and his odd money situation.
First of all, how does the richest man on the planet earn nothing at all. If you just guessed that it has something to do with shares… Almost 300 billion dollars of shares…then you’re absolutely correct!
Well, you now know that Elon musk has 2,22,72,30,00,00,000 rupees or 300 billion dollars to his name, and you also know that in America people pay more and more tax to the government as they make more and more money. Yet, Elon Musk, the richest man on this planet, pays hardly any tax, and, in fact, in 2018 he paid no tax at all! And it was all completely legal.
Every earning member of society is required to pay income tax if they make enough money to be taxed in the first place. Not paying your taxes is an extremely serious offence, and you can even be sent to prison for it.
At this point, you’re probably wondering whether I’ve lost my clamouring mind. Well, no, even though Elon Musk is the richest man alive, he can get away with paying nothing in taxes at all, since, as he has often claimed, he makes no money throughout the year.
While Elon Musk’s stocks become more and more valuable as the year goes on, he takes no actual money from his company. So, unlike most people who work and take money for the service they provide, Elon Musk has chosen to give up that money. Instead, he lets all the money he is supposed to make, go towards growing the company.
So there you have it. Since Elon Musk takes no real income, he doesn’t have to pay any income tax. Thus, even though Elon Musk is the richest man on Earth, he has spent years where he owed the United States Government absolutely nothing.
At this point, things probably aren’t sitting right with you. First of all, shares are money. Why aren’t they considered a part of one’s income? And second of all, if Elon Musk takes no real money, how does he eat, sleep and generally fund his life?
Money but no money at all
Shares are not taxed or considered an income since they are only a promise of money and not the real thing. So, unless you sell those shares and exchange them for actual money, those very shares are simply a promise or concept. Moreover, by the time you decide to sell those shares for money, the business in which you own shares could do so terribly that your shares could be completely worthless, and no one would want to buy them from you.
And that is why the government only asks for taxes on the money that you actually have stored in your bank.
Can you get by on a mere promise?
Now, let’s take a look at how Elon Musk gets by with a simple promise of money.
If your friend were to promise you a bag of chips and yet you were to not take the chips, you wouldn’t have satisfied your hunger. Yet, Elon Musk is by no means hungry. And that’s because he simply transfers his promise further. To understand what he does, let’s revisit the bag of chips.
Imagine your friend owned hundreds of bags of chips and was only continuing to collect more and more bags. So, you would be pretty confident, that when you want the chips, they would be ready and available for you. But, what you really want is a bar of chocolate. So, what you can do is, go to your friend who collects bars of chocolate and ask them to give it to you with the promise of you returning it at a later date. When they would ask you why on Earth they should trust you, you can tell them its because your other friend who will most definitely always have a bag of chips has promised you a bag of chips, and if you were unable to return the bar of chocolate, they could always take the promised chips from your other friend.
However, instead of chips, Elon Musk is dealing with an unimaginable sum of money. If you’re like Elon Musk and you own a large share of the most valuable companies in the world, the chances are that your shares are only going to become more valuable and desirable as time goes on. And that chance is exactly what a man like Elon Musk banks on when he heads to the bank.
Can I borrow some money, please!
If you were to head to the bank and ask them to loan you some money, the bank would probably say no. And that’s because they have no reason to believe that you’ll be able to return the money, and their added charge later on. However, when Elon Musk asks the bank for far more money, they will most definitely say yes. Because Elon Musk can present his hordes of shares as evidence that he will most definitely pay them back. And if he doesn’t, they can simply claim a few of Elon Musk’s shares in some of the most valuable companies in the world.
So, that’s how Elon Musk, the richest man on the planet, gets by with no income and borrowed money.
And yet again, we’re back in the world of plain old taxes
So far, we know that Elon Musk owns almost 300 billion dollars in shares, has almost no income, and borrows money to survive. We also know that:
- The government does not ask for a percentage of the money you earn through shares, as it is more a promise of money than money itself.
- Elon Musk takes bank loans using his shares as a promise that he will one day return the money.
But will Elon Musk ever return the money, and if he does, where will he get that money from? Well, he can sell his shares. Then, Elon Musk can use the money he gets to pay back his loans.
However, since money that you use to pay back a loan cannot be taxed, (well, it would be pretty cruel to pay tax on the money you’re using to pay back the money that you didn’t have in the first place) Elon Musk can spend an entire year paying absolutely no tax at all.
The question, of course, is whether such a move should be considered smart or irresponsible?