Elon Musk has seemingly embraced the idea of serving in a potential Trump administration. If he did, however, take a cabinet position—or run his proposed “Department of Government Efficiency”—it would pose massive conflicts of interest given that he runs large companies like SpaceX and Tesla that benefit from federal contracts.
That could end up being a good deal for the world’s richest man. If Musk is forced to sell his financial interests in his companies, he could receive a tax break worth billions of dollars.
To get an idea of the size of Musk's fortune—and the tax savings at stake—it's worth noting that his net worth grew to roughly $270 billion this week after Tesla’s stock surged on Q3 earnings. His shares in the EV maker account for about three-quarters of his wealth, while his stake in SpaceX is worth tens of billions. While the value of his social media platform X has plummeted since his $44 billion takeover, Musk's equity in the company is worth billions as well.
Typically, running those companies while also taking a senior government role would not be an option. After all, the New York Times found Tesla and SpaceX alone accounted for at least $15.4 billion in government contracts over the past decade. Meanwhile, Musk’s two biggest companies, as well as X and his brain science firm Neuralink, have been subject to a combined 20 investigations or reviews by government agencies.
Musk could be forced sell his positions in at least some of those companies if he takes a role in Washington. If did so, he would likely benefit from Section 1043 of America’s tax code, which would allow him to defer all capital gains taxes on such divestment, as noted in a recent report from investigative newsroom The Lever. In other words, if Musk joins a second Trump administration, he could receive a tax break worth tens of billions of dollars.
When the proceeds from such divestment are put in say, a mutual fund, the taxes are technically deferred until the new assets are sold. If they are never sold, however, that deferral effectively becomes permanent.
A request for comment directed at Musk, sent to Tesla, SpaceX, and Neuralink, was not immediately returned.
Former Goldman Sachs CEO’s tax deferral pales in comparison
Musk would not be the first high-profile business leader to make use of the provision, which was instituted in 1992 to avoid deterring wealthy individuals from taking government posts. When Henry Paulson left his job as CEO and chairman of Goldman Sachs to become treasury secretary under George W. Bush in 2006, his divested holdings were reportedly worth nearly $500 million. If Jamie Dimon took the same role, the JPMorgan Chase chief executive would likely have the same opportunity.
To benefit from the provision, Musk would need to receive approval from the U.S. Office of Government Ethics. The Senate has not yet confirmed President’s Biden’s nominee to head the government watchdog, meaning a Trump appointee could possibly make such a decision.
Trump could also grant Musk a waiver exempting him from the need to divest in the first place. That would render the tax provision a moot point, though it would potentially leave egregious conflicts of interest unaddressed.
Correction, October 25, 2024: A previous version of this article misstated that the report from The Lever had been published by another outlet. That outlet had republished the original piece.
