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The first 250k in profits from capital gains are exempt. It is estimated that this tax only affects the 7000 richest individuals in Washington. Keep in mind w

by verst 5y ago

The first 250k in profits from capital gains are exempt. It is estimated that this tax only affects the 7000 richest individuals in Washington. Keep in mind we don't have any income taxes here.

giantg2 5y ago
"Keep in mind we don't have any income taxes here." That's not really what the supporters of this bill think. They claim an excise type tax already exists and that it provides precedent for this one since income taxes are unconstitutional.
- xxpor 5y ago
  Income taxes are not unconstitutional. Progressive income taxes are. No one wants to impose a flat income tax though.
  - giantg2 5y ago
    Thanks for bringing that up. It looks like local income taxes are not allowed under law and that any tax at the state level has to be flat. It seems the article may have misrepresented that with "Income taxes are unconstitutional in Washington state.". (Unless there's some obscure case law regarding flat income taxes)
  - AnimalMuppet 5y ago
    So, this is a tax on certain kinds of income rather than all income. And it exempts the first $250K, so it's a progressive tax. So...
    - giantg2 5y ago
      I wonder if the courts care though. The B&O tax applies at different rates for different business types. The class of property taxed should be gross business receipts, but it seemed the courts are ok with the rates varying by business type.
    - xxpor 5y ago
      I don't think that matters. The relevant text: "All taxes shall be uniform upon the same class of property within the territorial limits of the authority levying the tax and shall be levied and collected for public purposes only. The word "property" as used herein shall mean and include everything, whether tangible or intangible, subject to ownership." https://leg.wa.gov/CodeReviser/Pages/WAConstitution.aspx#AMENDMENT_7 https://leg.wa.gov/CodeReviser/Pages/WAConstitution.aspx#AME... The SCOWA has said income is property. But it's up in the air if capital gains is income, or property. I also don't think this would fail the test if it's considered a separate class though, since the rate is uniform with an exemption. My understanding is that model has been fine for a long time, and is how seniors can get discounts on property taxes or something.
      - giantg2 5y ago
        "The SCOWA has said income is property. But it's up in the air if capital gains is income, or property." How is that?
philwelch 5y ago
These taxes always start off only affecting the richest of the rich, until the government decides it needs more revenue.
- amanaplanacanal 5y ago
  “The government” is legislators that we elect. They aren’t some external force that is imposed on us.
  - philwelch 5y ago
    Even in a perfectly democratic system, 50.001% of the population can impose a government on the other 49.999%.
    - triceratops 5y ago
      If it's that finely balanced and the government imposed by the 50.001% is really that terrible, the situation should fix itself by the next election cycle, right?
      - twiddling 5y ago
        or they could storm the Capitol
- spaetzleesser 5y ago
  Can you give an example? Your statement feels like propaganda by the wealthy. So far they got a lot of tax cuts in the last few decades.
- endisneigh 5y ago
  As opposed to what - taxing the poor first, or just not taxing anyone?
- verst 5y ago
  What if I told you that as an ordinary engineer I am perfectly OK with paying state income taxes and capital gains taxes here in Seattle? Why? For the benefit of all. I am not wealthy by any means given local expenses but I live comfortably. As someone who is better off than the majority of people (as are most of us on HN when compared to the people around us wherever it is we live) I feel it is important to invest in shared infrastructure and services for all. This is one of the important roles of government and I trust government a lot more to attempt to do the right thing (after all in the US we have a representative republic) with all people in mind versus a bunch of individual directly giving their funds to their favorite causes and projects. The patchwork of nonprofits for example doesn't have the ability to address systemic problems. Altruism and empathy are not incompatible with capitalism (and rewards for your hard work or ingenuity). Some people here really should consider investing in their local community more.
BuyMyBitcoins 5y ago
“ It is estimated that this tax only affects the 7000 richest individuals in Washington.” Careful, that’s how it always starts. Give it a decade or so and politicians will be upset at how few people are actually paying this tax. They’ll demand all sorts of changes to the exemption structure so that they can raise more revenue. All while saying it’s only going to effect other people.
- tolbish 5y ago
  Isn't this exactly how it works in the majority of western European and Scandinavian countries?
  - Shaanie 5y ago
    Nope, we have a much higher capital gains tax (and a progressive income tax) with a much smaller exemption, at least in Scandinavia.
aatharuv 5y ago
The Alternate Minimum Tax was only supposed to affect less than 100 millionaires in the 1960's who were paying no taxes. Now, it is impacting 20+% of California tax payers most of whom earn under a million dollars a year and many of whom are not millionaires.
- ac29 5y ago
  "In 2019, the AMT impacted just 0.1 percent of households overall. This includes 0.2 percent of households with income between $200,000 and $500,000, 1.8 percent of those with incomes between $500,000 and $1 million, and 12.5 percent of households with incomes greater than $1 million" https://www.taxpolicycenter.org/briefing-book/who-pays-amt https://www.taxpolicycenter.org/briefing-book/who-pays-amt
  - aatharuv 5y ago
    That is a very recent change, post the Trump tax changes, which removed most of the impact of the AMT. Interesting to see the current numbers. But even before then, the AMT disproportionately affected California taxpayers.
snapetom 5y ago
If I have a liquidity event at my startup, I'm going to be hit with this, right? Like many startup engineers, I've been taking less pay for shares for several years now. Funny, I don't feel like one of the richest 7000 individuals in Washington. And I guarantee you as an early engineer, I'm likely going to hit 250k, but get nothing close to founder cashout money.
- medvezhenok 5y ago
  Unless you are forced to cash out, you can also liquidate ~250k of stock per year (or if options are available you can hedge your exposure and again extend the cash-out period over multiple years to spread out the tax impact)
- ovulator 5y ago
  If you got a $300k liquidity event. You will pay $3,500 in tax on it. If you worked at that job for 10 years at $30k less than normal, that is $7,600 a year that you didn't pay in federal income taxes on that missed income. Do the math, had you taken the income that would have been $76,000 in taxes over ten years vs $3,500 in taxes in one year.
  - snapetom 5y ago
    You've made up some convenient numbers here to create a strawman. If the liquidity is 500k, that's a $17.5k tax. I'm not going to stay at a job for 10 years for 30k less than market. That's a terrible decision. Most people would be looking after year 4, which is when options commonly fully vest. With my made up numbers, that's a $30.4k tax over four years versus a $17.5 tax over one year. My made up ratio is far less appealing than your made up ratio.
mattmcknight 5y ago
It's more like the 7000 highest filers in any given year. The richest people may not be realizing capital gains. It's likely to affect people who happen to be selling their businesses that year, probably the only year they would ever fall into that group. It makes creating such a business and selling it while living in the state less attractive. Have to move to Texas before you sell?
- verst 5y ago
  It won't affect most businesses however. Only those with $10M in revenue in the year preceding the sale. > Business owners are exempt from the tax if they were regularly involved in running the business for five of the previous 10 years before they sell, own it for at least five years, and gross $10 million or less a year before the sale. Source: https://apnews.com/article/business-government-and-politics-washington-personal-taxes-legislature-47fa90123a7732de00243ac8cb11c4d8 https://apnews.com/article/business-government-and-politics-... Or legal source: http://lawfilesext.leg.wa.gov/biennium/2021-22/Pdf/Bills/Senate%20Passed%20Legislature/5096-S.PL.pdf?q=20210430122559 http://lawfilesext.leg.wa.gov/biennium/2021-22/Pdf/Bills/Sen... See Section 8, (2)(d)(iii)
  - seattle_spring 5y ago
    In other words, the rich founders get richer while the early employees continue to get screwed.
- harshalizee 5y ago
  That's completely nonsensical. I'm in Washington. I sold my options from my startup that was basically all profit last year and it was greater than 250k. Under this law, I would have coughed up 7% more in taxes. I'm not even remotely a highly paid dev. I just got lucky after years of being underpaid. This will affect way more people than just 7000 individuals.
  - syshum 5y ago
    The government always has to push the narrative that their tax increases will be on "them" the others, the people better off then you, not you. No no we will never increase YOUR taxes, we are only taxing "them" the ones that sleep on money and keep you down by not paying their "fair share" Of course when the tax bill actually comes many people are often shocked they are included in "them"
csomar 5y ago
So people who are able to move to escape this tax. 7.000 is not a big number, they could consult (maybe they did) with these guys and see if they are okay with such a tax.
lotsofpulp 5y ago
> Keep in mind we don't have any income taxes here. Washington currently has 0.4% income tax for W2 employees, and another 0.6% coming on Jan 1, 2022 unless you have sufficient long term disability insurance by Jul 2021 to be able to opt out of it. So WA will effectively have a 1% income tax beginning Jan 1, 2022 for W2 earners (aka employees).

by verst 5y ago

The first 250k in profits from capital gains are exempt. It is estimated that this tax only affects the 7000 richest individuals in Washington. Keep in mind we don't have any income taxes here.

giantg2 5y ago

"Keep in mind we don't have any income taxes here." That's not really what the supporters of this bill think. They claim an excise type tax already exists and that it provides precedent for this one since income taxes are unconstitutional.

xxpor 5y ago
Income taxes are not unconstitutional. Progressive income taxes are. No one wants to impose a flat income tax though.
- giantg2 5y ago
  Thanks for bringing that up. It looks like local income taxes are not allowed under law and that any tax at the state level has to be flat. It seems the article may have misrepresented that with "Income taxes are unconstitutional in Washington state.". (Unless there's some obscure case law regarding flat income taxes)
- AnimalMuppet 5y ago
  So, this is a tax on certain kinds of income rather than all income. And it exempts the first $250K, so it's a progressive tax. So...
  - giantg2 5y ago
    I wonder if the courts care though. The B&O tax applies at different rates for different business types. The class of property taxed should be gross business receipts, but it seemed the courts are ok with the rates varying by business type.
  - xxpor 5y ago
    I don't think that matters. The relevant text: "All taxes shall be uniform upon the same class of property within the territorial limits of the authority levying the tax and shall be levied and collected for public purposes only. The word "property" as used herein shall mean and include everything, whether tangible or intangible, subject to ownership." https://leg.wa.gov/CodeReviser/Pages/WAConstitution.aspx#AMENDMENT_7 https://leg.wa.gov/CodeReviser/Pages/WAConstitution.aspx#AME... The SCOWA has said income is property. But it's up in the air if capital gains is income, or property. I also don't think this would fail the test if it's considered a separate class though, since the rate is uniform with an exemption. My understanding is that model has been fine for a long time, and is how seniors can get discounts on property taxes or something.
    - giantg2 5y ago
      "The SCOWA has said income is property. But it's up in the air if capital gains is income, or property." How is that?

philwelch 5y ago

These taxes always start off only affecting the richest of the rich, until the government decides it needs more revenue.

amanaplanacanal 5y ago
“The government” is legislators that we elect. They aren’t some external force that is imposed on us.
- philwelch 5y ago
  Even in a perfectly democratic system, 50.001% of the population can impose a government on the other 49.999%.
  - triceratops 5y ago
    If it's that finely balanced and the government imposed by the 50.001% is really that terrible, the situation should fix itself by the next election cycle, right?
    - twiddling 5y ago
      or they could storm the Capitol
spaetzleesser 5y ago
Can you give an example? Your statement feels like propaganda by the wealthy. So far they got a lot of tax cuts in the last few decades.
endisneigh 5y ago
As opposed to what - taxing the poor first, or just not taxing anyone?
verst 5y ago
What if I told you that as an ordinary engineer I am perfectly OK with paying state income taxes and capital gains taxes here in Seattle? Why? For the benefit of all. I am not wealthy by any means given local expenses but I live comfortably. As someone who is better off than the majority of people (as are most of us on HN when compared to the people around us wherever it is we live) I feel it is important to invest in shared infrastructure and services for all. This is one of the important roles of government and I trust government a lot more to attempt to do the right thing (after all in the US we have a representative republic) with all people in mind versus a bunch of individual directly giving their funds to their favorite causes and projects. The patchwork of nonprofits for example doesn't have the ability to address systemic problems. Altruism and empathy are not incompatible with capitalism (and rewards for your hard work or ingenuity). Some people here really should consider investing in their local community more.

BuyMyBitcoins 5y ago

“ It is estimated that this tax only affects the 7000 richest individuals in Washington.” Careful, that’s how it always starts. Give it a decade or so and politicians will be upset at how few people are actually paying this tax. They’ll demand all sorts of changes to the exemption structure so that they can raise more revenue. All while saying it’s only going to effect other people.

tolbish 5y ago
Isn't this exactly how it works in the majority of western European and Scandinavian countries?
- Shaanie 5y ago
  Nope, we have a much higher capital gains tax (and a progressive income tax) with a much smaller exemption, at least in Scandinavia.

aatharuv 5y ago

The Alternate Minimum Tax was only supposed to affect less than 100 millionaires in the 1960's who were paying no taxes. Now, it is impacting 20+% of California tax payers most of whom earn under a million dollars a year and many of whom are not millionaires.

ac29 5y ago
"In 2019, the AMT impacted just 0.1 percent of households overall. This includes 0.2 percent of households with income between $200,000 and $500,000, 1.8 percent of those with incomes between $500,000 and $1 million, and 12.5 percent of households with incomes greater than $1 million" https://www.taxpolicycenter.org/briefing-book/who-pays-amt https://www.taxpolicycenter.org/briefing-book/who-pays-amt
- aatharuv 5y ago
  That is a very recent change, post the Trump tax changes, which removed most of the impact of the AMT. Interesting to see the current numbers. But even before then, the AMT disproportionately affected California taxpayers.

snapetom 5y ago

If I have a liquidity event at my startup, I'm going to be hit with this, right? Like many startup engineers, I've been taking less pay for shares for several years now. Funny, I don't feel like one of the richest 7000 individuals in Washington. And I guarantee you as an early engineer, I'm likely going to hit 250k, but get nothing close to founder cashout money.

medvezhenok 5y ago
Unless you are forced to cash out, you can also liquidate ~250k of stock per year (or if options are available you can hedge your exposure and again extend the cash-out period over multiple years to spread out the tax impact)
ovulator 5y ago
If you got a $300k liquidity event. You will pay $3,500 in tax on it. If you worked at that job for 10 years at $30k less than normal, that is $7,600 a year that you didn't pay in federal income taxes on that missed income. Do the math, had you taken the income that would have been $76,000 in taxes over ten years vs $3,500 in taxes in one year.
- snapetom 5y ago
  You've made up some convenient numbers here to create a strawman. If the liquidity is 500k, that's a $17.5k tax. I'm not going to stay at a job for 10 years for 30k less than market. That's a terrible decision. Most people would be looking after year 4, which is when options commonly fully vest. With my made up numbers, that's a $30.4k tax over four years versus a $17.5 tax over one year. My made up ratio is far less appealing than your made up ratio.

mattmcknight 5y ago

It's more like the 7000 highest filers in any given year. The richest people may not be realizing capital gains. It's likely to affect people who happen to be selling their businesses that year, probably the only year they would ever fall into that group. It makes creating such a business and selling it while living in the state less attractive. Have to move to Texas before you sell?

verst 5y ago
It won't affect most businesses however. Only those with $10M in revenue in the year preceding the sale. > Business owners are exempt from the tax if they were regularly involved in running the business for five of the previous 10 years before they sell, own it for at least five years, and gross $10 million or less a year before the sale. Source: https://apnews.com/article/business-government-and-politics-washington-personal-taxes-legislature-47fa90123a7732de00243ac8cb11c4d8 https://apnews.com/article/business-government-and-politics-... Or legal source: http://lawfilesext.leg.wa.gov/biennium/2021-22/Pdf/Bills/Senate%20Passed%20Legislature/5096-S.PL.pdf?q=20210430122559 http://lawfilesext.leg.wa.gov/biennium/2021-22/Pdf/Bills/Sen... See Section 8, (2)(d)(iii)
- seattle_spring 5y ago
  In other words, the rich founders get richer while the early employees continue to get screwed.
harshalizee 5y ago
That's completely nonsensical. I'm in Washington. I sold my options from my startup that was basically all profit last year and it was greater than 250k. Under this law, I would have coughed up 7% more in taxes. I'm not even remotely a highly paid dev. I just got lucky after years of being underpaid. This will affect way more people than just 7000 individuals.
- syshum 5y ago
  The government always has to push the narrative that their tax increases will be on "them" the others, the people better off then you, not you. No no we will never increase YOUR taxes, we are only taxing "them" the ones that sleep on money and keep you down by not paying their "fair share" Of course when the tax bill actually comes many people are often shocked they are included in "them"

csomar 5y ago

So people who are able to move to escape this tax. 7.000 is not a big number, they could consult (maybe they did) with these guys and see if they are okay with such a tax.

lotsofpulp 5y ago

> Keep in mind we don't have any income taxes here. Washington currently has 0.4% income tax for W2 employees, and another 0.6% coming on Jan 1, 2022 unless you have sufficient long term disability insurance by Jul 2021 to be able to opt out of it. So WA will effectively have a 1% income tax beginning Jan 1, 2022 for W2 earners (aka employees).