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Lessons from Washington State’s New Capital Gains Tax

• monero-xmr 3y ago
  > For decades, the wealthiest Washingtonians have gotten out of paying what they truly owe in state and local taxes. I don’t know what to make of this statement. I pay what the law says I have to pay. Is that not what I “truly owe”?
  • rlewkov 3y ago
    What you truly owe = author doesn't think some people pay what he thinks they should
  • picometer 3y ago
    I think the word “truly” is doing the heavy lifting here.
  • sjsdaiuasgdia 3y ago
    It's a matter of (perceived) fairness. There is indeed the law, and at the end of the day that is what determines what you must pay. The very wealthy have long supported income tax structures that treat capital gains very differently than employment income, with much higher rates being applied to employment income. For the most part, the very wealthy do not receive much employment income. This means that as a percentage of income (all types added together), people who primarily earn via capital gains pay far less tax than those who primarily earn via employment. It is an understandable position to say that this tax structure is unfair and that the very wealthy are not paying what they should pay. You can disagree with it but it is not a difficult position to understand.
    • yieldcrv 3y ago
      Its also not difficult to understand that "7% over $250,000" is just as arbitrary as 1% or 15% or 37.9% and that this arbitrariness and vagueness is the crux of the fair share rhetoric. it has no base unit, it has no understanding of the existing tax environment, it has no ability to comprehend anything except an exemption from questioning why we are being screwed at all, only requesting that we are all being screwed equally, which is not a goal remotely supported by any form of consensus in legislatures.
    • matthew9219 3y ago
      It's an understandable position yes. It's not quite so understandable to me that somebody would believe that position to be an inherent truth ("truly owe") rather than just a position. Capital gains taxes have historically been lower to encourage the investment of capital. This might be good or bad policy. Many economists say it's good policy. It's stating opinion as fact.
      • chickenpotpie 3y ago
        Whether it's good and whether it's fair are different criteria. It would be incorrect to say low capital gains taxes are bad, but that's not what the previous commenter said. They said they're not fair and I cannot think of a legitimate defense to low capital gains taxes being fair. For example, it may or may not be good to steal all the money from the richest man in the world and give it to the poorest, but it's absolutely not fair.
        • matthew9219 3y ago
          The discussion is about the quote in the article, not about what the previous commentator said.
      • sjsdaiuasgdia 3y ago
        Well it is an opinion piece. Clearly says so at the top.
        • matthew9219 3y ago
          I didn't quite speak clearly and so let me try to clarify. It's the opinion presented as opinion containing opinion presented as fact :). In examples: - "summer is the best season" is an opinion - "summer has the highest temperatures" is a fact - "summer is the best time to have romantic encounters" is an opinion - "summer is the best season because romantic encounters truly only happen in the summer" is a weird amalgamation. It clearly presents an opinion, and says that opinion is based on a true fact, but in fact, the true fact the opinion relies on is not a fact at all, but merely another opinion.
    • deleted 3y ago
      [deleted]
    • Zanni 3y ago
      That's true, but in this case, Washington State has no income tax. The capital gains rate here isn't an unfair rate that privileges the wealthy, it's an additional tax burden on the wealthy.
  • RandallBrown 3y ago
    It might be better worded as "have gotten out of paying their fair share of state and local taxes." Depending on your definition of fair, of course.
  • burlesona 3y ago
    I agree: the word “owe” is a problem here. The thrust of the article is that the tax structure has historically charged a lower rate of tax on the wealthy than the poor. By definition that means the wealthy could pay exactly what they owed without paying a reasonable share, and now with this change they owe more which makes it more fair. But saying people didn’t pay what they owed and also calling them tax-dodgers implies they are criminals, which is likely incorrect for most of them and an unhelpful misdirection. If obeying the law isn’t “good enough” the fault is with the law, not the citizens.
  • pc86 3y ago
    It's the kind of silly moralizing language used by partisan hacks. You owe what the law says you owe and not a penny more (or less). Most people, regardless of socioeconomic status, pay what they owe, or at least what their CPA/H&R Block/TurboTax tells them they owe.
    • geysersam 3y ago
      The law is a product of ethical considerations. Just because you found a tax loophole doesn't mean you're fulfilling the ethical obligations that motivated the law.
      • pc86 3y ago
        A state charging 0% capital gains on top of what the federal government already charges is not "finding a tax loophole." It's following tax law as it is written. What tax deductions or exclusions do you qualify for that you are avoiding in order to not accidentally "find a loophole?" You are free to donate more of your money to the state or federal government should you choose to.
  • geysersam 3y ago
    Laws are constrained by what kind of legislation is ethical and practical to enforce. It cannot come as a surprise to you that lots of efforts go into finding loopholes and technicalities that lets rich people pay much less tax than the lawmakers intended. The difference is the "spirit" of the law versus its practical application.
• ledauphin 3y ago
  this is very light on details. I would be thrilled to see an actual economic analysis showing that this is working, though.
  • safog 3y ago
    It reads like your standard west coast liberal eat the rich piece. You need more unbiased economic analysis than that.
• ajaimk 3y ago
  "the wealthiest Washingtonians have gotten out of paying what they truly owe in state and local taxes" State taxes were 0% - They paid 0%
  • EscapeFromNY 3y ago
    What point are you trying to make? Do you think the wealthiest Washingtonians truly owe 0% to society?
    • burlesona 3y ago
      “Owe” is an important word meaning a legal obligation. If the law says you owe nothing then you owe nothing. That doesn’t mean the law is just! It means we need to fix the law.
      • deleted 3y ago
        [deleted]
      • EscapeFromNY 3y ago
        The word truly in "truly owe" is the clue that they're not talking about a legal obligation, but an ethical one. And it's an article about a law that was changed, so if what they truly owe changed from one year to the next the sentence wouldn't make any sense.
    • hackernewds 3y ago
      Wasn't the Seattle allure 0% state taxation? Seems uncouth to backtrack on it. If we're discussing fairness it's worth contrasting how the tech industry in Seattle or its significance were prior to this.
  • HDThoreaun 3y ago
    They obviously meant ethically owe, not legally owe. It turns out that "owe", like many words in our fine language, has multiple meanings.
    • 3y ago
• slackfan 3y ago
  [flagged]
• kneebonian 3y ago
  For those curious about an actual analysis and impact of it skip the article. It is more of an idealogocal blog post rather than a through review.
• sentrysapper 3y ago
  It's only 7% and for gains above $250K. I shouldn't be, but I'm shocked they had to defend this initiative. For contrast, in Canada, capital gains tax rate is 50%, regardless of the amount.
  • shaftoe 3y ago
    This must be why I've known several people who emigrated out of Canada before having a liquidity event.
  • perennate 3y ago
    > capital gains tax rate is 50% That makes it sound like you pay half of capital gains in taxes, but I think what you mean is that 50% of capital gains is taxable, and that this portion is taxed at the same rate as other personal income. Personally I think 100% of capital gains should be taxable at the marginal income tax rate.
    • matheist 3y ago
      Yep. I was also astonished at that figure and immediately looked it up, and what you describe matches what I found.
  • seattlematt 3y ago
    It's because the Washington state constitution prohibits a state income tax. The state Supreme Court somehow found a way to interpret the capital gains tax as an excise tax rather than an income tax.
    • jandrewrogers 3y ago
      This is incorrect, income taxes are perfectly legal in Washington. However, the state constitution requires them to be flat. The desire to selectively target political out-groups with punitive income taxes has made this problematic in that state. Several states in the US, both blue and red, have flat income taxes. Washington can easily and legally implement one too, the lack of an income tax is a political choice by the Democrats. Another important aspect is that an overwhelming majority of the people in Washington -- a very blue state -- don't trust the State government with unfettered access to income tax revenue because of how poorly existing tax revenue has been managed. Washington tax revenues are not low compared to other states.
• calculatte 3y ago
  Thanks. After reading this drivel I can ignore anything from this domain forever.
  • UtopiaPunk 3y ago
    What would you recommend reading instead?
• throwawaysea 3y ago
  I’m banned so I don’t know if anyone will see this, but I wanted to share more details on this capital gains tax. In Washington, income taxes are different based on income levels are unconstitutional. So you cannot have a capital gains tax that only applies to income levels above some threshold, like this one is. To get around that, Washington’s Democratic legislators started claiming that capital gains tax is an excise tax rather than an income tax, and therefore no longer subject to the constraints of the state’s constitution. In every state and the federal level, capital gains are a form of income tax. This includes Washington state, where the department of revenue explicitly classified it as such in line with the common definition of this tax. However, the state’s Supreme Court has become highly activist over time, due to a long history of WA being a one-party blue state. And in one of the lawsuits against this unconstitutional tax, the state Supreme Court surprisingly agreed with the legislators in redefining capital gains tax as an excise tax instead of an income tax (https://www.seattletimes.com/seattle-news/politics/wa-supreme-court-upholds-capital-gains-tax/ https://www.seattletimes.com/seattle-news/politics/wa-suprem...). This tax is now being collected for the first time, and it is much larger in its collections than expected. Most of the money will go to K-12 schools, which is strange because school funding in WA has more than doubled in the last 10 years with little to show for it (see https://www.washingtonpolicy.org/publications/detail/states-income-tax-windfall-isnt-needed-public-schools-have-plenty-of-money https://www.washingtonpolicy.org/publications/detail/states-...). Also, although school funding follows the student typically - meaning reduced enrollment at a public school leads to reduced funding - the first $500m of this tax will only go to public schools. I expect this tax will see its thresholds reduced over time. Its initial proposal was to apply to any capital gains over $25K, not $250K. It was changed to the higher limit to give it a better chance of passing and sticking. But with the state Supreme Court redefining words and setting this precedent, the legislature is free to change the tax threshold and rate in the future.
  • xemdetia 3y ago
    So what is your opinion that you are trying to present here? That it's wrong because it isn't following the definition you expect income tax to fall under or schools don't have the ROI you would hope for? I just don't know why schools were even brought up.
• endisneigh 3y ago
  The wealthy should pay more tax, and the government should also learn to spend the money more effectively. The whole bit about most voters wanting the ultra rich to pay more tax is hilarious. Of course they do. If you believe the government is more effective than the people in spending your money you should want tax increased for everyone. If not you should want it lowered. Simple as that. Hand wringing about whose money is taxed is irrelevant. Suppose you believe the government is not good at spending your money. Let’s say half of every dollar is wasted. Why would you want rich people to be taxed more? Suppose you believe the government is better at spending your money such that the economics of scale give the government an additional fifty cents for every dollar in value in the form of social services. Why would you lower taxes for poor people? Definitionally they would be better off paying more in taxes and then receiving whatever benefit the government then produces for them. The status quo is the worst of all the worlds because rich people effectively pay less tax than the middle class, and the government is wasting much of our money.
  • Etheryte 3y ago
    This argument makes no sense. Even if the government is not efficient with money we still want it to be funded because they provide services that make no sense for any one person to provide. In that context taxing high income more still makes sense, even if the efficiency is not high, more input still leads to more output.
    • endisneigh 3y ago
      It’s not strictly necessary for the government to provide everything that might interest more than a single person, so the premise of your rebuttal is already flawed. I have no clue how people are ok with the government squandering away hard earned money. If people would like to donate to the government they are free to do so. Otherwise demand effective use of the tax or minimize collection. To put it another way, should all of your income be taxed and you simply receive some sort of stipend from the government? Why or why not? Low efficiency is a problem because the alternative is population driven allocation which is definitionally superior in such a scenario.
    • 3y ago
• ramesh31 3y ago
  There's absolutely no reason to not tax capital gains as ordinary income. It is the single most blatant, regressive feature of our entire tax system that wealthy people can receive their income at a significantly lower marginal rate with zero deductions for FICA.
  • cycrutchfield 3y ago
    Economists seem to disagree with you
  • RandallBrown 3y ago
    If it was taxed as ordinary income, this tax would be illegal in Washington.There was a whole legal battle about whether or not this was an income tax or not. I suspect it might still end up with this tax being repealed. I believe the given reason for a capital gains tax is to promote investment. Edit: I was mistaken about income taxes being banned by the state constitution.
    • ramesh31 3y ago
      >I believe the given reason for a capital gains tax is to promote investment. Right. That's the regressive nature of it. Benefitting the investor class at the expense of social programs. Let's reverse that for a second. I could do a whole hell of a lot of investing in myself with the extra 20 grand a year in my pocket that being taxed at a capital gains rate and not paying FICA would leave me with.
    • greyface- 3y ago
      > Income taxes are banned by the state constitution. Non-uniform income taxes are banned by the state constitution. A flat tax on all income, regardless of amount, would have been legal.
    • jandrewrogers 3y ago
      > Income taxes are banned by the state constitution. This is incorrect. Income taxes are only required to be flat. Many other states of all political persuasions have flat income taxes, Washington as a single-party state has chosen not to implement a similar tax.
• askin4it 3y ago
  Stopped at "For decades, the wealthiest Washingtonians have gotten out of paying what they truly owe in state and local taxes." Taxes as punishment for having wealth. Were laws broken? Doubt it, at least not at scale. Leave people with money alone!
  • chasd00 3y ago
    Not sure why you were downvoted. Using taxes as a form of punishment thrown around all over the place. Taxes should be for funding the government not for punishing the people.
    • UtopiaPunk 3y ago
      The new capital gains tax is paying for childcare programs and public education.
      • askin4it 3y ago
        hey, just like the lottery! That will free up those dollars in the general fund for all the important stuff such as roads (the minimum that can be done) and social programs that are thinly disguised patronage programs which perpetuate harmful circumstances to ensure a yearly line item in the now-increasing budget.
  • UtopiaPunk 3y ago
    Yes, let's not be prejudiced against people experiencing wealth. Lol. Just because a law was not broken does not mean that the system was just. Surely everyone here can agree that following the law does not equal goodness/righteousness/justice/whatever word you prefer to use. The tax laws in Washington were particularly regressive, as WA state has no income tax. With no income tax, WA state has historically had to use other taxes to pay for things. The result is that lower income workers feel a greater burden than higher income workers. Which is to say nothing of the very wealthiest individuals who may technically make little to no income at all, but are very clearly wealthy. This new tax law brings in money by taxing profits generated from investments. Why is that any more unfair than other tax? Like, sure, if you're a libertarian that hates all taxes, then whatever. But what makes this tax worse, in your eyes, than any other tax?
• noodlesUK 3y ago
  What I would like to know is what the justification for capital gains being taxed at a considerably lower rate than other income is. Why treat it preferentially?
  • jeffbee 3y ago
    Now do houses. Why is the first $500k of real estate appreciation untaxed?
    • jjav 3y ago
      > Now do houses. Why is the first $500k of real estate appreciation untaxed? Because it encourages liquidity in the housing market. If people had to pay taxes on the sale as soon as the house appreciates anything, a lot more people would hold on to the house and never let go.
      • jeffbee 3y ago
        And yet we have less mobility than ever. Curious.
      • geysersam 3y ago
        > a lot more people would hold on to the house and never let go. Subsidizing a behavior we would like to see. As always, the rich gets the carrot and the poor gets the stick. Luckily the same economic theory can be applied to motivate both.
  • jandrewrogers 3y ago
    Capital gains taxes are not treated preferentially, or at least the lower rate does not reflect that, this is a common misunderstanding. Ideally, you want the tax rates on all sources of income to be roughly the same net of risk and inflation so that you don't bias investors into any particular type of activity when chasing rates of return. For wage income, inflation losses are negligible in most countries. Similar for short-term capital gains, which is why those are commonly taxed at wage income rates. Unlike wage income, capital has substantial risk (i.e. you can't deduct most losses). For long-term capital gains, the drag of inflation becomes a large percentage of the total nominal return. If you taxed long-term capital at the same rate as income, no one would make long-term high-risk investments because the expected rate of return on investment, net of taxes, would be lower than short-term rent-seeking type investments! If you want people in your country to invest in high-risk tech ventures at least as much as e.g. buying rental apartments, you have to make the expected investment returns net of taxes, inflation, and risk to be similar. You could make capital gains the same as income tax if inflation and risk was deductible against income. In practice, this would create enormous headaches for governments (massive increase in revenue volatility), so instead they tax it at a lower rate that loosely approximates what the tax rate might look like on average if you were allowed to deduct inflation and risk.
• exabrial 3y ago
  > paying their share of taxes We don't need more taxes, we need to spend less. If the government were on Charity Navigator it would have a negative rating. Nearly all of the tax revenue ends up wasted.
  • pc86 3y ago
    Wouldn't simultaneously spending less and taxing more equitably be better all around? Rather than having one side want to gut everything while cutting taxes even more and one side want to steal everything from anyone who makes more than $1M/yr and just turn around and give it all away, something a bit more middle ground might make more sense.
• transfire 3y ago
  They act like only billionaires ever make $250,000. Have you ever sold a house? So, just about everyone that sells their house will get hit with that tax. Ouch.
  • RandallBrown 3y ago
    It excludes sales of primary homes.
  • ovulator 3y ago
    It explicitly excludes real estate.
  • tzs 3y ago
    Real estate is exempt from the Washington capital gains tax. Here's the list of exemptions: • Real estate. • Interests in a privately-held entity to the extent that the capital gain or loss from such sale or exchange is directly attributable to the real estate owned directly by such entity. • Assets held in certain retirement accounts. • Assets subject to condemnation, or sold or exchanged under imminent threat of condemnation. • Certain livestock related to farming or ranching. • Assets used in a trade or business to the extent those assets are depreciable under Title 26 U.S.C. Sec. 167(a)(1) of the internal revenue code or qualify for expensing under Title 26 U.S.C. Sec. 179 of the internal revenue code. • Timber, timberlands, and dividends and distributions from real estate investment trusts derived from gains from the sale or exchange of timber or timberlands. Commercial fishing privileges. • Goodwill received from the sale of a franchised auto dealership. See https://dor.wa.gov/taxes-rates/other-taxes/capital-gains-tax https://dor.wa.gov/taxes-rates/other-taxes/capital-gains-tax
    • deleted 3y ago
      [deleted]
• hayst4ck 3y ago
  Whether the wealthy "owe" taxes or not, I think it's important to consider that: If it gets easier to grow wealth the more you have, that will create power disparity with time, which eventually leads to an oligarchic society. If you owe the government 30% of your income, that's your problem, if you owe the government 30% of it's income, that's the governments problem... That's hyperbole, but to demonstrate a point. What stops someone from concentrating enough money to, for example, buy a news media outlet and use it to promote people who would protect the decision made in citizens united and then further promote individuals that will make decisions that allow them to get even more power? Then they could degrade the institutions that empower people and society as a whole such as education. They could use their media empire to fight the idea of trust busting and breaking down of monopolies and cartels (the true cause of "greedflation"). They could hire the police to fight unions and dissidents. How do you prevent the wealthy from getting too wealthy and using that wealth, and therefore power, to corrupt institutions to work on behalf of them rather than everyone? We already know what the decay/absence of rule of law (restrictions on arbitrary exercises of power) in a capitalist society looks like: Russia. If you don't want to be Russia, if you don't want to have to bend the knee to the most powerful thug, you have to tax the rich and invest it into programs for the poor, particularly education.
  • CatWChainsaw 3y ago
    I wouldn't be surprised if more people on this site than most others actually find Russia to be a desirable state of affairs, purely because they assume they'll be in the upper echelons.
    • hayst4ck 3y ago
      The oligarchs were shown one of themselves in a cage and Putin said "half." I remember Preet Bharara talking a lot about the Magnitsky act and how it was also somewhat a response to that. Even the oligarchs were slaves and dealt with the threat of novichok and windows. That's what a might makes right, strongest thug wins society means.
• throwuwu 3y ago
  Needs less rhetoric and more numbers
• snapplebobapple 3y ago
  This draws a conclusion from a short term surprise ( government passing another tax) then applies it to all time, which is wrong. It is going to take some time for people to restructure to avoid this new tax and in that time it will probably pay out. The question isn't what happens during adjustment, it's what happens once everyone has made their responsive moves to the tax.