Lessons from Washington State’s New Capital Gains Tax(theurbanist.org)
theurbanist.org
Lessons from Washington State’s New Capital Gains Tax
https://www.theurbanist.org/2023/06/01/lessons-from-washington-states-new-capital-gains-tax/
120 comments
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.
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.
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.
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.
>Capital gains taxes have historically been lower to encourage the investment of capital.
That's nonsense. They have historically been lower because rich people make (or at the very least, heavily influence) the rules and so they tipped the tax scales in their favor. The 'encouraging investment' bit is just the nice sounding excuse they use.
That's nonsense. They have historically been lower because rich people make (or at the very least, heavily influence) the rules and so they tipped the tax scales in their favor. The 'encouraging investment' bit is just the nice sounding excuse they use.
Seems specious. Democratically elected representatives said it was to encourage the investment of capital as they wrote the laws, and then got reelected by the voters. You can say the representatives were lying and the voters didn't care / are dumb - but where's the evidence?
I think the simplest explanation for why representatives vote the way they do is the public statements they themselves make before and after their votes. If you want to make a more convoluted argument and assert a conspiracy, you should bring some evidence.
I think the simplest explanation for why representatives vote the way they do is the public statements they themselves make before and after their votes. If you want to make a more convoluted argument and assert a conspiracy, you should bring some evidence.
"economic elites and organized interest groups play a substantial part in affecting public policy, but the general public has little or no independent influence."
https://www.vox.com/2014/4/18/5624310/martin-gilens-testing-...
https://www.vox.com/2014/4/18/5624310/martin-gilens-testing-...
Democracy denied with citizens united. everyone is paid for now and you are not allowed to find out by who.
interesting then in Washington State that employed people are not paying their fair share and the capital class should use their influence to do something about that, by your logic
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.
The discussion is about the quote in the article, not about what the previous commentator said.
Well it is an opinion piece. Clearly says so at the top.
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.
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]
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.
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.
"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.
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.
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.
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.
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.
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.
Depending on your definition of fair, of course.
What you truly owe = author doesn't think some people pay what he thinks they should
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.
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.
Just because you found a tax loophole doesn't mean you're fulfilling the ethical obligations that motivated the law.
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.
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.
I think the word “truly” is doing the heavy lifting here.
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.
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.
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.
That's not necessarily true, it depends how inefficient the government is. for example, in my city the city controls trash pickup and tried to social engineer more composting/recycling by cutting trash pickup days to once every two weeks instead of every week. A private enterprise has sprung up offering the second pickup for the same price the city charges. They are able to provide that in the vastly less efficient setup of only a few people on each block using them, the city being dicks and not letting them collect from the city provided trash cans, etc. That tells you for this service the correct thing for the city to do is fire all the inefficient people they are employing and support private enterprise in gaining the efficiencies from automation and a bigger market and providing an even lower cost service. I suspect there are tons of services the city provides that are extremely inefficient as above.
They probably don't pay living wages. Its easy to be cheap when you don't pay living wages.
There's no such thing as a living wage because no matter what price you set labor at someone will fail at living there, be pointed to as an excuse to further manipulate the labor market. All there really is is the value at which the labor market clears. That they seem to have no problem providing the service at the price they are says they are paying at or above the price that would clear the labor market so there's nothing to talk about other than the government clearly overpaying, perhaps in the pursuit of a frankly stupid idea such as a living wage that is never clearly defined, constantly ratcheted higher when whatever number was mentioned previously fails to end poverty, and of which the only thing economic theory can say for certain is if the living wage price is set below the market clearing price of labor it will be ignored and if it is set above the market clearing price of labor it will cause unemployment and dead weight loss to society making it utterly ridiculous. The whole talk of this stupid idea honestly detracts from real discussion about real problems in the labor market interfering with actually making things better (i.e. the rampant monopsony and general geographic market power at the low to mid end of the employment market, the abuse of non competes at the mid to high end, etc.)
More input implying more output is a poor model, because there is rule of law in the middle.
input -> rule of law -> output is a more correct model. Maybe RuleOfLaw(Taxes) -> [Output distribution] is better.
When rule of law is weak, the powerful arbitrarily exercise their power to shift the output to them. When rule of law is strong the output is used for the public benefit.
So the efficiency of taxes depends greatly on the integrity of the legal system and therefore integrity of the legal system must come before the expectation of the usefulness of taxes.
When the legal system has no integrity, money siphoned from taxes to private interests increases the power of those private interests which further hurts the legal systems integrity. So more (general population) taxes in the context of weak rule of law is damaging to society.
If you want to increase rule of law (reduce arbitrary exercises of power), then the less powerful must become more powerful (unions), the more powerful must become less powerful (tax the rich or ask the french), or the institutions of society itself must ensure that there are consequences for arbitrary exercises of power (the people in power choose to exercise it responsibly), or a culture that respects rule of law must pervade (only possible through education).
input -> rule of law -> output is a more correct model. Maybe RuleOfLaw(Taxes) -> [Output distribution] is better.
When rule of law is weak, the powerful arbitrarily exercise their power to shift the output to them. When rule of law is strong the output is used for the public benefit.
So the efficiency of taxes depends greatly on the integrity of the legal system and therefore integrity of the legal system must come before the expectation of the usefulness of taxes.
When the legal system has no integrity, money siphoned from taxes to private interests increases the power of those private interests which further hurts the legal systems integrity. So more (general population) taxes in the context of weak rule of law is damaging to society.
If you want to increase rule of law (reduce arbitrary exercises of power), then the less powerful must become more powerful (unions), the more powerful must become less powerful (tax the rich or ask the french), or the institutions of society itself must ensure that there are consequences for arbitrary exercises of power (the people in power choose to exercise it responsibly), or a culture that respects rule of law must pervade (only possible through education).
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.
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.
> more input still leads to more output.
Not when people are involved
Not when people are involved
> 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.
This is apples and oranges. I'm not going to go build roads or missile defense systems with my money (thought I might donate to science). There's no direct comparison between how "the people" spend their own money vs. what you can do with taxes, and it's definitely not "as simple as that"
This is apples and oranges. I'm not going to go build roads or missile defense systems with my money (thought I might donate to science). There's no direct comparison between how "the people" spend their own money vs. what you can do with taxes, and it's definitely not "as simple as that"
Private companies managed to build railways just fine, until the govt in its infinite wisdom (with which I totally agree by the way, but most people in the pro-govt camp, who want more rail now, don't) decided to undercut them with a massive tax-funded highway system.
And roads (or defense) are about as an extreme example as it gets due to the complexity of acquiring a very long, very narrow plot of land. So, it's possible a govt might be a bit better than market at providing roads, although I'm not 100% convinced. For most things, govt is just an inefficient, thieving monopoly.
And roads (or defense) are about as an extreme example as it gets due to the complexity of acquiring a very long, very narrow plot of land. So, it's possible a govt might be a bit better than market at providing roads, although I'm not 100% convinced. For most things, govt is just an inefficient, thieving monopoly.
Yes it is. Money is a resource allocation mechanism. Suppose people were not taxed at all. Do you think there wouldn’t be roads?
Roads are a good example of how when you go to 0 to 1 it’s a great investment and thus good justification for taxes. At some point though there are diminishing returns.
Roads are a good example of how when you go to 0 to 1 it’s a great investment and thus good justification for taxes. At some point though there are diminishing returns.
How the government spends it is a massively less important consideration than preventing the rich from having it.
Money is power, and too much power in too few hands is a real threat to national security and the integrity of a republic.
If the big banks can say "bail me out or else" or any of these billionaires can say "If you try to hold me accountable I will make it hurt," how much freedom from tyranny do we really have?
Money is power, and too much power in too few hands is a real threat to national security and the integrity of a republic.
If the big banks can say "bail me out or else" or any of these billionaires can say "If you try to hold me accountable I will make it hurt," how much freedom from tyranny do we really have?
And is the government itself some platonic entity? This comment is deeply ironic - we are afraid of the concentration of power in the hands of some rich people, so we are going to give more power to the most massive and heavily armed entity in human history, barely accountable (beyond extremes) given that most actual ruling is done by bureaucracy and even the "choice" between parties is not very meaningful, and increasingly controlled by one man via executive action.
https://www.youtube.com/watch?v=rStL7niR7gs
Here is some classic internet for you (CCP Grey's: rules for rulers) that I think you would have trouble refuting while being consistent with your post.
Here is some classic internet for you (CCP Grey's: rules for rulers) that I think you would have trouble refuting while being consistent with your post.
I watched the amount of video that it would take to read a comment here and it was not insightful. You'd have to summarize, nobody watches videos :P
That said, to expand my argument a bit
1) Vast majority of abuse of power in history has been done by governments.
2) Out of that, majority has been done by the govts that came by thru revolution by non-rich people, and/or were populist - i.e. based upon popularity among masses of non-rich people, and/or partially thru vote of non-rich people.
3) Even when rich people, excluding those rich because they are in the government in the first place, directly abused power (e.g. corporations like United Fruit), they usually did it mostly via a government that was either friendly to them or easy to bribe.
There are very few exceptions. Power concentration among rich men not in government is literally the last thing I would worry, by itself, about as far as power goes. The only problem with Bezos having lots of power is that he could buy the politicians and use their power. So, the best solution is to reduce their power.
That said, to expand my argument a bit
1) Vast majority of abuse of power in history has been done by governments.
2) Out of that, majority has been done by the govts that came by thru revolution by non-rich people, and/or were populist - i.e. based upon popularity among masses of non-rich people, and/or partially thru vote of non-rich people.
3) Even when rich people, excluding those rich because they are in the government in the first place, directly abused power (e.g. corporations like United Fruit), they usually did it mostly via a government that was either friendly to them or easy to bribe.
There are very few exceptions. Power concentration among rich men not in government is literally the last thing I would worry, by itself, about as far as power goes. The only problem with Bezos having lots of power is that he could buy the politicians and use their power. So, the best solution is to reduce their power.
If you don't want to understand that's sad but fine.
The video will explain why you're model is wrong if you watch it.
> So, the best solution is to reduce their power.
If Bezos can buy the cops, should we get rid of cops so he can't exercise power through cops?
The video will explain why you're model is wrong if you watch it.
> So, the best solution is to reduce their power.
If Bezos can buy the cops, should we get rid of cops so he can't exercise power through cops?
Well, I can recommend a few books by e.g. Thomas Sowell that I'm pretty sure refute whatever model some rando on youtube armed with an opinion has. Come back when you've read them, although if you don't want to understand that's also fine... this is not how discussions work. You actually have to present an argument, not expect someone to watch an 18 minute video from a rando.
> If Bezos can buy the cops, should we get rid of cops so he can't exercise power through cops?
Exactly! Well, almost. Ideally, the powers they have should be treated as baseline evil, and then there should be a good argument for any of them being a /necessary/ evil - e.g. is the alternative actually, obviously worse; at the very least, the powers should be restricted and defined as much as possible, so that there's the least possible room to stretch and abuse them.
EDIT: I realized I responded kinda out of context after that. As per above, Bezoses bribing govt actors has historically been much less less of a concern than govt actors just abusing power of their own accord; and when Bezoses do abuse power via govt actors, the main reason is that govt actors have lots of power, wide discretion, complex easy to obfuscate rules, etc. With cops, drug prohibiyion is a great example - rife for abuse and selective enforcement. Remove the power, and it becomes much harder to abuse.
> If Bezos can buy the cops, should we get rid of cops so he can't exercise power through cops?
Exactly! Well, almost. Ideally, the powers they have should be treated as baseline evil, and then there should be a good argument for any of them being a /necessary/ evil - e.g. is the alternative actually, obviously worse; at the very least, the powers should be restricted and defined as much as possible, so that there's the least possible room to stretch and abuse them.
EDIT: I realized I responded kinda out of context after that. As per above, Bezoses bribing govt actors has historically been much less less of a concern than govt actors just abusing power of their own accord; and when Bezoses do abuse power via govt actors, the main reason is that govt actors have lots of power, wide discretion, complex easy to obfuscate rules, etc. With cops, drug prohibiyion is a great example - rife for abuse and selective enforcement. Remove the power, and it becomes much harder to abuse.
If that’s the concern there’s no need for tax, simply have a wealth limit. Agree or disagree?
Who enforces the wealth limit? If there is no tax, there can be no enforcement, no regulation, and no solving disputes by means other than who is most powerful.
It's not the concern, it is one concern, but specifically in the context of taxing the rich, I think it is the dominating concern.
It's not the concern, it is one concern, but specifically in the context of taxing the rich, I think it is the dominating concern.
Isn't this just as true of income taxes? They rely on accurate self-reporting, and there are legal remedies when inaccurate self-reporting is discovered. We could have people self-declare their wealth to the IRS annually on tax day.
The rich have a much lower marginal utility per dollar than the poor. My goal at least is to maximize utility, so increasing taxes on those who enjoy dollars less is the correct decision.
[deleted]
Found the economist.
Meaning a person who argues economic theory and not purely from neo-liberal ideology.
Meaning a person who argues economic theory and not purely from neo-liberal ideology.
That actually does not justify increased role of govt at all. Redistribution is nearly orthogonal to that... tax the rich, give money to the poor, fine. Just make sure to fire all the bureaucrats beyond what's necessary to maintain the simple transfer first.
You're assuming the value per dollar a poor person gains from their money is equal to what a rich person gains.
I want progressive taxation precisely because I think rich people are less able than others to spend their resources in a way that brings net benefit to the world.
I want progressive taxation precisely because I think rich people are less able than others to spend their resources in a way that brings net benefit to the world.
It's important to remember that not all dollars have equal value. If you're broke, $10 has significant value. If you're Bezos, it's effectively worthless. So when we decide how much to tax whom, we have to take this effect into consideration.
> 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?
So they can spend half of it well?
So they can spend half of it well?
No, because definitionally the money was better spent by the rich people. Note: I am not saying that this is the case, but the constructed scenario already supposes that.
"Better" as in better for social good? If that's what you're arguing your constructed scenario is just dumb.
Better as in like how the population would want the money spent.
seems like a pointlessly unrealistic premise
> learn to spend the money more effectively
That’s definitely an issue, but I would be happy with the government just spending less of it. Like less than is brought in as revenues. Excess can be rolled over with equivalent tax cuts or moved to an endowment or trust with an independent, non-partisan management structure that pays an annuity. Failure to stay under revenues would come directly out of public servant salaries, campaigns, benefits, and retirement programs.
That’s definitely an issue, but I would be happy with the government just spending less of it. Like less than is brought in as revenues. Excess can be rolled over with equivalent tax cuts or moved to an endowment or trust with an independent, non-partisan management structure that pays an annuity. Failure to stay under revenues would come directly out of public servant salaries, campaigns, benefits, and retirement programs.
>rich people effectively pay less tax than the middle class
That’s just not true. The top 1% of earners pay close to half of all income tax.
That’s just not true. The top 1% of earners pay close to half of all income tax.
Which has been proven time and time again to be extremely disingenuous.
Furthermore, how do you account for the ones who don't "earn an income" and simply live off bank loans until they die?
https://www.businessinsider.com/american-billionaires-tax-av...
Furthermore, how do you account for the ones who don't "earn an income" and simply live off bank loans until they die?
https://www.businessinsider.com/american-billionaires-tax-av...
Anything having to do with revenues or budgets typically will not identify the way comparison operators are being used. Rick people typically pay a lower effective tax rate than middle class, because, as many have noted, increases to wealth come from capital gains, illiquid appreciation, and less from income. Middle class has nearly 100% of any increase come from taxable income. The total dollar amount paid by high earners is definitely higher, but as a percent of total income, it should be lower (if you’re doing it right).
As I’m sure many here know, as more wealth is accumulated, it becomes easier to accumulate wealth in ways middle income and lower just can’t access. Whether that’s through tax advantages accounts, tax structures, or even just capital gains growing faster than incomes. It’s also easier to get lower interest rates, fees, purchase at prices approaching wholesale, etc.
As I’m sure many here know, as more wealth is accumulated, it becomes easier to accumulate wealth in ways middle income and lower just can’t access. Whether that’s through tax advantages accounts, tax structures, or even just capital gains growing faster than incomes. It’s also easier to get lower interest rates, fees, purchase at prices approaching wholesale, etc.
let that sink in for a moment..
even with all the legal tax evasion schemes the top 1% is still paying half of all income taxes with the measly amounts they actually register as income. the system is simply broken
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!
Taxes as punishment for having wealth.
Were laws broken? Doubt it, at least not at scale. Leave people with money alone!
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.
The new capital gains tax is paying for childcare programs and public education.
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.
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?
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?
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?
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.
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.
Now do houses. Why is the first $500k of real estate appreciation untaxed?
> 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.
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.
> 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.
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.
And yet we have less mobility than ever. Curious.
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"the wealthiest Washingtonians have gotten out of paying what they truly owe in state and local taxes"
State taxes were 0% - They paid 0%
State taxes were 0% - They paid 0%
They obviously meant ethically owe, not legally owe. It turns out that "owe", like many words in our fine language, has multiple meanings.
It's a ridiculous phrase especially when you're talking about taxes. It's just meant to rile up proletariat so they can be mad at those big bad billionaires over something else (or more accurately, the same thing again).
It's just nonsense propaganda.
It's just nonsense propaganda.
The Urbanist is an advocacy journal, off course it is a propaganda.
> The Urbanist serves to examine and influence urban policies by promoting and disseminating ideas, creating community, and improving the places we live. Founded in 2014, the organization provides daily news coverage and opinion in the advocacy journalism tradition along with social and educational events. The Urbanist is based in Seattle and registered as a nonprofit 501(c)(4) entity.
However it is not nonsense. We proletariat read the Urbanist because it provides us with valuable propaganda. It may rile us up—and perhaps that is intended—but it also provides things in context, and in this case it provides us with data—evidence if you will—that what we have always said turns out to be true. The rich can afford to pay more taxes, the state would benefit, and that the taxation laws until now have been extremely unfair.
> The Urbanist serves to examine and influence urban policies by promoting and disseminating ideas, creating community, and improving the places we live. Founded in 2014, the organization provides daily news coverage and opinion in the advocacy journalism tradition along with social and educational events. The Urbanist is based in Seattle and registered as a nonprofit 501(c)(4) entity.
However it is not nonsense. We proletariat read the Urbanist because it provides us with valuable propaganda. It may rile us up—and perhaps that is intended—but it also provides things in context, and in this case it provides us with data—evidence if you will—that what we have always said turns out to be true. The rich can afford to pay more taxes, the state would benefit, and that the taxation laws until now have been extremely unfair.
What point are you trying to make? Do you think the wealthiest Washingtonians truly owe 0% to society?
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.
“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.
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.
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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.
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.
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.
> 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.
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.
>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.
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.
> 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.
Non-uniform income taxes are banned by the state constitution. A flat tax on all income, regardless of amount, would have been legal.
Economists seem to disagree with you
Thanks. After reading this drivel I can ignore anything from this domain forever.
What would you recommend reading instead?
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.
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.
It is more of an idealogocal blog post rather than a through review.
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.
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.
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.
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.
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.
> 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.
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.
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.
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.
For contrast, in Canada, capital gains tax rate is 50%, regardless of the amount.
This is false. In Canada, 50% of your capital gains are considered tax-free and 50% of the gain is taxable. The tax rate on that 50% is whatever your marginal tax rate is.
So if you have capital gains of $100,000 in one year, you don't pay any taxes on $50,000 at all. For the remaining $50,000 the tax you pay is [ 15% / 20.5% / 26% / 29% / 33% ] depending upon which bracket you're in.
So if you have capital gains of $100,000 in one year, you don't pay any taxes on $50,000 at all. For the remaining $50,000 the tax you pay is [ 15% / 20.5% / 26% / 29% / 33% ] depending upon which bracket you're in.
That is a lower effective rate than the US capital gains tax.
that seems a lot more reasonable than taxation in California
> 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.
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.
Yep. I was also astonished at that figure and immediately looked it up, and what you describe matches what I found.
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.
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.
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.
Seems reasonable? An excise is for a "manufactured good" (stocks) rather than direct "money" (income)
And guess who this will target and affect? Middle class and upper middle class, while the wealthy still end up paying $0 through tax loops. Tax the billionaires even 10% their due first would have more impact
If you're pulling in gains above 250k you're probably not middle class.
There is also a federal capital gains tax.
This must be why I've known several people who emigrated out of Canada before having a liquidity event.
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.
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
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
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It explicitly excludes real estate.
It excludes sales of primary homes.
Needs less rhetoric and more numbers
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-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-...). 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.
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-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-...). 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.
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.
Can't the OP just state additional facts as color commentary, without having shared an opinion on whether anything it good or bad?
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”?