Washington state approves capital gains tax(geekwire.com)
geekwire.com
Washington state approves capital gains tax
https://www.geekwire.com/2021/washington-lawmakers-approve-capital-gains-tax-first-time-state-history/
284 comments
> Should the calculation of capital gains take inflation into account?
There is a good argument that capital gains, for fairness, should be taxed the same as other income, on a value calculated by adjusting the basis value for inflation. (Which is very different from maintaining current policy but for adjusting basis value.)
But fairness doesn’t seem to be a motivating principle of the existing capital gains tax in the first place. If you look at it as an effort to encourage the shortest possible “long-term” holding, the existing policy makes perfect sense.
There is a good argument that capital gains, for fairness, should be taxed the same as other income, on a value calculated by adjusting the basis value for inflation. (Which is very different from maintaining current policy but for adjusting basis value.)
But fairness doesn’t seem to be a motivating principle of the existing capital gains tax in the first place. If you look at it as an effort to encourage the shortest possible “long-term” holding, the existing policy makes perfect sense.
He has a point. Imagine capital gains in a sustained high inflation period. Even if your investment exactly tracked inflation you’d end up with a very substantial nominal gain, and LTCG uses the nominal value.
I don't understand the point since he'd still be better off than if he just held cash. What am I missing?
Think of it this way, they could have bought something for $10,000 at the beginning but now that $10,000 item would cost $15,700 and they only have about $13,810 or less depending on state tax. (That assumes a 23.8% tax rate on the $5000 in “gains”)
So assuming whatever they bought doesn’t degrade, it would have been better to buy it in the beginning rather than invest and make less than inflation after tax
So assuming whatever they bought doesn’t degrade, it would have been better to buy it in the beginning rather than invest and make less than inflation after tax
We will not have to image that, it coming sooner than most people think
It would be great for the taxpayer if you could do that but the government would lose out on so much revenue. So I think any such proposal is dead on arrival.
I think it’s important to recognize that taxes are not primarily about revenue. The government can just create/inflate as much money into existence as it wants. All taxes are about behavior control and signaling. We’re either trying to discourage a behavior or signal we’re sticking it to some group or other who is getting taxed. Once you see the world through this lens all of these tax laws make much more sense.
It is also part of fiscal/monetary policy. Sure, the government could increase the money supply. but if the amount of spending they want to do is greater than the amount they want to increase the money supply by, they need some way to reconcile the two, which taxes provide.
Federal Government, maybe. But State and Local do not have this option.
I think it is important to recognize that taxes when used for anything other then revenue are highly unethical and should be opposed by the population
I feel like they're one of the only tools we have collectively as a society to counteract "tragedy of the commons"/negative externality situations. Is a tax that brings the financial costs of an action in line with its distributed societal costs that unethical?
Almost no taxes are based on negative externalities.
I'd love it if that changes, but productive activity is primarily what's taxed, unfortunately.
I'd love it if that changes, but productive activity is primarily what's taxed, unfortunately.
Government taxation is very very ineffective tool, and rarely accomplishes that goal. I would love for you to cite and example of a taxation scheme in use today that is right now countering an actual negative externality
Governments do not have a track record for being trust worthily enough to be placed in charge of controlling externalities, it would inevitably be used to usurp power, and liberty from the people, while unjustly enriching their political allies. This happens time and time again yet people still believe government is not only the "best" way to control things, but more stockily believe it is the "only" way to do so despite 1000's of years of historical record proving otherwise
Governments do not have a track record for being trust worthily enough to be placed in charge of controlling externalities, it would inevitably be used to usurp power, and liberty from the people, while unjustly enriching their political allies. This happens time and time again yet people still believe government is not only the "best" way to control things, but more stockily believe it is the "only" way to do so despite 1000's of years of historical record proving otherwise
What are alternatives to controlling negative externalities? My understanding is that they are by definition not fixable by the free market, and anything that is not the free market is government essentially.
privatise everything so that the owners are able to sue those who negatively impact their assets
https://www.washingtonexaminer.com/if-you-want-to-save-the-e...
https://www.washingtonexaminer.com/if-you-want-to-save-the-e...
That didn't work for pigs and chicken.
How would that work for air pollution?
In theory by owning a certain part of the atmosphere above your country. The government would then set a maximum CO2 limit in ppm that is allowed on your cubic metres of atmosphere.
In practice it is heavily simplified and you don't get to own portions of the atmosphere, instead you get usage rights, which means the right to pollute a certain amount. This is done via cap and trade already.
In practice it is heavily simplified and you don't get to own portions of the atmosphere, instead you get usage rights, which means the right to pollute a certain amount. This is done via cap and trade already.
How would suing them work?
How does that get around the free rider problem? If someone is polluting the air, they're making everyone's life worse by epsilon. If I'm to sue them, all the cost of the lawsuit is privatized, and all the benefit is socialized
As opposed to the current system where they still pollute, they still kill you, but you're not even allowed to sue because the state owns the air/water and lets them pollute and you get no compensation.
Singapore has high taxes on cars to reduce congestion. People stopped driving.
Germany has high taxes on gasoline. People buy more efficient cars.
Norway has taxes on ICEs but no taxes on EVs. Lots of people buy EVs.
Land value taxes reduce the economic loss caused by rent seeking.
Carbon taxes reduce CO2 emissions.
>This happens time and time again yet people still believe government is not only the "best" way to control things, but more stockily believe it is the "only" way to do so despite 1000's of years of historical record proving otherwise
Who cares about the last 1000 years of historical record when the necessity of government activity only depends on the current state of the economy? There are barely any absolutes in economics, almost everything depends on the situation in question.
Germany has high taxes on gasoline. People buy more efficient cars.
Norway has taxes on ICEs but no taxes on EVs. Lots of people buy EVs.
Land value taxes reduce the economic loss caused by rent seeking.
Carbon taxes reduce CO2 emissions.
>This happens time and time again yet people still believe government is not only the "best" way to control things, but more stockily believe it is the "only" way to do so despite 1000's of years of historical record proving otherwise
Who cares about the last 1000 years of historical record when the necessity of government activity only depends on the current state of the economy? There are barely any absolutes in economics, almost everything depends on the situation in question.
Isn't that the same way it works for buying stocks?
I don't live in the US, but if I buy stocks for 100$, then sell them five years later for 150$, I have to pay a percentage of the winnings (so a % of 50$). This means that if inflation was more than what's left over after the taxes are removed then I would effectively "lose" money.
I don't live in the US, but if I buy stocks for 100$, then sell them five years later for 150$, I have to pay a percentage of the winnings (so a % of 50$). This means that if inflation was more than what's left over after the taxes are removed then I would effectively "lose" money.
Let's be clear though, if your stock grows as little as that such that after paying capital gains on profits and adding inflation into the equation would leave you on the negative or even, then it's a pretty bad performing stock.
Why? What if I buy stocks with the intention of preservinpreserving wealth rather than growing my net worth? In such a case I am just trying to keep up with inflation with as little risk as possible, but the tax policies in place are forcing me to take on more risk. I can't just take a stake in a basket of goods and call it a day. I have to beat the risk free market substantially.
With that return your risk may be 0 but a guaranteed loss is what you choose. If you want to preserve wealth and want to beat inflation go with mutual or index funds, they go up and down with the market and the market beats inflation and appreciate quite a bit more. Or bonds.
All of those are what I had in mind. All of those incur capital gains tax, with the exception of perhaps some govt bonds (which have low yields).
Specifically, look out for funds that specialize in low volatility. Their gains are lower but so is the risk.
Assuming 5% inflation with 0% returns for 50 years and a 20% capital gains tax $1 turns into $11.47, a rise by $10.47, therefore you owe $2.09 in taxes. $11.47-$2.09 = $9.37.
You rightfully expect $11.47 but you instead get $9.37 after taxes. Your wealth has shrunk to 81.6% of its original value, meaning you need to net a return of 22.4% over 50 years to break even, which is equivalent to a 0.4% gain every single year or a 0.4% loss every single year.
If you could find a 4.7% interest savings account you would beat the perfect savings vehicle.
In practice inflation is laughably low right now. With current inflation (2.5% yes it's an overestimate) you would lose 14% of your savings over 50 years.
You're right that this is forcing you to take on more risk, but not substantially. You may need to put 10% of your money into the least risky stocks and keep 90% in a risk free asset.
You rightfully expect $11.47 but you instead get $9.37 after taxes. Your wealth has shrunk to 81.6% of its original value, meaning you need to net a return of 22.4% over 50 years to break even, which is equivalent to a 0.4% gain every single year or a 0.4% loss every single year.
If you could find a 4.7% interest savings account you would beat the perfect savings vehicle.
In practice inflation is laughably low right now. With current inflation (2.5% yes it's an overestimate) you would lose 14% of your savings over 50 years.
You're right that this is forcing you to take on more risk, but not substantially. You may need to put 10% of your money into the least risky stocks and keep 90% in a risk free asset.
Yes, he was in fact talking about stocks.
Yes, he has a point. Just treading water with respect to inflation triggers a tax bill. I doubt the cap gains calculation will ever tax real gains rather than nominal gains.
If you had 10k in 2000 then didn't invest, in 2021, you'd lose even more money due to inflation than if you invested.
Because cash obviously doesn't grow with inflation. You're only option to "get ahead" is to pick a better stock :)
Because cash obviously doesn't grow with inflation. You're only option to "get ahead" is to pick a better stock :)
Also there is always the standard deduction, and I think at the federal level there is even 30k on top of that you can take in LTCG without any taxes. So not a luxurious lifestyle, but certainly enough to survive.
I don't think WA is doing that though. They probably have a much lower threshold when the capital gains tax sets in.
Edit: just read a bit closer and WA is exempting the first 250k in gains per year. So they are offering an even better deal than the feds.
I don't think WA is doing that though. They probably have a much lower threshold when the capital gains tax sets in.
Edit: just read a bit closer and WA is exempting the first 250k in gains per year. So they are offering an even better deal than the feds.
In the current economic climate the US is in? Nope.
In Turkey? Absolutely.
US has too much savings and there is strong pressure to get rid of the excess savings.
Turkey has the exact opposite problem, people stop saving in Turkey and they need as many incentives as possible.
In Turkey? Absolutely.
US has too much savings and there is strong pressure to get rid of the excess savings.
Turkey has the exact opposite problem, people stop saving in Turkey and they need as many incentives as possible.
That is only likely to happen with housing (although not for the past 30 years in anywhere remotely desirable), and the tax breaks on moving your primary residence pretty much address that.
> Should the calculation of capital gains take inflation into account?
Isn't this one of the justifications for cap gains rates typically (jurisdiction dependent) being lower than regular income?
Isn't this one of the justifications for cap gains rates typically (jurisdiction dependent) being lower than regular income?
Not that I've ever heard. The only justification I've heard is that long-term investing is good for the overall economy, and therefore should be encouraged.
I could swear I've heard it brought up but I'm not on top of these discussions, so who knows.
And as reduced down, it essentially gives the Fed the ability to seize 20% (soon to be 40%) of all property in the name of the IRS, by printing arbitrary amounts of money (which the Fed board can do independently of congress) to blow up the nominal "capital gains" on any asset, triggering capital gains tax.
It hasn't been an issue historically, in an era of hawkish fed leadership, but this year... we'll see.
It hasn't been an issue historically, in an era of hawkish fed leadership, but this year... we'll see.
What you're describing is a wealth tax, not capital gains. Capital gains taxes are applied to gains on capital, not to held property.
That's the point! Inflation causes fake capital gains on held property, which then turns into a wealth tax if you ever try to exchange the asset for another one!
It does not turn into a wealth tax. A wealth tax is a tax on the entire value of the property. A capital gains tax is a tax on the gains. The only, extremely narrow situation in which they’re the same for a particular investment is when someone has a $0 cost basis on their investment. Runaway high inflation will have them trend closer to one another, but we don’t have that.
The "runaway high inflation" is exactly what I'm saying is a possibility. But it's not even necessary.
Capital gains is a LOT compared to any proposed wealth tax, _and_ it affects most people (as opposed to the "billionaire tax"). 2x inflation (which is very plausible over a decade) translates into a 10% wealth tax, even at 20% cap gains. 4x inflation is 15%. Those are real numbers!
Capital gains is a LOT compared to any proposed wealth tax, _and_ it affects most people (as opposed to the "billionaire tax"). 2x inflation (which is very plausible over a decade) translates into a 10% wealth tax, even at 20% cap gains. 4x inflation is 15%. Those are real numbers!
2x inflation over 10 years would require something like 7.2% annualized inflation. We're nowhere near that and haven't been for decades. Average over the last 20 years is around 3%, and it's been even lower over the past decade.
4x requires historically high inflation over a decade.
4x requires historically high inflation over a decade.
It's also unlike a wealth tax in the sense that you are not approaching a legislated minimum. If there is 1000x inflation you still only lose the capital gains taxes. If the government introduces a 5% wealth tax you lose everything after 100 years.
Those ARE real numbers - though we may disagree on how likely those levels of inflation are. Does higher inflation increase capital gains tax bills? Yes, we'll agree on that. Do capital gains impact more people than any proposed wealth tax I've seen? Also, yes we'll agree there too.
However, one fundamental difference between capital gains taxes and wealth taxes is that capital gains taxes are only imposed on the gains on the disposition of an asset, whereas a wealth tax is applied to an individual's entire net worth, and all proposals I've seen are applied annually. This is relevant to the original comment that said "all property" would be subject to a 20% tax - but my point was that's not the case, regardless of inflation.
However, one fundamental difference between capital gains taxes and wealth taxes is that capital gains taxes are only imposed on the gains on the disposition of an asset, whereas a wealth tax is applied to an individual's entire net worth, and all proposals I've seen are applied annually. This is relevant to the original comment that said "all property" would be subject to a 20% tax - but my point was that's not the case, regardless of inflation.
Bingo. Your comment likely won't gain traction here, but it is definitely going to be an interesting decade!
Absolutely. But really there should not be capital gains tax as it is double taxation - you have already paid income tax on the same dollar.
"Double taxation" as a concept is complete nonsense. You pay sales tax, property tax, VAT, etc out of money (or assets bought with money) that has already been subject to your income tax. You pay both federal and local income taxes on the same money. Tax systems are naturally layered, and have been since the beginning of civilization.
There are good arguments against capital gains tax, but this is not one of them.
There are good arguments against capital gains tax, but this is not one of them.
Double taxation is more about how if if I own a c corp it pays a tax on profits, and then distributes that remainder of that profit to me and I pay the dividend tax on the same money. Thus the corp tax + the dividend tax should be close to the individual tax rate. When they aren't, you are tax advantaged to run an s corp.
Double taxation increases tax complexity. If possible we limit ourselves to as few taxes as possible but make those we keep count.
I don’t think you understand how capital gains work...
If you invest a dollar today and get ten dollars tomorrow you’ve gained 9 dollars. When were you taxed for that?
If you invest a dollar today and get ten dollars tomorrow you’ve gained 9 dollars. When were you taxed for that?
They're saying if that growth occured over 60 years then you've just kept up with inflation. Might as well have just put it in a standard savings account and NOT get capital gains tax. *Well, maybe a standard money market account or bond.
Bonds also incur capital gains tax) The point of the capital gains taxes/inflation is specifically to incentivize people spending money over saving (if too many people saved money the economy would contract). It's not a perfect tool, but it works somewhat.
Income from bonds issued by the federal government and its agencies, including Treasury securities, is generally exempt from state and local taxes.
Wait, wouldn't you get taxed capital gains on a standard savings account? I'm genuinely curious even though right now saving accounts are not saving anything at all.
Tax on interest is at a different rate than capital gains tax.
Which one is higher?
I’m pretty sure that interest income is taxed, at the federal level, like wage income. In other words, at a higher rate than capital gains.
Long-term capital gains are taxed at a lower rate than ordinary income and short-term capital gains (which are taxed at income rates).
I think his point was the initial dollar you invested was at some point subject to income tax to get it.
The (now gray) comment talks about being double taxed. That is, taxed twice for the same money.
If I invest $100 (post-tax money) and sell the investment at $1000, I do not pay taxes on that $100. There is no double taxing. I do pay taxes on the $900 gain.
If I invest $100 (post-tax money) and sell the investment at $1000, I do not pay taxes on that $100. There is no double taxing. I do pay taxes on the $900 gain.
The double taxation that some people talk about is actually corporate profits being taxed, and then that money being further taxed as capital gains / dividends - but I don't think that 's a fair criticism either.
The problem is the gain may exist in nominal terms only. It’s possible to make a 100% nominal gain, which will be taxed, even if in inflation adjusted terms you lost 90% of the actual value in the process.
That’s a bad point, because the first dollar won’t be subject to cap gains, so there is no double taxation happening.
Yes, but the capital gains tax doesn't apply to that dollar (it's right in the name).
There is no double taxation here.
There is a more nuanced question as to whether or not inflation should be incorporated into the calculations, but there are pros and cons there also.
There is no double taxation here.
There is a more nuanced question as to whether or not inflation should be incorporated into the calculations, but there are pros and cons there also.
You pay capital gains on the nominal profit (versus real profit, which may actually be a real loss as in the example). You have not paid double the taxes unless you screwed up and selected a cost-basis of $0 versus the actual non-zero value.
Please read up on the difference between 'profit' and 'revenue'.
Details are sparse in this article. Looks like 7% capital gains tax, first $250K excluded, real estate excluded. Proceeds to primarily fund childhood education (for now).
> For example, stock sales higher than $250,000 would be taxed at 7%. Real estate would not be.
7% (on top of federal cap gains, which are also increasing) is a significant tax rate to start with. If it was 1-2%, I could see people rolling with it. At a whopping 7%, I expect a lot of startup founders and small business owners looking for an exit will be moving across the border to Portland right before they sell their companies.
> For example, stock sales higher than $250,000 would be taxed at 7%. Real estate would not be.
7% (on top of federal cap gains, which are also increasing) is a significant tax rate to start with. If it was 1-2%, I could see people rolling with it. At a whopping 7%, I expect a lot of startup founders and small business owners looking for an exit will be moving across the border to Portland right before they sell their companies.
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.
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.
"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.
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.
Income taxes are not unconstitutional. Progressive income taxes are. No one wants to impose a flat income tax though.
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...
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.
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#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.
"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#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.
"The SCOWA has said income is property. But it's up in the air if capital gains is income, or property."
How is that?
How is that?
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)
These taxes always start off only affecting the richest of the rich, until the government decides it needs more revenue.
“The government” is legislators that we elect. They aren’t some external force that is imposed on us.
Even in a perfectly democratic system, 50.001% of the population can impose a government on the other 49.999%.
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?
or they could storm the Capitol
[deleted]
As opposed to what - taxing the poor first, or just not taxing anyone?
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.
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.
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.
> 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?
Then you’d be making a much more realistic and honest argument that the one I was replying to.
Then you’d be making a much more realistic and honest argument that the one I was replying to.
Then gift the government money directly, and leave others to make their own decisions instead of imposing what you feel is right on them?
Here is the official process "Gifts to the U.S. Government": https://www.fiscal.treasury.gov/public/gifts-to-government.h...
Here is the official process "Gifts to the U.S. Government": https://www.fiscal.treasury.gov/public/gifts-to-government.h...
Why is this being downvoted? I don't want to give more to the government to grow its bureaucracy even more. When they say it's meant for "education", it also means more administrators with useless roles on a tax-funded salaries + pensions which you'll be paying for.
“ 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.
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.
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.
"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
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.
Interesting to see the current numbers. But even before then, the AMT disproportionately affected California taxpayers.
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.
And I guarantee you as an early engineer, I'm likely going to hit 250k, but get nothing close to founder cashout money.
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)
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.
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.
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.
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.
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?
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-...
Or legal source: http://lawfilesext.leg.wa.gov/biennium/2021-22/Pdf/Bills/Sen...
See Section 8, (2)(d)(iii)
> 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-...
Or legal source: http://lawfilesext.leg.wa.gov/biennium/2021-22/Pdf/Bills/Sen...
See Section 8, (2)(d)(iii)
In other words, the rich founders get richer while the early employees continue to get screwed.
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.
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"
Of course when the tax bill actually comes many people are often shocked they are included in "them"
If it were easy to generate the necessary inflation to avoid laws like this then nobody would have bothered with a capital gains tax increase or even with the idea of a wealth tax.
Yes, the number of options are decreasing day by day...
Yes, the number of options are decreasing day by day...
Agree, it would be more than 7000. I was just reacting to the the claim that it would affect the "most wealthy" which is not what an income tax targets.
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.
> 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).
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).
It looks like Oregon has a 9.9% capital gains tax, so moving to Portland would add to the tax bill of founders relocating before selling their company instead of reducing it.
Oregon also has a state income tax, unlike Washington.
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).
Searched for and couldn't find the 0.4% tax, which tax are you referring to? And for others, the incoming 2022 tax is a 0.58% payroll tax.
From WA directly: "Washington state does not have a personal or corporate income tax." [1]
1 - https://dor.wa.gov/taxes-rates/income-tax
From WA directly: "Washington state does not have a personal or corporate income tax." [1]
1 - https://dor.wa.gov/taxes-rates/income-tax
https://paidleave.wa.gov/estimate-your-paid-leave-payments/
Washington can claim it does not have an income tax (for the purposes of subverting the state’s constitution forbidding it), but I do not see how money deducted from your income by government mandate is not a tax.
Washington can claim it does not have an income tax (for the purposes of subverting the state’s constitution forbidding it), but I do not see how money deducted from your income by government mandate is not a tax.
Oregon treats capital gains as regular income (so do most states, including CA).
Oregon also has one of the worst tax regimes in the country. For most earners, a resident of a state like CA without sales tax on groceries, medical care, or medical necessities will end up with a substantially lower tax burden than a similar earner in Oregon. To be more taxed than CA is crazy.
Oregon also has one of the worst tax regimes in the country. For most earners, a resident of a state like CA without sales tax on groceries, medical care, or medical necessities will end up with a substantially lower tax burden than a similar earner in Oregon. To be more taxed than CA is crazy.
They will move to Oregon so that they can pay 9.9% instead?
I doubt any business owners are thinking about moving to Portland.
When I lived there a few years ago, there was an increasing amount of tech companies from Seattle opening up offices in Portland.
With all the sustained civil unrest and property destruction I’d steer clear of Portland if I wanted to open an office.
It has changed a lot with antifa having free reign for the last year. Lots of businesses boarded up and leaving. Even the Apple store was just set on fire again.
Part-time Portlander here! You have absolutely no idea what you're talking about. Please stop basing your worldview on Infowars talking points.
I am basing my opinion on my eyeballs walking around with my own feet. Please stop basing your worldview on denial and delusion.
Yeah ok. Your opinion is akin to saying that all of DC is continuously under siege because you saw a single video of the inauguration riots.
Our eyes can see videos on Twitter. Go show us a picture of the Apple store operating normally then.
Somehow, I imagine you aren't in Portland or haven't spent a lot of time downtown. You are regurgitating right talking points.
It's not exactly a secret what's going on there. While I doubt the place is on fire 24/7, the substantial damage sustained to local businesses cannot be denied. It would be difficult to convince someone who was thinking critically about moving their business there that all is well now and going forward.
It's not a secret that the majority of the country has been dragged down into believing political fiction of some sort or another as fact by the relentless partisan propaganda. I'm sure many more people on the right were whipped into anger by the supposed $23 million in protest related losses than will ever read this:
https://www.oregonlive.com/portland/2020/07/coronavirus-clos...
https://www.oregonlive.com/portland/2020/07/coronavirus-clos...
You’re an example of the boiling frog if you think it’s perfectly normal and acceptable to light the mayor’s condo lobby on fire and riot over 100 days in a row. This has nothing to do with propaganda.
I didn't say that was acceptable and don't believe it is.
Even the mayor of Portland (who originally praised the protests) is asking the public to help stop the folks doing violence. How is this a right talking point? Are you ignoring reality?
Any amount of violence is too much, and just deligitimizes the protests and gives fodder to political commentators who aim to do so. Of course you would ask your people to help keep the peace. It doesn't mean it was so out of control as depicted in right wing news, which it wasn't.
I can assure you that nobody in this conversation got their information from right wing news.
> the mayor of Portland (who originally praised the protests)
This is counterfactual. Wheeler's been against the protests, and actively the subject of protest pretty much the whole time. He did a single media stunt participating in the protests and that's pretty much it. It was not well-received:
> On July 22, Wheeler addressed nightly protesters, but was booed by them for his actions as Portland Police Commissioner and the Portland Police's own response to the protests. The crowd chanted "Fuck Ted Wheeler" and "Quit Your Job" as he spoke.
His nickname is "Tear Gas Teddy," and it's not for being on the receiving end of the gas.
This is counterfactual. Wheeler's been against the protests, and actively the subject of protest pretty much the whole time. He did a single media stunt participating in the protests and that's pretty much it. It was not well-received:
> On July 22, Wheeler addressed nightly protesters, but was booed by them for his actions as Portland Police Commissioner and the Portland Police's own response to the protests. The crowd chanted "Fuck Ted Wheeler" and "Quit Your Job" as he spoke.
His nickname is "Tear Gas Teddy," and it's not for being on the receiving end of the gas.
A lot of progressives seem to share this delusion and I find it puzzling. I have no idea who started this meme that there are “right talking points” going around about Portland. If such a thing exists, I have no idea what it is or where it comes from. Rest assured, my talking points are completely original and synthesized by my own senses. I’m in Portland quite frequently and was there earlier this month. I have many good friends there as well. I’d offer you some video footage that I took personally, but there is no shortage of it online. Ted Wheeler has even (finally) acknowledged it. The city is an embarrassment, and has gone to shit in the last 5 years.
Go ahead and post your video. Show us what horrible things you saw anteefa do.
Frankly, unless you've been doing a somewhat systematic survey of "businesses that have been boarded up" and "businesses that continue to operate as normal" and are doing so across the city (and not the very small part of the city where the protests have been taking place), this seems like an ideal situation to point out that the plural of anecdote is not data.
I’m talking about the riots and antifa/anarchist attacks, not the protests. And it doesn’t matter that there are places that are not being attacked and vandalized. This is of little consolation to the business that are suffering from regular criminal behavior.
> At a whopping 7%, I expect a lot of startup founders and small business owners looking for an exit will be moving across the border to Portland right before they sell their companies.
Why? Oregon has income tax of 9-10% on all income over $9k/year.
Why? Oregon has income tax of 9-10% on all income over $9k/year.
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[deleted]
I like that a certain amount is excluded but I don’t like exemptions for real estate. It should be treated like any other investment.
As a Washington resident, I think this is great. WA has one of the most regressive tax systems in the country, and this is a move in the right direction.
It's crafted to have a very narrow impact. It is capital gains, but essentially only for stock sales, and only for stocks sales over a quarter million dollars. If someone sells half a million dollars worth of stock, it seems very fair the state gets some cut of that - especially if it's earmarked for childhood education.
I can only hope I'm successful enough to one day pay this tax.
It's crafted to have a very narrow impact. It is capital gains, but essentially only for stock sales, and only for stocks sales over a quarter million dollars. If someone sells half a million dollars worth of stock, it seems very fair the state gets some cut of that - especially if it's earmarked for childhood education.
I can only hope I'm successful enough to one day pay this tax.
I'm not a fan of labelling tax code as "regressive" in this case. It hasn't moved "backwards", it's stayed the same.
I also question the rationale behind giving our city and state more money... they haven't exactly exhibited forthright stewardship of existing tax resources. I have doubts that taking more capital gains taxes will be a net positive. This will in all likelihood negatively impact the region's yearly charitable donations. It will be interesting if someone does a before/after comparison of the net effect of this new tax.
I also question the rationale behind giving our city and state more money... they haven't exactly exhibited forthright stewardship of existing tax resources. I have doubts that taking more capital gains taxes will be a net positive. This will in all likelihood negatively impact the region's yearly charitable donations. It will be interesting if someone does a before/after comparison of the net effect of this new tax.
I believe zacharycohn meant "regressive" as in "imposes a harsher burden on lower-income households than on households with higher incomes."[0] In this sense, Washington state does have a regressive tax system, in part thanks to 0% income tax and higher than average sales tax.
[0] https://www.thebalance.com/regressive-tax-definition-history...
[0] https://www.thebalance.com/regressive-tax-definition-history...
Upvoted you. After reading the comment again I see that it should be interpreted the way you describe.
Yes, progressive vs regressive taxes are a technical term.
Yes, but I think it's a relatively new or transient interpretation. I couldn't find much of an authoritative basis for it. It would be great if you could post any links that you know of.
There's a wikipedia article on it, but none of the key references exist any more : https://en.wikipedia.org/wiki/Regressive_tax
There's a wikipedia article on it, but none of the key references exist any more : https://en.wikipedia.org/wiki/Regressive_tax
"The technical term for such taxation is regressive taxation" - Seligman 1894 https://www.jstor.org/stable/pdf/2485696.pdf
> especially if it's earmarked for childhood education.
If it's earmarked for childhood education then don't be surprised if other childhood education funds are reallocated elsewhere.
If it's earmarked for childhood education then don't be surprised if other childhood education funds are reallocated elsewhere.
Haha yes ... earmarking funds for noble causes is the ultimate fake out. Lottery money all goes to noble causes right, right?
Depends on your state, but I guarantee the information is available to you. You can ask your state representative for more information if you're curious.
Here's the 2020 financial report for WA's lottery: https://walottery.com/About/assets/docs/20AnnualReport.pdf
Page 31 is probably what you're looking for. The majority of payments ($141 million) went to the Washington Opportunity Pathways Account, relevant statute here: https://app.leg.wa.gov/RCW/default.aspx?cite=28B.76.526
Here's the 2020 financial report for WA's lottery: https://walottery.com/About/assets/docs/20AnnualReport.pdf
Page 31 is probably what you're looking for. The majority of payments ($141 million) went to the Washington Opportunity Pathways Account, relevant statute here: https://app.leg.wa.gov/RCW/default.aspx?cite=28B.76.526
The concern is usually that (made up numbers) school is budgeted at 100M/yr from the general fund. Then they get a lottery that provides 30M/yr, and 100% goes to the schools. Now the schools have 130M/yr right? But the worry is instead they reduce the funds from the general budget to 70M. The lottery money all went to the schools, but the extra 30M went to the general fund.
They won't be in WA. They've been underfunding education for years and are under a state Supreme Court mandate to increase funding. I'm not 100% sure that's still in effect but my property taxes nearly doubled 2017->2018.
I think it's even narrower than you point out, as it should be 250K of gains, not just of stock sales. If I, for example, sell 260K of an index fund that I bought for 240K, I shouldn't owe this tax. However, if I sell 260K of stock that I got at basically 0 monetary cost as a company founder, then I'd owe the tax.
This is correct, it's over 250k in gains. Important distinction that may be getting intentionally muddied.
>If someone sells half a million dollars worth of stock, it seems very fair the state gets some cut of that
Yes very fair, after all the state took all that risk on those stocks and deserves something too. And to think that business you built should be all yours and not theirs also.
Like Warren said you are only successful because of the rest of us......
“You built a factory out there? Good for you. But I want to be clear: you moved your goods to market on the roads the rest of us paid for; you hired workers the rest of us paid to educate; you were safe in your factory because of police forces and fire forces that the rest of us paid for. You didn’t have to worry that marauding bands would come and seize everything at your factory, and hire someone to protect against this, because of the work the rest of us did.
- Elizabeth Warren
Yes very fair, after all the state took all that risk on those stocks and deserves something too. And to think that business you built should be all yours and not theirs also.
Like Warren said you are only successful because of the rest of us......
“You built a factory out there? Good for you. But I want to be clear: you moved your goods to market on the roads the rest of us paid for; you hired workers the rest of us paid to educate; you were safe in your factory because of police forces and fire forces that the rest of us paid for. You didn’t have to worry that marauding bands would come and seize everything at your factory, and hire someone to protect against this, because of the work the rest of us did.
- Elizabeth Warren
Actual nonsense coming out of this government. As a life-long resident one of the main reasons I continue to work in Washington is the lack of an income tax.
Exempting real estate is just an extra middle-finger to anyone young and trying to save.
This is so painful and short-sighted. Earmarking for education is yet another typical smoke and mirrors 'saint-hood' performance that this government puts on for its low-info voter base.
If all of that money can still be proven to be going towards childhood education by 2023, I'll deep-fry my socks and eat them. Hopefully we can get a State Supreme Court judge to knock this down as unconstitutional.
Exempting real estate is just an extra middle-finger to anyone young and trying to save.
This is so painful and short-sighted. Earmarking for education is yet another typical smoke and mirrors 'saint-hood' performance that this government puts on for its low-info voter base.
If all of that money can still be proven to be going towards childhood education by 2023, I'll deep-fry my socks and eat them. Hopefully we can get a State Supreme Court judge to knock this down as unconstitutional.
Managing real estate is a magnitude more difficult than managing 100 shares of Tesla or maintaining a website.
Let’s agree that value creation should not be the target of taxes. Sin or consumption on the otherhand would be more rational. Can someone enlighten me on the case for taxing value creation and not value consumption?
Let’s agree that value creation should not be the target of taxes. Sin or consumption on the otherhand would be more rational. Can someone enlighten me on the case for taxing value creation and not value consumption?
[deleted]
> anyone young and trying to save
It says the first $250k is exempt. Not a lot of young savers pulling down $250k in cap gains annually.
It says the first $250k is exempt. Not a lot of young savers pulling down $250k in cap gains annually.
That was the FAANG stocks doing the thinking
I don't think FAANG young engineers earn $250k cap gains a year.
RSUs are ordinary income, not capital gains.
RSUs are taxed as ordinary income but when they vest they become (usually) class A shares. The sale of those shares will incur capital gains taxes, if there is a gain.
So sell just enough to stay under the $250k/year in cap gains. I'm still not seeing a problem here.
Sale at time of vest would have zero or likely negligible capital gain/loss, and then it's the same as any other income. Yes, if you hold the shares (much like buying any other stock with your income), and it appreciates, you would have capital gains.
Re levels.fyi, the compensation figures are just time of vest.
Re levels.fyi, the compensation figures are just time of vest.
Proceeds to fund child education.
Like the state gas tax, you still won’t get itemization of its breakdown to ensure that it is really where it is going to go.
So, color me surprise.
Like the state gas tax, you still won’t get itemization of its breakdown to ensure that it is really where it is going to go.
So, color me surprise.
Hypothetication of taxes is never a good idea anyway.
Even if it does go there, any money that previously went there will go somewhere else. So its the "somewhere else" that benefits.
It seems like almost every new kind of taxation gets pushed as something to fund education. For example, I was recently looking at buying a used car from a private seller and it turns out I have to pay a state sales tax on the purchase. Why? Well that specific tax was passed decades ago to fund state schools. Does the money still go to the schools? I have no clue but maybe not since the state is still considering hiking taxes to pay for more education.
If you have any inkling the gas tax is going somewhere it isn't supposed to you're free to file a PDR.
If you are against the bill - you are against child education. It's that easy. And stop asking questions.
Not sure if this is sarcasm...
Definitely sarcasm with 'And stop asking questions.'
iT’s dEfInItElY SarCaSm! so vote the grand-comment up!
There are several issues with this tax.
First, the ultra-rich won't pay it. They'll take out loans against their stock instead of selling it.
Second: The 14th amendment to the state constitution[1] says:
> 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.
This bans any sort of graduated tax. The state supreme court has upheld this in the past.[2] If the legislature wants to make a graduated tax on capital gains, they'll have to amend the constitution.
Third: This tax is counterproductive. If you tax something, you get less of it. Tax cigarettes and people smoke less. Tax alcohol and people drink less. Tax gasoline and people burn less gas. Tax gambling and people gamble less. And if you tax capital gains, then people invest less. If you're going to tax something, tax bad or neutral things, not good things. This tax won't ruin the state's economy, but it certainly won't help economic growth.
1. https://leg.wa.gov/CodeReviser/RCWArchive/Documents/2019/WA%... (Amendment 14 is on page 59)
2. http://courts.mrsc.org/supreme/039wn2d/039wn2d0191.htm
First, the ultra-rich won't pay it. They'll take out loans against their stock instead of selling it.
Second: The 14th amendment to the state constitution[1] says:
> 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.
This bans any sort of graduated tax. The state supreme court has upheld this in the past.[2] If the legislature wants to make a graduated tax on capital gains, they'll have to amend the constitution.
Third: This tax is counterproductive. If you tax something, you get less of it. Tax cigarettes and people smoke less. Tax alcohol and people drink less. Tax gasoline and people burn less gas. Tax gambling and people gamble less. And if you tax capital gains, then people invest less. If you're going to tax something, tax bad or neutral things, not good things. This tax won't ruin the state's economy, but it certainly won't help economic growth.
1. https://leg.wa.gov/CodeReviser/RCWArchive/Documents/2019/WA%... (Amendment 14 is on page 59)
2. http://courts.mrsc.org/supreme/039wn2d/039wn2d0191.htm
I dont buy that this tax will meaningfully reduce investment. With interest rates on bank accounts and and bonds so low, there really is no way to keep up with even relatively low levels of inflation without investing in stocks. People aren't stupid, they aren't going to make investments with a 0.5% rate of return just to spite the state.
3b. If want to minimize decision-influencing impacts of the tax make it as broad-based as possible, ex: a consumption tax with no exceptions.
Why is real estate always exempt from this stuff? Is there a good reason or is the special interest just large?
Non-pessimistic answer: it’s largely the only place the middle class parks its wealth. Besides that it would be stuff like 401k and Roth IRA which would also be exempt already.
Pessimistic answer: it’s for developers and landlords
Pessimistic answer: it’s for developers and landlords
Yes, if you included real estate at the 250K number, you'd hit a much broader target than you would for stocks. But eliminating real estate entirely is a huge break for rent-seeking large landlords and developers. Probably should've simply chosen a higher dollar threshold for real estate.
They probably don't want the tax inflating real estate prices. Those rental owners will just pass the cost on to renters.
The tax applying to real estate would drive down real estate prices, making investing in stocks and other alternatives more profitable.
That might work if this were a property tax. That would only for prices though, and that annual tax would still be passed in to renters.
The real estate tax they are talking about here applies to the net gain when you sell a property. People price things for what value they want to get out of them (and what the buyer is willing to pay). If you have a 7% tax on profit from a home sale (or appartment building) theybwill be priced higher to make up for it. That cost will be put on the renter in the form of slightly higher rent to cover the owners mortgage or target return.
The real estate tax they are talking about here applies to the net gain when you sell a property. People price things for what value they want to get out of them (and what the buyer is willing to pay). If you have a 7% tax on profit from a home sale (or appartment building) theybwill be priced higher to make up for it. That cost will be put on the renter in the form of slightly higher rent to cover the owners mortgage or target return.
Whether or not a tax or other cost is passed on to others depends on multiple factors that contribute to price elasticity. For the rental market, for a cost that is incurred on sale and only applies to the most wealthy/active participants this is mostly going to be paid by the seller/owner
How so?
It's just going to get rolled into the mortgage and passed on in cost of rent. Even if it's not mortgage, the people (companies) rich enough to do that will increase the price to meet their target return.
I don't see the price elasticity being a limiting factor. Your looking at $70 a month more on a $1k rent or $140 on a $2k rent, maybe even less if they plan it keep the property for a long time. People are choosing more on location and quality. Not to mention all properties, given sufficient time, will be subject to the tax and there will be no competition with existing untaxed properties to keep prices low, assuming there's any pressure to keep the price low in the first place.
It's just going to get rolled into the mortgage and passed on in cost of rent. Even if it's not mortgage, the people (companies) rich enough to do that will increase the price to meet their target return.
I don't see the price elasticity being a limiting factor. Your looking at $70 a month more on a $1k rent or $140 on a $2k rent, maybe even less if they plan it keep the property for a long time. People are choosing more on location and quality. Not to mention all properties, given sufficient time, will be subject to the tax and there will be no competition with existing untaxed properties to keep prices low, assuming there's any pressure to keep the price low in the first place.
What “rent seeking large landlord” is paying person taxes from selling expensive properties?
Wouldn’t this have a bigger impact on regular people selling their homes not being caught paying the tax?
Wouldn’t this have a bigger impact on regular people selling their homes not being caught paying the tax?
[deleted]
There's a fairness argument that can be made (but probably should only apply to primary residences only) - you buy a house for $100k in Seattle 10 years ago - now you want to move to another neighborhood into an identical house, but both are now worth upwards of $500k - you'd have to come up with the tax difference on the "profit" even though all you're doing is moving between nearly identical properties.
Also stock sales are more easily "structured" to avoid this tax (sell half this year, half next year) whereas a house has to be sold as a "whole".
Also stock sales are more easily "structured" to avoid this tax (sell half this year, half next year) whereas a house has to be sold as a "whole".
Can't be hard to invent an exemption for that case. When you buy the new house, the tax is deferred, in proportion to the cost. So if you trade down you pay and you will have the money. If you buy a more expensive place there's nothing to pay, but you have a balance. When you die, you pay the balance or your heirs inherit it.
That's why we need a land tax instead of a cap gains style tax that applies to transactions.
Also, in most places there is already a wealth tax on the property itself.
I half agree, there are no doubt interested businesses. I don't know what the breakdown in benefits between people and businesses, but I do agree.
But when you think about housing and capital gains tax benefits at a federal level, specifically related to one's primary residence, I think it's reasonable to say that taxing real estate sales (or at least housing) is not very popular in like, a literal sense. Now obviously people don't usually go selling their home every two years, so it might not be frequently relevant.
I just feel that housing transactions are, I don't know, more in public consciousness, than like selling a mutual fund? That assertion is basically speculation though, i.e. people might more commonly identify more as home owners, than people with large amounts of equities etc.
And I guess part of that is mental, and part financial, in that it seems housing is more frequently the biggest piece of one's total picture than I would guess.
But when you think about housing and capital gains tax benefits at a federal level, specifically related to one's primary residence, I think it's reasonable to say that taxing real estate sales (or at least housing) is not very popular in like, a literal sense. Now obviously people don't usually go selling their home every two years, so it might not be frequently relevant.
I just feel that housing transactions are, I don't know, more in public consciousness, than like selling a mutual fund? That assertion is basically speculation though, i.e. people might more commonly identify more as home owners, than people with large amounts of equities etc.
And I guess part of that is mental, and part financial, in that it seems housing is more frequently the biggest piece of one's total picture than I would guess.
Not sure if this exempts all real estate. In other areas they often exclude the primary residence. I think it's because for most people, that's their biggest asset and would represent a huge loss of wealth for the lower and middle classes. Especially if they are selling it to move into a retirement home (they'll likely need that money to pay for it too).
In the specific case of Washington, they have an excise tax on the sale of real estate up to (IIRC) 3% of property value, which is substantial. Taxing the gain and the sale would put quite a significant tax burden on people moving house, particularly in very expensive markets like Seattle where most home sales will be subject to capital gains.
Because housing in WA has gone up like crazy so a ton of residents are sitting on huge capital gains. The feds might exempt $250k of gain, but they’d get hit in WA.
We can’t have people to hit the housing lottery pay a dime of those gains as taxes, can we?
We can’t have people to hit the housing lottery pay a dime of those gains as taxes, can we?
I think if real estate is like stock, most real estate holders will be happier. Real estate is subject to property tax, which is pretty much a form of wealth tax.
Landowners vote
I have the same question. For middle class we should exempt a certain amount of money from any investment and treat all capital gains the same. The real estate exemption just creates huge inflation in real estate prices.
No, the middle class isn't some special group that must be protected at all costs. Have them pay more.
Ah, so this bill will tax gains from productive activities like investing in and building companies, while exempting gains from rent seeking activities like real estate.
Why am I not surprised?
Why am I not surprised?
Real estate has a powerful lobby and many property owners are well-connected themselves. A lot of people own property and don't see it as free money. They empathize with property owners. Though it's easier money if you're politically connected and/or already wealthy.
Stocks are held by rich people and techbros, in the minds of the public. Whether something is valuable or not valuable depends on who you empathize with. Right now occupations held by the wealthy are disliked and unpopular.
Really you should just tax income at high rates and investment at near-0%. When people cash out their investments, tax them at ordinary income rates. This is how your 401(k) or IRA already works. You'll need to raise taxes on the affluent who spend instead of save, but that's not a bad thing.
Stocks are held by rich people and techbros, in the minds of the public. Whether something is valuable or not valuable depends on who you empathize with. Right now occupations held by the wealthy are disliked and unpopular.
Really you should just tax income at high rates and investment at near-0%. When people cash out their investments, tax them at ordinary income rates. This is how your 401(k) or IRA already works. You'll need to raise taxes on the affluent who spend instead of save, but that's not a bad thing.
> Really you should just tax income at high rates and investment at near-0%
The article mentions income taxes are unconstitutional in Washington.
The article mentions income taxes are unconstitutional in Washington.
Then how is this constitutional? We can't have an income tax, but we can have a tax on certain kinds of income? How does that work?
The supporters of the bill think that it counts as an excise tax.
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If you borrow against your investments, you never have to sell, and your investments will simply grow faster than your borrowing costs. Wealth must be taxed, taxing income alone is insufficient.
We have property taxes for property, there’s no reason we can’t have investment taxes for securities.
We have property taxes for property, there’s no reason we can’t have investment taxes for securities.
Why not to tax it too?
Historically, real estate is exempted from taxes because "we the society" want to encourage home ownership. This manifests from an american romance with land ownership.
You used to be able to vote only if you owned land. You now can invest at (effective) discount. We've always favored land ownership.
You used to be able to vote only if you owned land. You now can invest at (effective) discount. We've always favored land ownership.
This is like complaining that a news story is about topic A, but topic B is more interesting to you. It's a complete non-sequitur. Landlords should also be taxed, but that doesn't belong on this bill.
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My understanding is that real estate wasn’t subject to gains before this and it continues to be exempt.
Not to mention the first 250K is exempt. So basically this only effects those who are gaining a lot.
Not to mention the first 250K is exempt. So basically this only effects those who are gaining a lot.
Maybe they’re promoting productive investments in real estate, while punishing people for rent seeking off of companies just because they fronted the capital.
You know that most real estate investing is like... buying land and extracting literal rent, right?
This is a bizarre take.
This is a bizarre take.
My take is you haven’t shown a distinction that makes me care either way. More capital income from the wealthiest people comes from equity so it makes more sense as a target for taxes, assuming we want to tax the top more and the middle less.
Though they do literally seek rent from their tenants, landlords who provide housing (or commercial real-estate) are not rent-seeking in the economic sense of that phrase, which is to seek to improve your economic position without creating any benefits for others. Providing housing or office space is clearly creating benefit for others.
No, they don't. Landlords are complete drains on society. They don't 'provide' housing. They limit supply and drive up costs for everyone else.
For multiple periods spanning over two decades in my life, I greatly appreciated the opportunity to live indoors without having to first purchase a house or apartment where I wanted to live.
That is possible without landlords. Gov't provided housing, for instance.
I greatly appreciate not needing to live in govt housing without buying a house.
I am assuming you are basing this off the failed and racist public housing that has existed in America. There are better ways though, I assure you.
I have a house. I rent out the house. How am I limiting supply?
It is one less house people can buy.
And one more they can rent.
If I buy a house, don't live in it, and don't rent it, that's limiting supply.
If I buy a house, don't live in it, and don't rent it, that's limiting supply.
It is one more house they won't be able to buy and build equity with. Meanwhile, they will have to pay more than what the mortgage is to rent (you are extracting some kind of profit, after all) and have nothing to show for it at the end.
By that logic, if I buy a house and live in it, I'm also constraining supply, because it's one more house someone else won't be able to buy. And, sure, it's true, in a nitpicky kind of way; they won't be able to buy it. It's also so absurd that your definition of "constraining supply" is clearly useless.
This is sort of an unreal conversation to be having.
If you buy a house to speculate on housing prices, and then rent it out, _you aren't adding anything_. That's entire point of the phrase "rent seeking". You've dumped capital into a limited-quantity good and then extract rent as it becomes more valuable.
The only exception is those actually expanding the housing supply (which is hugely valuable and should be rewarded!), but this is a tiny tiny fraction of the housing stock! Most commercial real-estate is not any housing-add over if they didn't exist!
If you buy a house to speculate on housing prices, and then rent it out, _you aren't adding anything_. That's entire point of the phrase "rent seeking". You've dumped capital into a limited-quantity good and then extract rent as it becomes more valuable.
The only exception is those actually expanding the housing supply (which is hugely valuable and should be rewarded!), but this is a tiny tiny fraction of the housing stock! Most commercial real-estate is not any housing-add over if they didn't exist!
Where I'm at they can't build houses fast enough. Overall it's a bad market because home owner's are more motived to borrow against their property value (heloc, etc) than move. And everyone else is kinda stuck.
I own several rental units. Only freestanding homes. I definitely see myself as providing a value add. I fix things when they break, provide landscaping, provide housing to great people with not-great credit. They don't have to worry about a bunch of different utility bills. All value adds. And I take on plenty of risk where lenders don't want to. I don't get compensated all too well for it either. It's a very active way of investing long term, you may not see the value of, but it's definitely there.
I could easily charge 40% more in rent right now, as could many.
I own several rental units. Only freestanding homes. I definitely see myself as providing a value add. I fix things when they break, provide landscaping, provide housing to great people with not-great credit. They don't have to worry about a bunch of different utility bills. All value adds. And I take on plenty of risk where lenders don't want to. I don't get compensated all too well for it either. It's a very active way of investing long term, you may not see the value of, but it's definitely there.
I could easily charge 40% more in rent right now, as could many.
It is true that speculative housing ownership does this, but
the flip side is that many people can't actually afford a house (but can afford rent, eg. due to down payment costs), or don't want to own (moves cities often).
In larger multi-tenant buildings, the average person wouldn't buy, and the landlord provides services, like maintenance (and sometimes in gyms/etc in higher end buildings). Sure those services can be purchased on the free market anyways, but bundling is pretty common in business.
In larger multi-tenant buildings, the average person wouldn't buy, and the landlord provides services, like maintenance (and sometimes in gyms/etc in higher end buildings). Sure those services can be purchased on the free market anyways, but bundling is pretty common in business.
Insane that you've been downvoted for this. Land value capture is literally THE example of economic rent. Adam Smith identified it in a little book called Wealth of Nations...
For those that support this, I have a question:
Combined with the federal tax changes, this may increase LTCG rates for Washington residents to more than 60%. I can see folks wanting this for people that regularly make more than a million a year, but what about the situation more common amongst this community where you take below-market pay in exchange for a potential lump payout in one year.
For example, say a startup employee works somewhere for 6 years. They reach a moderately successful exit and realize $1.2m all at once.
Do you feel it's fair they lose more than half of at least some of that money to taxes, even though if they would have realized it equally over those 6 years they would have paid far less in taxes?
Combined with the federal tax changes, this may increase LTCG rates for Washington residents to more than 60%. I can see folks wanting this for people that regularly make more than a million a year, but what about the situation more common amongst this community where you take below-market pay in exchange for a potential lump payout in one year.
For example, say a startup employee works somewhere for 6 years. They reach a moderately successful exit and realize $1.2m all at once.
Do you feel it's fair they lose more than half of at least some of that money to taxes, even though if they would have realized it equally over those 6 years they would have paid far less in taxes?
Not sure how you arrived at 60% - aren't federal capital gains topped off at 20%, and this bill only 7% for gains over $250,000?
Even if it is 60%, I think that's reasonable. In your case, why is the employee selling all of their stock in one year? If they sell over multiple years, they could get gains of up to $250,000 without paying any state tax, which is plenty.
I'd also be in favor of a state income tax, since the sales tax regime in Washington is very regressive.
Even if it is 60%, I think that's reasonable. In your case, why is the employee selling all of their stock in one year? If they sell over multiple years, they could get gains of up to $250,000 without paying any state tax, which is plenty.
I'd also be in favor of a state income tax, since the sales tax regime in Washington is very regressive.
> Not sure how you arrived at 60% - aren't federal capital gains topped off at 20%, and this bill only 7% for gains over $250,000?
They are this year, but the Biden proposal wants to raise tax for any income over $1m (LTCG included) to the top marginal rate of 39.6%. Add that to the proposals to increase SS to 12% for income over $400k, ~3% medicare tax, etc.
> why is the employee selling all of their stock in one year?
Because having all of your net worth in one company is a huge risk, and anyone wanting to mitigate risk would want to diversify as soon as possible.
They are this year, but the Biden proposal wants to raise tax for any income over $1m (LTCG included) to the top marginal rate of 39.6%. Add that to the proposals to increase SS to 12% for income over $400k, ~3% medicare tax, etc.
> why is the employee selling all of their stock in one year?
Because having all of your net worth in one company is a huge risk, and anyone wanting to mitigate risk would want to diversify as soon as possible.
Risk mitigation isn’t free. It’s 7% now.
... or, in this case, free if you just work for a FAANG or other public company and realize your income yearly rather than in a lump sum. If your end goal is to further dissuade engineers from joining startups, then "mission accomplished" I guess.
I think the new federal long term capital gain tax is a new tax bracket starting at 1 million, so the tax rate of the $1.2m will be broken down as follows:
* first 200k: 15%
* 200k-250k: 15% + 3.8% (ACA Medicare Tax)
* 250k-441k: 15% + 3.8% + 7% (New state Tax)
* 441k-1m: 20% + 3.8% + 7% (Federal capital gain tax increase to 20%)
* 1m-1.2m: 39.6% + 3.8% + 7% (New capital gain tax increase to 39.6%)
The tax rate wouldn't be 60% even at the highest marginal rate, which is 50.4%.
The average tax rate is about 30%.
* first 200k: 15%
* 200k-250k: 15% + 3.8% (ACA Medicare Tax)
* 250k-441k: 15% + 3.8% + 7% (New state Tax)
* 441k-1m: 20% + 3.8% + 7% (Federal capital gain tax increase to 20%)
* 1m-1.2m: 39.6% + 3.8% + 7% (New capital gain tax increase to 39.6%)
The tax rate wouldn't be 60% even at the highest marginal rate, which is 50.4%.
The average tax rate is about 30%.
> The tax rate wouldn't be 60% even at the highest marginal rate, which is 50.4%.
The Biden tax proposal also is adding a 12.4% social security tax for all income over $400k, and it's not split by employer and employee like the first ~$150k is now.
> The average tax rate is about 30%.
What's the average rate if it were realized equally over the 6 years it was earned? Do you feel it's fair this example person pays quite a bit more in taxes versus a similar employee who chose to realize a similar income at a bigco like Facebook?
The Biden tax proposal also is adding a 12.4% social security tax for all income over $400k, and it's not split by employer and employee like the first ~$150k is now.
> The average tax rate is about 30%.
What's the average rate if it were realized equally over the 6 years it was earned? Do you feel it's fair this example person pays quite a bit more in taxes versus a similar employee who chose to realize a similar income at a bigco like Facebook?
I couldn't find any solid proposal for social security tax, like not splitting between employer and employee or applying to long term capital gain. If it is implemented like you said, yes, it will push the highest marginal tax rate to above 60%.
If a person makes $1.2m paycheck over 6 year evenly, they have $200k paycheck per year. They are subject to about 23% of federal income tax, and about 7% of social security and medicare taxes, so the average tax rate is about 30%.
If a person makes $1.2m paycheck over 6 year evenly, they have $200k paycheck per year. They are subject to about 23% of federal income tax, and about 7% of social security and medicare taxes, so the average tax rate is about 30%.
The people behind the tax already have a friendly challenge lawsuit ready. Odds are among lawyers in this state that that the court will let the tax stand, unfortunately.
The best part is this tax basically is a trojan horse. In it's present form it'll raise a small amount of money- $400M. Originally it was supposed to be a much lower threshold- ~10$k if I remember right. So it'll be ratcheted down of course.
The best part is this tax basically is a trojan horse. In it's present form it'll raise a small amount of money- $400M. Originally it was supposed to be a much lower threshold- ~10$k if I remember right. So it'll be ratcheted down of course.
This is going to make house prices shoot even higher. They tax stock sales but not real estate.
Real estate has another loop where the first 250k gain (not sure exact number) from sell of private residence isn’t taxed.
So people have one house for husband, one for their wife. When you own a house and live it in for more than an year, that can be marked as primary residence.
Also mortgage interest is deductible.
In so many ways housing comes out as a good investment due to tax savings. Since it’s supply is limited, it becomes a frenzy driving sky high prices.
If we want to fix housing costs in Washington, we ought to address the tax incentives. Housing should be seen as a place to live, not an asset to hold.
I can’t even imagine how youngsters nowadays can even afford a single family home. A decent 3-4 bedroom is now 1M+, it’s kind of crazy.
Real estate has another loop where the first 250k gain (not sure exact number) from sell of private residence isn’t taxed.
So people have one house for husband, one for their wife. When you own a house and live it in for more than an year, that can be marked as primary residence.
Also mortgage interest is deductible.
In so many ways housing comes out as a good investment due to tax savings. Since it’s supply is limited, it becomes a frenzy driving sky high prices.
If we want to fix housing costs in Washington, we ought to address the tax incentives. Housing should be seen as a place to live, not an asset to hold.
I can’t even imagine how youngsters nowadays can even afford a single family home. A decent 3-4 bedroom is now 1M+, it’s kind of crazy.
Washington state, not DC.
Thank goodness we have states with different policies so you have some ability to move if you don't like the tax policy of your state. Obviously many can't.
Will likely be ruled unconstitutional under WA state constitution:
https://www.washingtonpolicy.org/publications/detail/lawmake...
https://www.washingtonpolicy.org/publications/detail/lawmake...
FWIW, it's going to be immediately challenged in court. WA supreme court has struck down all income taxes in the past, and it's pretty unclear whether this one will pass muster.
Yet all WA W2 employees pay 0.4% of their income towards family leave insurance, aka an income tax. And an additional 0.6% is being added Jan 1, 2022 for long term disability insurance, also an income tax.
Especially considering the long term disability benefit is pathetic for 0.6% of pay. If you earn more than ~$60k, you’ll be paying more for the LTDI tax than simply buying the same policy from an insurance company.
The fact that the WA Supreme Court hasn’t struck these two down as income taxes when they clearly are makes me think they are going to let this slide too.
Especially considering the long term disability benefit is pathetic for 0.6% of pay. If you earn more than ~$60k, you’ll be paying more for the LTDI tax than simply buying the same policy from an insurance company.
The fact that the WA Supreme Court hasn’t struck these two down as income taxes when they clearly are makes me think they are going to let this slide too.
The WA constitution prohibits non-uniform income taxes, not all income taxes.
It only kicks in after 250k in capital gains for the given year - doubt this will hurt anyone.
If you make that much passively via capital gains, you are already very well off.
If you make that much passively via capital gains, you are already very well off.
Not only does a tax hike like this redirect capital from individuals working in the market, for consumers, to those working in the state-directed-sectors of the economy, for political leaders, very likely leading to a less efficient allocation of capital, it also:
Discourages productivity for residents of the jurisdiction and capital accumulation within the jurisduction, by reducing the reward for socially beneficial activity, like training and saving/investing money, that improves marketable skills and increases personal wealth, respectively.
Discourages productivity for residents of the jurisdiction and capital accumulation within the jurisduction, by reducing the reward for socially beneficial activity, like training and saving/investing money, that improves marketable skills and increases personal wealth, respectively.
these are exactly the kind of tax structures that just beg to be gamed by the wealthy. instead, there should be no cutoff at all, and especially no exemptions for real estate, much of which is unproductive rent-seeking.
the tax should be a smooth function with positive slope, not a discontinuous one with carve-outs. combined with lowering taxes elsewhere, it would encourage broader investment rather than hoarding, especially with so much excess capital sloshing around looking for returns. it actually helps an economy to principally tax this excess capital and unproductive rent-seeking behaviors, allowing an economy to cull unproductive investments in favor of productive ones.
the tax should be a smooth function with positive slope, not a discontinuous one with carve-outs. combined with lowering taxes elsewhere, it would encourage broader investment rather than hoarding, especially with so much excess capital sloshing around looking for returns. it actually helps an economy to principally tax this excess capital and unproductive rent-seeking behaviors, allowing an economy to cull unproductive investments in favor of productive ones.
>"it would encourage broader investment rather than hoarding"
why do you think a tax on investing would encourage investment? It would encourage not selling your investments, or investing in investments which don't produce capital gains, which tends to look like hoarding.
why do you think a tax on investing would encourage investment? It would encourage not selling your investments, or investing in investments which don't produce capital gains, which tends to look like hoarding.
investment happens when you have positive-npv projects to invest in, regardless of tax rate (and a smooth, even tax squeezes out distortions that might otherwise redirect investment into unproductive assets). a tax might affect investments at the margin, but not in an environment where there is excess capital looking for return (e.g., the current stock market).
It still seems like a higher capital gains tax will discourage some investment in things, to the extent the NPV changes versus other investments that don't incur that tax.
yah, that’s the investment at the margin, but that’s currently overwhelmed by excess capital looking for any returns, even net negative, as long as it’s less negative than the next best alternative. excess capital decouples the risk-reward relationship. that’s why it makes the most economic sense to tax it back into line (and not other things), leaving money in the hands of spenders & more constrained investors to direct the market back to productivity, rather than extraction (for no good economic reason).
> 7% capital gains tax
It makes sense to start the out-migration now ahead of the Cascadia Megathrust Earthquake that's overdue to destroy the region and make millions homeless.
It makes sense to start the out-migration now ahead of the Cascadia Megathrust Earthquake that's overdue to destroy the region and make millions homeless.
> overdue
The margins of 'overdue' are hundreds of years.
The margins of 'overdue' are hundreds of years.
Remind me to go to the library!
“if you bought an asset for $10,000 in 2000, for example, the BLS says you spent $15,700 in today’s mini-dollars; if you sell it for $15,000 in 2021 you’ve actually suffered a loss, but will owe capital gains tax nonetheless” (https://philip.greenspun.com/blog/2021/04/29/economic-wisdom...).
I’m not a finance person, and this had never occurred to me. Does he have a point? Should the calculation of capital gains take inflation into account?