[HN Gopher] Washington state approves capital gains tax
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Washington state approves capital gains tax
Author : elsewhen
Score : 88 points
Date : 2021-04-30 16:15 UTC (6 hours ago)
(HTM) web link (www.geekwire.com)
(TXT) w3m dump (www.geekwire.com)
| bruiseralmighty wrote:
| 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.
| triceratops wrote:
| > 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.
| medium_burrito wrote:
| 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.
| politician wrote:
| > 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.
| monkeynotes wrote:
| > overdue
|
| The margins of 'overdue' are hundreds of years.
| tclancy wrote:
| Remind me to go to the library!
| theandrewbailey wrote:
| Washington state, not DC.
| egberts1 wrote:
| 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.
| BuyMyBitcoins wrote:
| 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.
| pjc50 wrote:
| Hypothetication of taxes is never a good idea anyway.
| xxpor wrote:
| If you have any inkling the gas tax is going somewhere it isn't
| supposed to you're free to file a PDR.
| jedmeyers wrote:
| If you are against the bill - you are against child education.
| It's that easy. And stop asking questions.
| giantg2 wrote:
| Not sure if this is sarcasm...
| braunshedd wrote:
| Definitely sarcasm with 'And stop asking questions.'
| lowbloodsugar wrote:
| Even if it does go there, any money that previously went there
| will go somewhere else. So its the "somewhere else" that
| benefits.
| clairity wrote:
| 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.
| mattmcknight wrote:
| >"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.
| clairity wrote:
| 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).
| mattmcknight wrote:
| 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.
| clairity wrote:
| 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).
| zacharycohn wrote:
| 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.
| jdonaldson wrote:
| 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.
| rileywatkins wrote:
| 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...
| jdonaldson wrote:
| Upvoted you. After reading the comment again I see that it
| should be interpreted the way you describe.
| hourislate wrote:
| >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
| pupdogg wrote:
| Thank you for giving me hope that common sense still exists!
| hourislate wrote:
| Your welcome, we must go after the bourgeoisie, they don't
| deserve their wealth. Marx would be proud of us!
| swsieber wrote:
| > 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.
| xxpor wrote:
| 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.
| mjparrott wrote:
| Haha yes ... earmarking funds for noble causes is the
| ultimate fake out. Lottery money all goes to noble causes
| right, right?
| cmckn wrote:
| 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
| YinLuck- wrote:
| This tax will end up being regressive as it exempts all real
| estate. That's where the 'old money' is, land. The 'new money'
| is made in stocks.
| grumpitron wrote:
| 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.
| ptmcc wrote:
| This is correct, it's over 250k in _gains_. Important
| distinction that may be getting intentionally muddied.
| hahaxdxd123 wrote:
| 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?
| endisneigh wrote:
| 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.
| bestcoder69 wrote:
| Maybe they're promoting productive investments in real estate,
| while punishing people for rent seeking off of companies just
| because they fronted the capital.
| bpodgursky wrote:
| You know that most real estate investing is like... buying
| land and extracting literal rent, right?
|
| This is a bizarre take.
| sokoloff wrote:
| 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.
| bpodgursky wrote:
| 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!
| vineyardmike wrote:
| 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.
| procombo wrote:
| 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.
| whydoibother wrote:
| 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.
| sokoloff wrote:
| 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.
| whydoibother wrote:
| That is possible without landlords. Gov't provided
| housing, for instance.
| vineyardmike wrote:
| I greatly appreciate not needing to live in govt housing
| without buying a house.
| whydoibother wrote:
| 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.
| AnimalMuppet wrote:
| I have a house. I rent out the house. How am I limiting
| supply?
| whydoibother wrote:
| It is one less house people can buy.
| AnimalMuppet wrote:
| 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.
| whydoibother wrote:
| 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.
| AnimalMuppet wrote:
| 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.
| bestcoder69 wrote:
| 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.
| baybal2 wrote:
| Why not to tax it too?
| greenearth1 wrote:
| Have you tried managing real estate? It's not like managing 100
| shares of Tesla. Let's just agree that taxation of any
| enterprise is rather detrimental to society. We should be
| pushing for sin and consumption taxes moreso than income,
| property, or capital gains taxes.
| vineyardmike wrote:
| 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.
| cynicalkane wrote:
| 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.
| [deleted]
| toomuchtodo wrote:
| 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.
| 0xEFF wrote:
| > Really you should just tax income at high rates and
| investment at near-0%.
|
| Does this address taxes lost from people being paid in stock
| units?
| conro1108 wrote:
| You pay income tax on those units of stock when you are
| paid with them.
| [deleted]
| ac29 wrote:
| > Really you should just tax income at high rates and
| investment at near-0%
|
| The article mentions income taxes are unconstitutional in
| Washington.
| AnimalMuppet wrote:
| 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?
| jdhn wrote:
| The supporters of the bill think that it counts as an
| excise tax.
| [deleted]
| klyrs wrote:
| 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.
| [deleted]
| [deleted]
| leephillips wrote:
| I recently came across this comment by Philip Greenspun:
|
| "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?
| aazaa wrote:
| 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.
| vineyardmike wrote:
| 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 :)
| jukabo wrote:
| But there's a risk associated with picking stocks. These
| taxes keep poor people poor. They will never get ahead.
| ska wrote:
| > 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?
| AnimalMuppet wrote:
| 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.
| ska wrote:
| I could swear I've heard it brought up but I'm not on top
| of these discussions, so who knows.
| bpodgursky wrote:
| 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.
| grumpitron wrote:
| What you're describing is a wealth tax, not capital gains.
| Capital gains taxes are applied to gains on capital, not to
| held property.
| bpodgursky wrote:
| 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!
| grumpitron wrote:
| 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 $0 cost basis on their
| investment. Runaway high inflation will have them trend
| closer to one another, but we don't have that.
| bpodgursky wrote:
| The "runaway high inflation" is exactly what I'm saying
| is a possibility. But it's not even necessary.
|
| Capital gains is a LOT compared to any proposed wealth
| tax, _and_ it affects most people (as opposed to the
| "billionaire tax"). 2x inflation (which is very plausible
| over a decade) translates into a 10% wealth tax, even at
| 20% cap gains. 4x inflation is 15%. Those are real
| numbers!
| grumpitron wrote:
| Those ARE real numbers - though we may disagree on how
| likely those levels of inflation are. Does higher
| inflation increase capital gains tax bills? Yes, we'll
| agree on that. Do capital gains impact more people than
| any proposed wealth tax I've seen? Also, yes we'll agree
| there too.
|
| However, one fundamental difference between capital gains
| taxes and wealth taxes is that capital gains taxes are
| only imposed on the gains on the disposition of an asset,
| whereas a wealth tax is applied to an individual's entire
| net worth, and all proposals I've seen are applied
| annually. This is relevant to the original comment that
| said "all property" would be subject to a 20% tax - but
| my point was that's not the case, regardless of
| inflation.
| procombo wrote:
| Bingo. Your comment likely won't gain traction here, but it
| is definitely going to be an interesting decade!
| ShockedUnicorn wrote:
| Isn't that the same way it works for buying stocks?
|
| I don't live in the US, but if I buy stocks for 100$, 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.
| leephillips wrote:
| Yes, he was in fact talking about stocks.
| tartoran wrote:
| 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.
| lamontcg wrote:
| 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.
| ihsw wrote:
| It sounds like the government is double dipping -- printing
| money to fill budgets and therefore causing inflation, and
| taxing capital asset sales whose prices are rising as a result
| of inflation.
| BuyMyBitcoins wrote:
| 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.
| Consultant32452 wrote:
| 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.
| gizmo686 wrote:
| 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.
| wonminute wrote:
| Federal Government, maybe. But State and Local do not have
| this option.
| syshum wrote:
| 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
| evo wrote:
| 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?
| karl11 wrote:
| 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.
| Jtsummers wrote:
| 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.
| bigbillheck wrote:
| Please read up on the difference between 'profit' and
| 'revenue'.
| nate_meurer wrote:
| "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.
| mattmcknight wrote:
| 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.
| endisneigh wrote:
| 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?
| enahs-sf wrote:
| I think his point was the initial dollar you invested was
| at some point subject to income tax to get it.
| ska wrote:
| 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.
| Jtsummers wrote:
| 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_.
| medvezhenok wrote:
| 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.
| foobiekr wrote:
| 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.
| arrosenberg wrote:
| That's a bad point, because the first dollar won't be
| subject to cap gains, so there is no double taxation
| happening.
| procombo wrote:
| 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.
| gizmo686 wrote:
| Earned interest is taxed as income at the federal level.
| procombo wrote:
| Oh, I know. Should it be taxed at the state level too?
| tartoran wrote:
| 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.
| leephillips wrote:
| Tax on interest is at a different rate than capital gains
| tax.
| tartoran wrote:
| Which one is higher?
| leephillips wrote:
| 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.
| medvezhenok wrote:
| 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.
| procombo wrote:
| Income from bonds issued by the federal government and
| its agencies, including Treasury securities, is generally
| exempt from state and local taxes.
| ihsw wrote:
| If you invest a dollar today and get ten dollars tomorrow
| due to inflation rather than an actual gain in value, have
| you actually gained 9 dollars?
| foobiekr wrote:
| 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.
| syshum wrote:
| We will not have to image that, it coming sooner than most
| people think
| mjparrott wrote:
| 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.
| bpodgursky wrote:
| 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.
| _rpd wrote:
| Will likely be ruled unconstitutional under WA state
| constitution:
|
| https://www.washingtonpolicy.org/publications/detail/lawmake...
| seattle_spring wrote:
| 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?
| apex3stoker wrote:
| 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%.
| seattle_spring wrote:
| > 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?
| apex3stoker wrote:
| 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%.
| rkevingibson wrote:
| 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.
| seattle_spring wrote:
| > 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.
| vineyardmike wrote:
| Risk mitigation isn't free. It's 7% now.
| seattle_spring wrote:
| ... 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.
| ggreer wrote:
| 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
| skeeter2020 wrote:
| 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.
| ac29 wrote:
| 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.
| temp667 wrote:
| Why exempt real estate?
| [deleted]
| _-david-_ wrote:
| Many middle class families own real estate and would increase
| their taxes. Allegedly this is only supposed to be going after
| upper class people.
| ska wrote:
| Political backlash.
| PragmaticPulp wrote:
| 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.
| verst wrote:
| 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.
| philwelch wrote:
| These taxes always start off only affecting the richest of
| the rich, until the government decides it needs more revenue.
| spaetzleesser wrote:
| 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.
| amanaplanacanal wrote:
| "The government" is legislators that we elect. They aren't
| some external force that is imposed on us.
| philwelch wrote:
| Even in a perfectly democratic system, 50.001% of the
| population can impose a government on the other 49.999%.
| triceratops wrote:
| 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?
| verst wrote:
| 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.
| philwelch wrote:
| > 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.
| endisneigh wrote:
| As opposed to what - taxing the poor first, or just not
| taxing anyone?
| aatharuv wrote:
| The Alternate Minimum Tax was only supposed to affect less
| than 100 millionaires in the 1960's who were paying no taxes.
| Now, it is impacting 20+% of California tax payers most of
| whom earn under a million dollars a year and many of whom are
| not millionaires.
| ac29 wrote:
| "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
| BuyMyBitcoins wrote:
| " It is estimated that this tax only affects the 7000 richest
| individuals in Washington."
|
| Careful, that's how it _always_ starts. Give it a decade or
| so and politicians will be upset at how few people are
| actually paying this tax. They'll demand all sorts of changes
| to the exemption structure so that they can raise more
| revenue. All while saying it's only going to effect _other_
| people.
| tolbish wrote:
| Isn't this exactly how it works in the majority of western
| European and Scandinavian countries?
| mattmcknight wrote:
| 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?
| harshalizee wrote:
| 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.
| verst wrote:
| 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/202
| 1-22/Pdf/Bills/Sen...
|
| See Section 8, (2)(d)(iii)
| seattle_spring wrote:
| In other words, the rich founders get richer while the
| early employees continue to get screwed.
| csomar wrote:
| 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.
| giantg2 wrote:
| "Keep in mind we don't have any income taxes here."
|
| That's not really what the supporters of this bill think.
| They claim an excise type tax already exists and that it
| provides precedent for this one since income taxes are
| unconstitutional.
| xxpor wrote:
| Income taxes are not unconstitutional. Progressive income
| taxes are. No one wants to impose a flat income tax though.
| giantg2 wrote:
| Thanks for bringing that up. It looks like local income
| taxes are not allowed under law and that any tax at the
| state level has to be flat. It seems the article may have
| misrepresented that with "Income taxes are
| unconstitutional in Washington state.". (Unless there's
| some obscure case law regarding flat income taxes)
| AnimalMuppet wrote:
| 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...
| xxpor wrote:
| 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.
| giantg2 wrote:
| 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.
| snapetom wrote:
| If I have a liquidity event at my startup, I'm going to be
| hit with this, right? Like many startup engineers, I've been
| taking less pay for shares for several years now. Funny, I
| don't feel like one of the richest 7000 individuals in
| Washington.
|
| And I guarantee you as an early engineer, I'm likely going to
| hit 250k, but get nothing close to founder cashout money.
| medvezhenok wrote:
| Unless you are forced to cash out, you can also liquidate
| ~250k of stock per year (or if options are available you
| can hedge your exposure and again extend the cash-out
| period over multiple years to spread out the tax impact)
| ovulator wrote:
| 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.
| BadCookie wrote:
| They will move to Oregon so that they can pay 9.9% instead?
| grumpitron wrote:
| 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.
| foobiekr wrote:
| 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.
| danans wrote:
| Oregon also has a state income tax, unlike Washington.
| [deleted]
| leipert wrote:
| Meanwhile we have 25% capital gains tax in Germany.
| darawk wrote:
| This is just the state rate. The current federal rate is 20%,
| and is about to rise to 43%. So, the full tax rate on capital
| gains in WA is 27% and going to be 50%.
| [deleted]
| decremental wrote:
| I doubt any business owners are thinking about moving to
| Portland.
| Relys wrote:
| When I lived there a few years ago, there was an increasing
| amount of tech companies from Seattle opening up offices in
| Portland.
| BuyMyBitcoins wrote:
| With all the sustained civil unrest and property
| destruction I'd steer clear of Portland if I wanted to open
| an office.
| lawnchair_larry wrote:
| 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_.
| whydoibother wrote:
| Somehow, I imagine you aren't in Portland or haven't
| spent a lot of time downtown. You are regurgitating right
| talking points.
| decremental wrote:
| 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.
| seattle_spring wrote:
| Part-time Portlander here! You have absolutely no idea
| what you're talking about. Please stop basing your
| worldview on Infowars talking points.
| spaetzleesser wrote:
| 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.
| sickygnar wrote:
| Why is real estate always exempt from this stuff? Is there a good
| reason or is the special interest just large?
| scsilver wrote:
| Landowners vote
| gimmeThaBeet wrote:
| 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.
| spaetzleesser wrote:
| 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.
| jxidjhdhdhdhfhf wrote:
| No, the middle class isn't some special group that must be
| protected at all costs. Have them pay more.
| bestcoder69 wrote:
| 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
| [deleted]
| majormajor wrote:
| 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.
| vineyardmike wrote:
| 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?
| giantg2 wrote:
| They probably don't want the tax inflating real estate
| prices. Those rental owners will just pass the cost on to
| renters.
| gnopgnip wrote:
| The tax applying to real estate would drive down real
| estate prices, making investing in stocks and other
| alternatives more profitable.
| giantg2 wrote:
| 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.
| bombcar wrote:
| 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".
| lordnacho wrote:
| 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.
| medvezhenok wrote:
| That's exactly what the 1031 exchange is for
| gnopgnip wrote:
| That only applies to investments
| LanceH wrote:
| Also, in most places there is already a wealth tax on the
| property itself.
| apex3stoker wrote:
| 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.
| giantg2 wrote:
| 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).
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