Hacker News Reader

Comment by supernova87a | Hacker News Reader

Two questions (related to each other):

1) Why don't they just make it an even further graduated tax going all the way up the billionaires? Instead of having to spread a 2.4% tax on everyone, why not make it start at 1% and go up to 10% for billionaires, raising the same amount of money? Save us all some tax and boo hoo, the billionaires have to pay a little more.

2) What sets the limit of what % a city can tax? I.e. what would stop a city from imposing a 50% tax on billionaires? Just what the public wants to stomach? Or is there a legal limit?

View on HN

As apsec112 mentioned it's up to the state. And in this case Washington state has a very clear constitution and case law history that prohibits non uniform taxes, like a progressive income tax:

> 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

That means any state law, municipal ordinance, etc, that violates that provision is going to be struck down on review. So there could be a tax that applies to income differently than real property or other assets. But the tax would have to be applied in a uniform manner across all levels of income, or uniformly against property of different values, etc.

And that history and nuance matters because Seattle cant tax income at differential rates. But they can tax businesses in a uniform manner. And assuming section 5.38.030.B passes the "uniform" and "property" challenges they can achieve almost the same thing as a municipal progressive income tax.

Washington State Constitution Article VII Section 1 https://ballotpedia.org/Article_VII,_Washington_State_Consti...

Here's a slightly dated article that has a good overview of the history https://digitalcommons.law.seattleu.edu/cgi/viewcontent.cgi?...

There aren't really legal limits on what taxes a US state can enact; an individual city may or may not be constrained by the state that it's inside of (eg., California cities can't raise taxes without a 2/3rds vote under Prop 13). In this case, the real constraints are Washington state law (prohibiting income taxes), and what voters/residents will stand for. A city that put a 90% tax on billionaires would find that they all left pretty quickly.

> A city that put a 90% tax on billionaires would find that they all left pretty quickly.

That's kind of hyperbole given the OP said "up to 10%".

But aside from that, don't a lot of billionaires (steve jobs, bill gates, etc) only pay themselves a $0 salary when they're rich and own their own company where they're paid in stock? So any % of $0 is still 0.

> they're paid in stock?

In the US RSU grants are treated as income. They literally show up on the W2 for the full value of the grant.

Tech billionaires tend to own the stock because they founded the company, and get "paid" from the appreciation of shares they already own. Increased tax on equity-based compensation would hit a lot of highly-paid hired hands, but not those truly rich.

Of course an increased capital gains tax might capture the founders too, as would a wealth tax (though the latter would be very hard to administer on private companies due to uncertain valuation). The major preference in the current USA tax code is for investment income over earned income (including both W-2 income and some but not all small businesses, and including equity-based compensation except (sometimes) to the extent it appreciates), not rich over poor or poor over rich.

You gotta start somewhere. These days in these cities where starter homes are $1.3M, taxing people who make over $150k is just shifting the burden pn what is effectively the upper middle (of the working) class.

Sure. And maybe Im fixating on the meaning of "paid" next to the use of "salary." But I dont think the individuals existing assets or capital gains really have anything to do with the common misunderstanding of how equity based compensation is taxed.

To be clear, RSUs are indeed taxed as you said. My point is that blahblahblogger's billionaires don't tend to get paid that way, but by appreciation of founder's stock (which can be captured only by a wealth tax, or by a capital gains tax if/when they sell).

Just a hypothetical to illustrate the point.

Reply on news.ycombinator.com