Lessons from Washington State’s New Capital Gains Tax
theurbanist.org
theurbanist.org
I don’t know what to make of this statement. I pay what the law says I have to pay. Is that not what I “truly owe”?
There is indeed the law, and at the end of the day that is what determines what you must pay.
The very wealthy have long supported income tax structures that treat capital gains very differently than employment income, with much higher rates being applied to employment income. For the most part, the very wealthy do not receive much employment income. This means that as a percentage of income (all types added together), people who primarily earn via capital gains pay far less tax than those who primarily earn via employment.
It is an understandable position to say that this tax structure is unfair and that the very wealthy are not paying what they should pay. You can disagree with it but it is not a difficult position to understand.
"7% over $250,000" is just as arbitrary as 1% or 15% or 37.9%
and that this arbitrariness and vagueness is the crux of the fair share rhetoric. it has no base unit, it has no understanding of the existing tax environment, it has no ability to comprehend anything except an exemption from questioning why we are being screwed at all, only requesting that we are all being screwed equally, which is not a goal remotely supported by any form of consensus in legislatures.
It's not quite so understandable to me that somebody would believe that position to be an inherent truth ("truly owe") rather than just a position.
Capital gains taxes have historically been lower to encourage the investment of capital. This might be good or bad policy. Many economists say it's good policy.
It's stating opinion as fact.
In examples:
- "summer is the best season" is an opinion
- "summer has the highest temperatures" is a fact
- "summer is the best time to have romantic encounters" is an opinion
- "summer is the best season because romantic encounters truly only happen in the summer" is a weird amalgamation. It clearly presents an opinion, and says that opinion is based on a true fact, but in fact, the true fact the opinion relies on is not a fact at all, but merely another opinion.
That's nonsense. They have historically been lower because rich people make (or at the very least, heavily influence) the rules and so they tipped the tax scales in their favor. The 'encouraging investment' bit is just the nice sounding excuse they use.
I think the simplest explanation for why representatives vote the way they do is the public statements they themselves make before and after their votes. If you want to make a more convoluted argument and assert a conspiracy, you should bring some evidence.
https://www.vox.com/2014/4/18/5624310/martin-gilens-testing-...
Depending on your definition of fair, of course.
But saying people didn’t pay what they owed and also calling them tax-dodgers implies they are criminals, which is likely incorrect for most of them and an unhelpful misdirection. If obeying the law isn’t “good enough” the fault is with the law, not the citizens.
Just because you found a tax loophole doesn't mean you're fulfilling the ethical obligations that motivated the law.
What tax deductions or exclusions do you qualify for that you are avoiding in order to not accidentally "find a loophole?" You are free to donate more of your money to the state or federal government should you choose to.
It cannot come as a surprise to you that lots of efforts go into finding loopholes and technicalities that lets rich people pay much less tax than the lawmakers intended.
The difference is the "spirit" of the law versus its practical application.
The whole bit about most voters wanting the ultra rich to pay more tax is hilarious. Of course they do.
If you believe the government is more effective than the people in spending your money you should want tax increased for everyone. If not you should want it lowered. Simple as that. Hand wringing about whose money is taxed is irrelevant.
Suppose you believe the government is not good at spending your money. Let’s say half of every dollar is wasted. Why would you want rich people to be taxed more?
Suppose you believe the government is better at spending your money such that the economics of scale give the government an additional fifty cents for every dollar in value in the form of social services. Why would you lower taxes for poor people? Definitionally they would be better off paying more in taxes and then receiving whatever benefit the government then produces for them.
The status quo is the worst of all the worlds because rich people effectively pay less tax than the middle class, and the government is wasting much of our money.
I have no clue how people are ok with the government squandering away hard earned money. If people would like to donate to the government they are free to do so. Otherwise demand effective use of the tax or minimize collection.
To put it another way, should all of your income be taxed and you simply receive some sort of stipend from the government? Why or why not? Low efficiency is a problem because the alternative is population driven allocation which is definitionally superior in such a scenario.
Not when people are involved
input -> rule of law -> output is a more correct model. Maybe RuleOfLaw(Taxes) -> [Output distribution] is better.
When rule of law is weak, the powerful arbitrarily exercise their power to shift the output to them. When rule of law is strong the output is used for the public benefit.
So the efficiency of taxes depends greatly on the integrity of the legal system and therefore integrity of the legal system must come before the expectation of the usefulness of taxes.
When the legal system has no integrity, money siphoned from taxes to private interests increases the power of those private interests which further hurts the legal systems integrity. So more (general population) taxes in the context of weak rule of law is damaging to society.
If you want to increase rule of law (reduce arbitrary exercises of power), then the less powerful must become more powerful (unions), the more powerful must become less powerful (tax the rich or ask the french), or the institutions of society itself must ensure that there are consequences for arbitrary exercises of power (the people in power choose to exercise it responsibly), or a culture that respects rule of law must pervade (only possible through education).
This is apples and oranges. I'm not going to go build roads or missile defense systems with my money (thought I might donate to science). There's no direct comparison between how "the people" spend their own money vs. what you can do with taxes, and it's definitely not "as simple as that"
Roads are a good example of how when you go to 0 to 1 it’s a great investment and thus good justification for taxes. At some point though there are diminishing returns.
And roads (or defense) are about as an extreme example as it gets due to the complexity of acquiring a very long, very narrow plot of land. So, it's possible a govt might be a bit better than market at providing roads, although I'm not 100% convinced. For most things, govt is just an inefficient, thieving monopoly.
That’s just not true. The top 1% of earners pay close to half of all income tax.
Furthermore, how do you account for the ones who don't "earn an income" and simply live off bank loans until they die?
https://www.businessinsider.com/american-billionaires-tax-av...
As I’m sure many here know, as more wealth is accumulated, it becomes easier to accumulate wealth in ways middle income and lower just can’t access. Whether that’s through tax advantages accounts, tax structures, or even just capital gains growing faster than incomes. It’s also easier to get lower interest rates, fees, purchase at prices approaching wholesale, etc.
That’s definitely an issue, but I would be happy with the government just spending less of it. Like less than is brought in as revenues. Excess can be rolled over with equivalent tax cuts or moved to an endowment or trust with an independent, non-partisan management structure that pays an annuity. Failure to stay under revenues would come directly out of public servant salaries, campaigns, benefits, and retirement programs.
So they can spend half of it well?
Money is power, and too much power in too few hands is a real threat to national security and the integrity of a republic.
If the big banks can say "bail me out or else" or any of these billionaires can say "If you try to hold me accountable I will make it hurt," how much freedom from tyranny do we really have?
It's not the concern, it is one concern, but specifically in the context of taxing the rich, I think it is the dominating concern.
Here is some classic internet for you (CCP Grey's: rules for rulers) that I think you would have trouble refuting while being consistent with your post.
That said, to expand my argument a bit
1) Vast majority of abuse of power in history has been done by governments.
2) Out of that, majority has been done by the govts that came by thru revolution by non-rich people, and/or were populist - i.e. based upon popularity among masses of non-rich people, and/or partially thru vote of non-rich people.
3) Even when rich people, excluding those rich because they are in the government in the first place, directly abused power (e.g. corporations like United Fruit), they usually did it mostly via a government that was either friendly to them or easy to bribe.
There are very few exceptions. Power concentration among rich men not in government is literally the last thing I would worry, by itself, about as far as power goes. The only problem with Bezos having lots of power is that he could buy the politicians and use their power. So, the best solution is to reduce their power.
The video will explain why you're model is wrong if you watch it.
> So, the best solution is to reduce their power.
If Bezos can buy the cops, should we get rid of cops so he can't exercise power through cops?
> If Bezos can buy the cops, should we get rid of cops so he can't exercise power through cops?
Exactly! Well, almost. Ideally, the powers they have should be treated as baseline evil, and then there should be a good argument for any of them being a /necessary/ evil - e.g. is the alternative actually, obviously worse; at the very least, the powers should be restricted and defined as much as possible, so that there's the least possible room to stretch and abuse them.
EDIT: I realized I responded kinda out of context after that. As per above, Bezoses bribing govt actors has historically been much less less of a concern than govt actors just abusing power of their own accord; and when Bezoses do abuse power via govt actors, the main reason is that govt actors have lots of power, wide discretion, complex easy to obfuscate rules, etc. With cops, drug prohibiyion is a great example - rife for abuse and selective enforcement. Remove the power, and it becomes much harder to abuse.
Meaning a person who argues economic theory and not purely from neo-liberal ideology.
I want progressive taxation precisely because I think rich people are less able than others to spend their resources in a way that brings net benefit to the world.
Taxes as punishment for having wealth.
Were laws broken? Doubt it, at least not at scale. Leave people with money alone!
Just because a law was not broken does not mean that the system was just. Surely everyone here can agree that following the law does not equal goodness/righteousness/justice/whatever word you prefer to use. The tax laws in Washington were particularly regressive, as WA state has no income tax. With no income tax, WA state has historically had to use other taxes to pay for things. The result is that lower income workers feel a greater burden than higher income workers. Which is to say nothing of the very wealthiest individuals who may technically make little to no income at all, but are very clearly wealthy.
This new tax law brings in money by taxing profits generated from investments. Why is that any more unfair than other tax? Like, sure, if you're a libertarian that hates all taxes, then whatever. But what makes this tax worse, in your eyes, than any other tax?
Because it encourages liquidity in the housing market. If people had to pay taxes on the sale as soon as the house appreciates anything, a lot more people would hold on to the house and never let go.
Subsidizing a behavior we would like to see.
As always, the rich gets the carrot and the poor gets the stick.
Luckily the same economic theory can be applied to motivate both.
For wage income, inflation losses are negligible in most countries. Similar for short-term capital gains, which is why those are commonly taxed at wage income rates. Unlike wage income, capital has substantial risk (i.e. you can't deduct most losses). For long-term capital gains, the drag of inflation becomes a large percentage of the total nominal return. If you taxed long-term capital at the same rate as income, no one would make long-term high-risk investments because the expected rate of return on investment, net of taxes, would be lower than short-term rent-seeking type investments!
If you want people in your country to invest in high-risk tech ventures at least as much as e.g. buying rental apartments, you have to make the expected investment returns net of taxes, inflation, and risk to be similar.
You could make capital gains the same as income tax if inflation and risk was deductible against income. In practice, this would create enormous headaches for governments (massive increase in revenue volatility), so instead they tax it at a lower rate that loosely approximates what the tax rate might look like on average if you were allowed to deduct inflation and risk.
State taxes were 0% - They paid 0%
It's just nonsense propaganda.
> The Urbanist serves to examine and influence urban policies by promoting and disseminating ideas, creating community, and improving the places we live. Founded in 2014, the organization provides daily news coverage and opinion in the advocacy journalism tradition along with social and educational events. The Urbanist is based in Seattle and registered as a nonprofit 501(c)(4) entity.
However it is not nonsense. We proletariat read the Urbanist because it provides us with valuable propaganda. It may rile us up—and perhaps that is intended—but it also provides things in context, and in this case it provides us with data—evidence if you will—that what we have always said turns out to be true. The rich can afford to pay more taxes, the state would benefit, and that the taxation laws until now have been extremely unfair.
I believe the given reason for a capital gains tax is to promote investment.
Edit: I was mistaken about income taxes being banned by the state constitution.
Right. That's the regressive nature of it. Benefitting the investor class at the expense of social programs.
Let's reverse that for a second. I could do a whole hell of a lot of investing in myself with the extra 20 grand a year in my pocket that being taxed at a capital gains rate and not paying FICA would leave me with.
Non-uniform income taxes are banned by the state constitution. A flat tax on all income, regardless of amount, would have been legal.
This is incorrect. Income taxes are only required to be flat. Many other states of all political persuasions have flat income taxes, Washington as a single-party state has chosen not to implement a similar tax.
It is more of an idealogocal blog post rather than a through review.
If it gets easier to grow wealth the more you have, that will create power disparity with time, which eventually leads to an oligarchic society.
If you owe the government 30% of your income, that's your problem, if you owe the government 30% of it's income, that's the governments problem...
That's hyperbole, but to demonstrate a point. What stops someone from concentrating enough money to, for example, buy a news media outlet and use it to promote people who would protect the decision made in citizens united and then further promote individuals that will make decisions that allow them to get even more power? Then they could degrade the institutions that empower people and society as a whole such as education. They could use their media empire to fight the idea of trust busting and breaking down of monopolies and cartels (the true cause of "greedflation"). They could hire the police to fight unions and dissidents.
How do you prevent the wealthy from getting too wealthy and using that wealth, and therefore power, to corrupt institutions to work on behalf of them rather than everyone?
We already know what the decay/absence of rule of law (restrictions on arbitrary exercises of power) in a capitalist society looks like: Russia.
If you don't want to be Russia, if you don't want to have to bend the knee to the most powerful thug, you have to tax the rich and invest it into programs for the poor, particularly education.
I remember Preet Bharara talking a lot about the Magnitsky act and how it was also somewhat a response to that.
Even the oligarchs were slaves and dealt with the threat of novichok and windows. That's what a might makes right, strongest thug wins society means.
We don't need more taxes, we need to spend less. If the government were on Charity Navigator it would have a negative rating. Nearly all of the tax revenue ends up wasted.
For contrast, in Canada, capital gains tax rate is 50%, regardless of the amount.
That makes it sound like you pay half of capital gains in taxes, but I think what you mean is that 50% of capital gains is taxable, and that this portion is taxed at the same rate as other personal income. Personally I think 100% of capital gains should be taxable at the marginal income tax rate.
Several states in the US, both blue and red, have flat income taxes. Washington can easily and legally implement one too, the lack of an income tax is a political choice by the Democrats. Another important aspect is that an overwhelming majority of the people in Washington -- a very blue state -- don't trust the State government with unfettered access to income tax revenue because of how poorly existing tax revenue has been managed. Washington tax revenues are not low compared to other states.
So if you have capital gains of $100,000 in one year, you don't pay any taxes on $50,000 at all. For the remaining $50,000 the tax you pay is [ 15% / 20.5% / 26% / 29% / 33% ] depending upon which bracket you're in.
Here's the list of exemptions:
• Real estate.
• Interests in a privately-held entity to the extent that the capital gain or loss from such sale or exchange is directly attributable to the real estate owned directly by such entity.
• Assets held in certain retirement accounts.
• Assets subject to condemnation, or sold or exchanged under imminent threat of condemnation.
• Certain livestock related to farming or ranching.
• Assets used in a trade or business to the extent those assets are depreciable under Title 26 U.S.C. Sec. 167(a)(1) of the internal revenue code or qualify for expensing under Title 26 U.S.C. Sec. 179 of the internal revenue code.
• Timber, timberlands, and dividends and distributions from real estate investment trusts derived from gains from the sale or exchange of timber or timberlands. Commercial fishing privileges.
• Goodwill received from the sale of a franchised auto dealership.
See https://dor.wa.gov/taxes-rates/other-taxes/capital-gains-tax
In every state and the federal level, capital gains are a form of income tax. This includes Washington state, where the department of revenue explicitly classified it as such in line with the common definition of this tax. However, the state’s Supreme Court has become highly activist over time, due to a long history of WA being a one-party blue state. And in one of the lawsuits against this unconstitutional tax, the state Supreme Court surprisingly agreed with the legislators in redefining capital gains tax as an excise tax instead of an income tax (https://www.seattletimes.com/seattle-news/politics/wa-suprem...).
This tax is now being collected for the first time, and it is much larger in its collections than expected. Most of the money will go to K-12 schools, which is strange because school funding in WA has more than doubled in the last 10 years with little to show for it (see https://www.washingtonpolicy.org/publications/detail/states-...). Also, although school funding follows the student typically - meaning reduced enrollment at a public school leads to reduced funding - the first $500m of this tax will only go to public schools.
I expect this tax will see its thresholds reduced over time. Its initial proposal was to apply to any capital gains over $25K, not $250K. It was changed to the higher limit to give it a better chance of passing and sticking. But with the state Supreme Court redefining words and setting this precedent, the legislature is free to change the tax threshold and rate in the future.