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I agree. Income tax is more fair. The poor pay more in the current tax structure in WA with high sales tax and no income tax.
The problem would stem from the overall tax burden as one remains relatively high (real estate) with no help/incentives for lower income/retirees/long terms residents, etc... while the other grows (income tax). Notice how nothing was reduced for anyone with this latest tax increase. If WA really wants to change the constitution and start charging income tax across the board, they would have to also revisit and revise other current taxes used to make up the differences. Otherwise, the tax burden just balloons out from all sides. Also, where is the accountability for these new taxes in terms of allocation of resources? Who determines where to draw those lines? The people or politicians?
The problem is these leftist thugs on the WA Supreme Court are never challenged. They almost always run unopposed. Stop voting for these buffoons . Like Inslee. Why would anyone vote for him again ?
A layman or normal average person might think that this taxed income might add relief to the absurd property tax situation or one of the other absurd taxed situations.
As an average person that doesn’t trust the “tax man” I see this as just another money grab.
This “first $250K” is a rather low hurdle that will hurt a lot of hard working people.
When you consider the mass of dual income hard working families that bar even gets lower still.
These people work their butts off to have their kids raised in a modest upper middle class area with nice schools and the safety they deserve and this turns into a large money grab.
Is Jay thinking of following his big brother Gavin on the reparations thing?
Is this a take from the rich (who are not really rich) and give to the poor situation?
Where is all this money going to go?
No, it will hurt exactly ZERO working people.
You misread or misunderstood the tax.
The $250K threshold isn't on total income.
The $250K threshold is on CAPITAL GAINS income.
So, your average surgeon who makes $500,000/year and who has a $5 million stock portfolio and cashes out $1 million to buy a luxury home vacation home on Orcas Island and happens to have realized $249,000 in capital gains on that $1 million stock holding. He pays no capital gains tax because he is under the $250,000 threshold. He can do it again next year and the next and the next and owe no tax as long as he keeps his capital gains under $250,000.
However if he happens to realize $350,000 of capital gains when he cashes out his $1 million stock holding to buy that vacation home, well then he has $100,000 of capital gains on top of his $250,000 annual capital gains exemption. And owes a total capital gains tax of $100,000 x 7% = $7,000. OUCH.
Your average high-income professional with wage salary like doctors, lawyers, mid-level executives? This tax will never touch them even if they have salaries in the 7 figures because they earn wages not capital gains. In fact it won't affect any actual working people who by definition earn wages not capital gains.
Your average high-income professional with a big 401(k) or IRA? Even one in the millions? This tax will never touch them because those capital gains are never taxed as that is the nature of a 401(k) or IRA. The get taxed as normal income when withdrawn, not capital gains.
Your average high-income professional living off a huge family trust fund? This tax will only touch them if they realize more than $250,000 in capital gains in a year and don't manage to have good enough accountants to hide it.
No middle or working class people will touched, EVER.
The only people for whom this tax is meaningful are two types of people: (1) tech millionaire types who cash out millions in stock options, and (2) ultra-wealthy families like the Blethens, McCaws, Seligs, and Gates, and Bezoses of the world who live off the income produced by massive family wealth.
The only people who this tax will touch are those in the top 0.1% and even many of them will probably figure out how to evade some or all of it.
The $250K threshold isn't on total income.
The $250K threshold is on CAPITAL GAINS income.
So, your average surgeon who makes $500,000/year and who has a $5 million stock portfolio and cashes out $1 million to buy a luxury home vacation home on Orcas Island and happens to have realized $249,000 in capital gains on that $1 million stock holding. He pays no capital gains tax because he is under the $250,000 threshold. He can do it again next year and the next and the next and owe no tax as long as he keeps his capital gains under $250,000.
However if he happens to realize $350,000 of capital gains when he cashes out his $1 million stock holding to buy that vacation home, well then he has $100,000 of capital gains on top of his $250,000 annual capital gains exemption. And owes a total capital gains tax of $100,000 x 7% = $7,000. OUCH.
Your average high-income professional with wage salary like doctors, lawyers, mid-level executives? This tax will never touch them even if they have salaries in the 7 figures because they earn wages not capital gains. In fact it won't affect any actual working people who by definition earn wages not capital gains.
Your average high-income professional with a big 401(k) or IRA? Even one in the millions? This tax will never touch them because those capital gains are never taxed as that is the nature of a 401(k) or IRA. The get taxed as normal income when withdrawn, not capital gains.
Your average high-income professional living off a huge family trust fund? This tax will only touch them if they realize more than $250,000 in capital gains in a year and don't manage to have good enough accountants to hide it.
No middle or working class people will touched, EVER.
The only people for whom this tax is meaningful are two types of people: (1) tech millionaire types who cash out millions in stock options, and (2) ultra-wealthy families like the Blethens, McCaws, Seligs, and Gates, and Bezoses of the world who live off the income produced by massive family wealth.
The only people who this tax will touch are those in the top 0.1% and even many of them will probably figure out how to evade some or all of it.
I understand this. My concerns would be that jobs are affected, say if you work in WA for Fisher Investments or one of these many companies that will now leave, as an example. Also, like I said before, they can just change the wording/exemption amount later and rake in more taxes. Do you trust them not to? I don't. The last income tax proposal we voted down had clearly written in the "language" below the tax brackets(which were mainly on the wealthy), "The legislature, without vote of the people, may modify or remove the exemption's as they see fit".
I understand this. My concerns would be that jobs are affected, say if you work in WA for Fisher Investments or one of these many companies that will now leave, as an example. Also, like I said before, they can just change the wording/exemption amount later and rake in more taxes. Do you trust them not to? I don't. The last income tax proposal we voted down had clearly written in the "language" below the tax brackets(which were mainly on the wealthy), "The legislature, without vote of the people, may modify or remove the exemption's as they see fit".
So you are worried about a tax law that doesn't actually exist? I mean they could also raise the sales tax to 25% like it is in Sweden and Denmark. Are you worried about that too?
I live in Camas and I would venture to guess that exactly ZERO employees of Fisher Investments are subject to this tax unless they happen to be independently wealthy and just work there as a hobby.
They just built a brand new multi-million building on their campus last year. It is the fanciest building in the entire city of Camas. https://goo.gl/maps/EPXAMsmfmpgvMzK46 and there are three other identical buildings behind the trees to the left. I don't see them actually moving their business operations. Ken Fisher, who doesn't live in WA anyway, will just tack a sign over some office in Plano TX where he lives and call it the Fisher Investment HQ and be done with it. This is all a performative hissy fit on his part and doesn't actually affect his business. We should not be paying so much attention to the tantrums of billionaires.
All of his Camas employees have their families, children, spouses, etc. already established in Camas and most of them took the job because of the location. If he tries to move it all to Plano TX a huge number of them won't follow. And Washington recently passed a law that invalidates non-compete clauses so his ex-employees could easily just open up their own shop right there in Camas and keep going. Even start speed-dialing all their former Fisher clients. They are all mostly sales people anyway so that's what they do. Nothing he can do about it.
My concern is that, say a bunch of the mega-wealthy leave the State that weren't contributing anything, just sitting on their money (even then these people still consume and require paid services but we'll ignore that for this discussion) so ok bye-bye. The state see's the tax base and income shrink, and revises the exemption to only $50K capital gains, and widens the scope of the "excise tax" to inheritances, gains on real estate, etc.
My concern is that, say a bunch of the mega-wealthy leave the State that weren't contributing anything, just sitting on their money (even then these people still consume and require paid services but we'll ignore that for this discussion) so ok bye-bye. The state see's the tax base and income shrink, and revises the exemption to only $50K capital gains, and widens the scope of the "excise tax" to inheritances, gains on real estate, etc.
Well no, the state doesn't actually see the tax base shrink if billionaires leave the state.
They aren't paying any income tax anyway, so no tax base lost there as there is no income tax base to begin with.
If they own property it isn't going with them, so no tax base lost there whether they keep the property or sell it. It stays on the tax rolls.
Most probably spend a pittance in the state anyway. I doubt many billionaires are shopping at SouthCenter Mall. They are shopping in Paris or New York or Dubai, or just having things shipped online.
Do I care if one less billionaire mansion gets built on Mercer Island, Medina, or Orcas Island? Absolutely not. Do you?
Let them all throw a tantrum and move to Plano TX. I've been there. My daughter's select soccer team played in the Plano youth league when we lived in TX. Trust me, it isn't all that.
The $250K threshold isn't on total income.
The $250K threshold is on CAPITAL GAINS income.
So, your average surgeon who makes $500,000/year and who has a $5 million stock portfolio and cashes out $1 million to buy a luxury home vacation home on Orcas Island and happens to have realized $249,000 in capital gains on that $1 million stock holding. He pays no capital gains tax because he is under the $250,000 threshold. He can do it again next year and the next and the next and owe no tax as long as he keeps his capital gains under $250,000.
However if he happens to realize $350,000 of capital gains when he cashes out his $1 million stock holding to buy that vacation home, well then he has $100,000 of capital gains on top of his $250,000 annual capital gains exemption. And owes a total capital gains tax of $100,000 x 7% = $7,000. OUCH.
Your average high-income professional with wage salary like doctors, lawyers, mid-level executives? This tax will never touch them even if they have salaries in the 7 figures because they earn wages not capital gains. In fact it won't affect any actual working people who by definition earn wages not capital gains.
Your average high-income professional with a big 401(k) or IRA? Even one in the millions? This tax will never touch them because those capital gains are never taxed as that is the nature of a 401(k) or IRA. The get taxed as normal income when withdrawn, not capital gains.
Your average high-income professional living off a huge family trust fund? This tax will only touch them if they realize more than $250,000 in capital gains in a year and don't manage to have good enough accountants to hide it.
No middle or working class people will touched, EVER.
The only people for whom this tax is meaningful are two types of people: (1) tech millionaire types who cash out millions in stock options, and (2) ultra-wealthy families like the Blethens, McCaws, Seligs, and Gates, and Bezoses of the world who live off the income produced by massive family wealth.
The only people who this tax will touch are those in the top 0.1% and even many of them will probably figure out how to evade some or all of it.
Very good post (as usual)!
Just to clarify, it can hit a lot lower than the categories you describe. A lot of people invest their savings in mutual funds. And, mutual funds are required to distribute their capital gains on an annual basis. So, one does not need to sell a $1 million in stock to get that gain. Passive earnings on the mutual funds can lead to incurring the tax. Of course, you aren't going to make $250+K capital gains on a $25K investment but it will hit (perhaps not consistently) a lot of people who have saved and invested in mutual funds market, for example, in years where there were capital gains. Smarter investors could try to move their portfolio towards dividend growth funds to minimize it to a degree.
Not that it changes anything about your response. But people do need to appreciate the implications.
Just to clarify, it can hit a lot lower than the categories you describe. A lot of people invest their savings in mutual funds. And, mutual funds are required to distribute their capital gains on an annual basis. So, one does not need to sell a $1 million in stock to get that gain. Passive earnings on the mutual funds can lead to incurring the tax. Of course, you aren't going to make $250+K capital gains on a $25K investment but it will hit (perhaps not consistently) a lot of people who have saved and invested in mutual funds market, for example, in years where there were capital gains. Smarter investors could try to move their portfolio towards dividend growth funds to minimize it to a degree.
Let's do the math on a mutual fund. I'll pick the Vanguard S&P 500 Admiral Shares fund which is the second largest mutual fund in the world. According to Vanguard, in 2022 they had capital gains distributions of $1.67650 at a share price of $351.93 https://advisors.vanguard.com/tax-ce...-distributions (note, ordinary stock dividends are exempt from this new WA tax, it only taxes actual capital gains not dividends).
So if we do the math, that is $1.68 / $351.93 = a capital gains distribution of 0.00477 or 0.477%
Working backwards from $250,000 you would need a mutual fund portfolio size of $52.4 million to generate $250,000 worth of mutual fund capital gains in 2022 ($250,000 / 0.00477). And that is just to burn up your exemption. So you will only owe capital gains tax of 7% on your portfolio amount that exceeds $52.4 million.
How many working class people do you know who have non-retirement taxable investment portfolios that exceed $52.4 million?
And do you really think that they can't afford the 7% tax on their capital gains on the portion of their portfolio that exceeds $52.4 million?
I'm sure there are actively managed funds that do a lot more gratuitous buying and selling and generate more capital gains. But if you are investing in high-priced actively managed funds then you already don't care about wasting money. And even then you need a portfolio size in at least the tens of millions of dollars to even start seeing enough capital gains to be taxed on them.
Last edited by texasdiver; 04-06-2023 at 02:32 PM..
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