Journal Editorial Report: It is the largest privilege escalation since the 1960s. Images: Getty Images Composite: Mark Kelly
It’s the time for tax hikes, and it seems every democratic state wants to go along with it. In Washington state at the latest, the legislature approved a tax of 7% on capital gains over USD 250,000 last weekend. Washington is one of eight US states with no income tax, although voters have continued to veto attempts by public unions to impose one in electoral initiatives. The politicians in Olympia will not take no for an answer.
The Washington Constitution requires income to be taxed equally for all residents, which has thwarted previous plans. This time around, the Democrats are hoping favorable political winds will lead to a court ruling that upholds the capital gains tax. Echoing President Biden, Governor Jay Inslee says the tax will “bring a fair amount of fairness into our tax system.”
Justice? Washington State passed its new tax on capital gains despite Mr Biden proposing a federal increase that would raise the maximum rate from 23.8% to 43.4%, including the surcharge tax under the Affordable Care Act. Combine the two tax increases and Washington residents now pay up to 50.4% of their capital gains to one government or another.
Is it fair to pay taxes that are more than half the profit of a long-held asset, especially if that taxable profit is not responsible for inflation? Is it fair if this increase in value has already been taxed as corporate income? Then how do you define confiscating?
According to the tax foundation, the average combined maximum rate of capital gains between states for all states under the Biden Plan would exceed 48%. With the addition of Washington, 14 states would have a peak rate of over 50%. The list of states and the District of Columbia with the 12 highest combined capital gain rates is close, and Washington state now ranks 11th.
President Biden says his plan will require high earners to “pay their fair share,” but it is not clear what rate he and state lawmakers find unfair. Is it 60% or 75%?
Higher taxes on capital gains reduce investment, which means that workers who are not rich also pay the tax at lower wages. The government is losing too. When tax rates go up, capital gains realizations invariably go down, which means the government is getting less revenue despite the higher tax rates. Even economists at the Congressional Budget Office, not a nest of vendors, believe the revenue maximization rate is 28%, while other economists believe it is closer to 15%. It sure isn’t 50%.
The same Tax Foundation report found that the Biden Capital Gains Tax Plan would cut federal revenues by $ 124 billion over a 10-year period. States would also see a decline.
The Biden and Olympia tax increases on capital gains don’t matter to Bill Gates or Bill Gates
Jeff Bezoswho are already rich and can hire lawyers to protect their future profits. The people who are unjustly hit are the bourgeois nerds or entrepreneurs who, after a lifetime of work and investment, could be “rich” in capital gains for a year. Politicians define “fair share” as more than half of everything they earn.
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Published in the print edition on May 3, 2021.