Russ Decker: comparing apples and oranges
The Senate Democrats now propose that capital gain will now be taxed at 100% in Wisconsin, instead of excluding 60% of capital gain from state income taxes.
http://www.jsonline.com/news/statepolitics/48253947.html
The Legislative Fiscal Bureau is saying it will raise a something like $315 million, but I don’t know anyone with any capital gains, so we’ll see. It will hurt investment in the state because it raises the cost of capital–the same stuff I always say.
Anyway, Decker justified it by saying:
“Eliminating the capital gains exclusion is about tax fairness,” he said. “Why should someone who sells a painting, a second home or gold coins get a tax break while someone who earns their money by working all year does not?”
That’s accurate as far as the income tax is concerned. However, if you sell a painting or gold coins, you will pay sales tax which is sort of odd if you think it’s an investment like Decker is thinking (the sales tax is kind of a mess in that no one really knows what it is theoretically supposed to tax). You don’t pay sales tax on real property, but, really, what about the property taxes you’ve been paying on your second home? So it’s not really the same, is it, when it comes to tax fairness? It may not be the same, but it isn’t really a loophole.
No matter, because gold coins are not where the bulk of the $315 million is going to be coming from (well, may be if Obama doesn’t get his money printing machine under control). The bulk will come from investments in corporations–buying and selling stock and mutual funds. Decker probably doesn’t want to talk about that, because large numbers of voters sell stocks for a profit (although, again, not for a few years now).
And therein lies the rub–corporate profits were already taxed by the state at 7.9% (and the recycling surcharge) . Profits are then distributed out as dividends to be taxed again at 6.75% (and now probably 7.75%). The one sop to an investor was that when he sold his investment, the investor could exclude a portion of the capital gain from tax. Investors do not have it easy.
Decker makes an implicit argument that Wisconsin should tax capital and labor income similarly, but looks to a very narrow definition of “tax”.
Why would you pay sales tax when you sell something? Perhaps you think the sales tax is messed up because someone has convinced you to pay them sales tax when they buy something from you. Doesn’t the buyer pay sales tax?
But seriously, President Reagan supported treating investment income the same as wages. Why don’t conservatives support that now? I thought he did no wrong in your world.
Yes, the legal incidence is on the buyer, except
in instances where the buyer doesn’t pay and the WDOR is allowed to go after the seller.that the seller generally withholds the tax and if the seller doesn’t, the seller can become liable.The economic incidence is a different story; the sales tax is probably equally shared between the buyer and seller (just as the capital gains tax is shared between buyer and seller). Just because the legislature says who remits the tax does not mean that it gets to choose the party is that is worse off economically. I made a short-cut and looked at the total amount of tax collected from the transaction (or, in the case of investment property, the property taxes paid). The point I was making (admittedly, very quickly and probably not very properly) is that when you look at a narrow view of the tax on the transaction, you can get to all sorts of results.
A large amount of good research shows that the corporate income tax burden labor far more than it burdens capital, because capital is far more mobile than labor.
I’m not certain to what Reagan quote/position you refer. Reagan’s principals are great; but sometimes the world in which you have to apply them changes. It appears from quick googling that Reagan left office arguing for a lower capital gains rate than ordinary income rate. Also, Reagan was probably not governing a state at the time. States are different than the federal government because capital is easier to move to other states (and more so in 2008 compared to 1980) than it is to move off-shore (although it is increasingly easy to do as other countries have cut their rates). In this situation, taxes on investment hurts Wisconsin’s to compete for good paying jobs. Because of that, labor is probably bearing the brunt of the tax on investment anyway.