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.
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”.