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Capital gains tax
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Ross: There’s nothing unfair about a capital gains tax in Washington

Is a capital gains tax the same as an income tax?(Chris Potter, Flickr)

It happened! By one vote, the Washington state Senate approved Gov. Jay Inslee’s capital gains tax and sent it on to the state House.

It was so controversial that four Democrats actually voted against it. Because … well, that’s the question. Why is this so controversial?

This state has one of the most regressive tax systems in the United States. The idea of a capital gains tax is to even things out a little.

Critics oppose it as an income tax – but if it is, it’s the most peculiar income tax I’ve ever seen. Your salary could be a million dollars, or $5 million, or $10 million, and you wouldn’t pay a penny to the state under this tax.

But Dave, what about the capital gains? Well, I’ll give you a personal example.

I have a retirement fund. About a year ago, I bought a stock called SQ. Yesterday, I checked, and it’s up $14,000. I didn’t do a thing to earn that gain except to click my mouse on a “buy” button in 2019. If I cash it in, I’d pay around 15% to the IRS, but zero to Washington state, even under this recently-passed tax, because it only applies to gains over $250,000.

OK, but now suppose I was that guy who bought $5,000 worth of Microsoft in 1986 and held onto it. As of Friday, it would have been worth $15.8 million.

Under the capital gains tax, if I cashed it in, I’d pay about $1.1 million to the state, and I would still have $14,763,554.67. But wait – it’s my retirement fund, so under this bill, the whole thing is exempt and I keep it all!

And by not selling it, I keep collecting $140,000 a year in stock dividends without paying a penny to the state in income tax.

So, you can call this an income tax and oppose it as grossly unfair, … but just so you know, I don’t think a single stock holder will have to set up GoFundMe if this passes.

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