Ross: We need to trick the wealthy into wanting to pay the capital gains tax

As the reality of the capital gains tax sets in, we’re seeing a little pushback from the wealthy.

A listener wrote in to say, “many people like myself who are mobile investors and have choices will simply shift ownership of assets to … a trust…or something as simple as a new account in a different jurisdiction.”

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And he says this is what wealthy Californians do – they set up a separate home in Nevada which is why Lake Tahoe on the Nevada side is so expensive.

So, I proposed that idea to our ‘tax whisperer,’ Ken Williams. He said good luck.

“It’s a tax that’s assessed on individuals. So forming another entity doesn’t really do anything for you because it’s going to be the tax applies to individual taxpayers,” Williams said.

Of course, there’s another alternative. Since the state isn’t withholding your capital gains, and it’s up to you to report them – you could just sort of forget to report them.

“There are a few people that I’ve heard that from, and, you know, if they have reportable gains, I suppose they can do that. But it is the law, and there are some substantial penalties for failure to file,” Williams said.

Now, they’re not going to arrest you or anything like that, but it’s a lot more than a parking ticket.

“[There’s] up to 25% penalty for failure to file and another up to 29% penalty plus interest for failure to pay. So you’re talking about, you know, 54% penalties on the amount of tax owed, potentially, for thumbing your nose at this, and then even more stringent penalties for willful disregard. So it’s not something to just mess around with.”

So, his advice to rich folks is to report your capital gains and pay the 7%.

Some of the support for this came from people like the late Bill Gates Sr. and other rich people who thought it was only fair.

It might help with compliance if some of those rich people published a full-page open letter in the Seattle Times saying, heck yes! We see this tax as a step toward educational equity, and no matter how much it costs us, not only will we voluntarily comply, but we are proud to pay it! In fact, it is a privilege to pay it.

And at the bottom, we would see their signatures, and the names of their companies, and we would all patronize them, and everybody wins.

You could have that in the paper by Friday.

Listen to Seattle’s Morning News with Dave Ross and Colleen O’Brien weekday mornings from 5 – 9 a.m. on KIRO Newsradio, 97.3 FM. Subscribe to the podcast here.

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