When he was asked at Berkshire Hathaway’s recent shareholder meeting what he thinks about people leaving California because of taxes and a high cost of living, Charlie Munger, Berkshire’s Vice Chairman told the audience that it was a mistake for state governments to lose residents to competition from other states. He continued “I do think it is stupid for states to drive out their wealthiest citizens. The old people don’t commit any crimes, they donate to the local charity. Who in the hell in their right mind would drive out the rich people? Florida and places like that are very shrewd, and places like California are being very stupid.”
If Joe Biden’s massive increase in capital gains taxes passes, residents of 13 states will be paying more than 50% of their capital gains income to the government. Now, Gov. Jay Inslee of Washington is looking to hit his own wealthiest residents with the same treatment. The Wall Street Journal reports:
’Tis the season for raising taxes, and seemingly every Democratic state wants in on the action. The latest is Washington state, where legislators last weekend approved a 7% tax on capital gains above $250,000. Washington is one of eight U.S. states without an income tax, though voters have had to keep vetoing attempts by public unions to impose one in ballot initiatives. The politicians in Olympia won’t take no for an answer.
Washington’s constitution requires that income be taxed equally for all residents, which has thwarted previous plans. This time Democrats hope favorable political winds will lead to a court ruling upholding the capital-gains tax. Echoing President Biden, Gov. Jay Inslee says the tax will “bring a good portion of fairness to our tax system.”
Fairness? Washington state passed its new levy on capital gains even as Mr. Biden proposed a federal increase, which would raise the top rate to 43.4% from 23.8%, including the Affordable Care Act surtax. Combine the two tax increases, and Washington residents will now pay up to 50.4% of their capital gains to one government or the other.
Is it fair to pay in taxes more than half of what you gain on a long-held asset, especially when that taxable gain doesn’t account for inflation? Is it fair when that gain in value may have already been taxed once as corporate income? Then how do you define confiscatory?
Action Line: If your state sees you as only a piggy bank to be emptied, it’s time to look for a better place in America.
