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Income Tax Quashed, Ballmer To Cash In Billions
theodp writes "Washington's proposed state income tax not only prompted Microsoft CEO Steve Ballmer to spend $425,000 of his own money to help crush the measure at the polls, it also inspired Microsoft to launch a FUD campaign aimed at torpedoing the initiative. 'As an employer, we're concerned that I-1098 will make it harder to attract talent and create additional jobs in Washington state,' explained Microsoft general counsel Brad Smith. 'We strongly support public education, but we're concerned by key details in I-1098. This initiative would give Washington one of the top five highest state income tax rates in the country. I-1098 would apply this tax rate to all income, including capital gains and dividends, and would not permit any deductions for charitable contributions.' Nice to see a company take a principled stand, backed by a CEO who's not afraid to put his money where his company's mouth is, right? Well, maybe not. Just three days after the measure went down in flames, Ballmer said in a statement that he plans to sell up to 75 million of his Microsoft shares by the end of the year to 'gain financial diversification and to assist in tax planning.' Based on Friday's closing price of $26.85, the 75M shares would be valued at approximately $2 billion. All of which might make a cynic question what was really important to Microsoft — public education, or a $2B state income tax-free payday for its CEO?"
You didn't even make it through the entire summary, then. It said "I-1098 would apply this tax rate to all income, including capital gains and dividends".
It wasn't just Steve Ballmer or Microsoft fighting I-1098 ... this measure was very unpopular all across Washington State and failed at the polls by a 65% - 35% margin. Washington State is one of the few states in the US without a personal income tax (the sales taxes here are very high to make up for the revenue deficiency). I-1098 would have introduced a personal income tax on the "richest" residents (those making over $200K individually or $400K as a family), but the reason it failed by such a wide margin is that most Washington residents (including me) believed that once they introduced a personal state income tax here, the politicians would plead "necessity" and keep lowering the threshhold over time to the point where most residents would be paying it, and without any decrease of the sales tax to compensate. The majority of the population here is all in favor of education and healthcare, we just don't believe that a state income tax is the way to fund them.
FWIW, Microsoft and other large businesses in Seattle do have a legitimate interest in avoiding a personal state income tax, as for recruiting and keeping high-priced talent there is an advantage for them to come to Redmond and live in a state with no income tax vs. going to some other company - say, in California - and paying the tax rates there. An equivalent pay job offer in the Seattle area vs. many other states actually means more take-home pay here.
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If you would read the proposed national bill, it refunds 100% of the consumption tax to everyone making below the poverty limit, with an increasing amount for each dependent. Even if you are unemployed you would get a refund equal to the amount you would have paid, if you had worked. This effectively reduces the tax burden of the poor to absolute 0, and even gives them money had they not worked. I love how politicians (mainly democrats) who don't support it say it will hurt the poor. The reality is, if this bill passed it would help everyone, and politicians could no longer play class warfare with taxes. Why would a politician give away his greatest tool? Especially a group of politicians so dependent on the poor.
The summary should have mentioned that the tax proposal was authored by Bill Gates Sr., and was supported by Bill Gates Jr., which is some pretty good evidence that Gates Jr. really has managed to separate himself from Microsoft.
As to why Ballmer is selling now, there's a pretty good chance it was for tax planning purposes. Many think there's a high chance the capital gains rate is going up soon, and so taking long term capital gains this year is indicated.
If you eliminate income tax, sales tax will have to increase considerably. Probably around 10-15 percent. At that price, people would likely shop elsewhere to avoid the state's sales tax. Especially on expensive items. Again, only the rich would have the means to do this. So you end-up killing local businesses as well as hurting those who have limited income.
Views expressed do not necessarily reflect those of the author.
The problem is that the person making that statement didn't get it quite right. From my professor of Managerial Economics: "The job of management is the LONG TERM maximization of shareholder wealth." This means that selling one's manufacturing equipment for a short term gain doesn't make sense because next year income will be zero. Likewise, it benefits the long term view for employer and employee to have cordial, versus adversarial, relations because the most productive, innovative workforce is the one that wants to come to work each each day. As a shareholder, I would hope that the management can wring every cent to the bottom line they can. I also expect, however, that they will not open the company to a future lawsuit in the process.
What you described is not capitalism. Just because a bunch of statist pricks have hijacked the term doesn't mean the meaning of capitalism has changed.
All of which might make a cynic question what was really important to Microsoft — public education, or a $2B state income tax-free payday for its CEO?
If the measure had passed, the tax would not have started until 2012, so that was a pretty stupid question. Ballmer's stock sale was income tax free regardless of what happened with 1098.
I live in Wisconsin too, and my house is worth more than double that and my property tax is $6500 a year. My state income tax doesn't come anywhere near my federal income tax. Even the example property tax bill on the Wisconsin Department of Revenue FAQ site shows a $367,000 home/property paying $5741. http://www.revenue.wi.gov/faqs/index-pt.html State sales tax is 5%, and some counties tack on another .5%. Highest counties in the state tack on .6% for a maximum sales tax of 5.6%.
http://www.revenue.wi.gov/faqs/pcs/taxrates.html#txrate2
So yeah, I'm guessing you are exaggerating a wee bit.
Correct me if I'm wrong but doesn't California have a state income tax as well as the highest sales tax and yet it still manages to a magnet for high tech companies. Even Microsoft has offices in Silicon Valley which, to me seems a bit unnecessary especially if high taxes are so detrimental to businesses.
The real question is: does the government deserve the money more?
No, that's not the question. The supposition that "he's worked for it, he deserves it" is the question.
The claim is that he's "worked hard" -- this implies that the job he's doing requires "work", ie some kind of labor input to produce a work product, and has worked "hard", implying that the work was difficult, strenuous and required substantial effort and sacrifice on his part.
My argument isn't that the government deserves the money; my argument is that the "hard work" Ballmer puts in ended years ago and that the "hard work" he performs now would feel like a vacation compared to what most people believe "hard work" actually is -- an unpalatable job, done for miserly compensation in the face of demanding and unhelpful supervisors and bureaucracy, and with considerable personal challenges.
In contrast, virtually every minute of Ballmer's "work" life is spent in almost complete luxury, with almost all of his needs attended to by underlings, with many of the expenses ordinary workers are expected to bear themselves (eg, meals, transportation) funded by Microsoft and provided at a level of luxury unimaginable to all but the most privileged. And the actual "work" he does is generally limited to conversations with and giving orders to people who are his subordinates. Even the things he does that more ordinary people do for "work", such as travel, are both done in ways ordinary people aren't allowed to do (ie, private jet travel, luxury hotels, gourmet meals) and to glamorous destinations and events (Davos, Switzerland, or Aspen, Colorado).
For that kind of "work" lifestyle I think most people would be thrilled to do it all *and* actually get paid whatever penury amount they get now. That people are actually able to enjoy that lifestyle and then get up on their high horse and make some kind of moral claim to vast riches for their "hard work" never ceases to amaze me.
In other words, you actually paid the plumber $65, and of course, that's as much, or more, than the service you got, and you paid the government $35;
You just desribed a tax on INCOME rather than a tax on PROFIT.
That's not how it works. Nice try though.
Divide a cake by zero. Is it still a cake?
Income tax is precisely how it works, son. Welcome to the real world.
If you genuinely think that's how it works, I suggest you ask an accountant what "tax-deductible" means... briefly, you're paying a plumber $100, and as part of the same transaction he has to pay an electrician $65, then he does not get taxed on that $65.
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Wikipedia must be wrong, but I was trying to specifically exclude county/municipality sales taxes since the question at hand is state income tax vs state sales tax.
Do you even lift?
These aren't the 'roids you're looking for.
Amusingly enough....Maryland has also been a leader in the nation for job growth
Yep. That is mostly due to huge deficit spending by the Federal government, a lot of which somehow failed to make it out of the "Washington area", including Maryland, which surrounds D.C (for those unfamiliar with the geography.) You can see the effect of this here; the Baltimore–Washington Metropolitan Area has seen far less decline than the rest of the nation.
Government hiring, spending spurs D.C.-area job creation
Choice quotes:
"The hundreds of billions of dollars of stimulus money -- that was an enormous shot in the arm, and we really benefited from it in this area,"
Federal hiring accounted for roughly 19,700 of the D.C. area's new jobs...Federal spending also led to increased hiring in D.C.'s private sector. Professional and business service firms, which often provide contract work for the government, added about 13,500 new jobs last year thanks to an estimated $84 billion in government procurement spending.
Thing to keep in mind is that we just had an election here in the US. The stated goal of our newly elected House of Reps leadership (the folks actually responsible for writing the budget) is to revert discretionary spending to pre-TARP/stimulus 2008 levels. That 'discretionary' spending is the part that has propped up your local economy.
I suspect the next few years may be less 'amusing.'
Lurking at the bottom of the gravity well, getting old
Income: $30,000
Standard Deduction: -$5,700
Taxable Income: $24,300
Tax on first $8,375 @ 10%: $838
Tax on remaining $15,925 @ 15%: $2,389
Total Tax: $3,227
Did you look up what current tax rates are? That person would pay about 37% more in tax under your plan ($4,409 vs $3,227). They'd have to put nearly $5,000 per year into savings just to end up with the _same_ tax burden.
On the other hand, a person making $250,000 per year and spending $150,000 of it would end up paying less than half of what they do now ($65,736 vs $32,009). Even if they spend every penny, they'll still only pay $55,000 for a savings of over $10,000.
Run the numbers for Fair Tax over a longer term period. It continues to shift wealth to the wealthy, further increasing the income disparity between classes in our nation. The bottom line is that money makes more money, and the only way to stabilize disparity is to raise taxes on those with more money. I'd be happy if we could keep the ratio of class wealth consistent, instead of watching the rich get richer and the poor get poorer.
Or will use eminent domain or asset forfeiture to get the government to take it from you.
Guess who said it was ok to use eminent domain for the advantage of private enterprise? It was the left leaning Justices on the Supreme Court. The right leaning Justices all dissented in that particular case....
I want peace on earth and goodwill toward man.
We are the United States Government! We don't do that sort of thing.
Around here people are opposed to the HST (harmonized sales tax). This raises more revenue for the province, and helps to balance the books. There are only two alternatives: increase a different tax, or cut programs (unless you count waving the magic wand of waste-free administration, as much beloved by the pumpkin pie in the sky sect). The programs large enough to achieve the necessary cost savings are most likely the usual suspects: education, health care, and pensions.
Is that Ontario or BC?
For BC at least, the issue is not just about HST itself, but about how it was sneaked in - a supposedly fiscal conservative party got voted in by claiming, in public, that they would absolutely not support the introduction of HST, because it's so bad and awful. One month after the election, they proudly proclaim that they're signing up for HST, and go ahead to explain how totally awesome it is, all while saying that they didn't quite understand it before the election. It's no surprise that you get a lot of pissed voters that way... even more so when leaked documents show that party leadership was planning the HST move all along before the election, and they were lying through their teeth just to get the votes.
A lot of people that I know here signed the anti-HST petition not because they think the tax is wrong, but because they believe that such things should be done right and proper - with true consent of the electorate - in a properly functioning democratic state.
To clarify the tax situation, There is NO income tax in Washington State. Sales tax is NOT applied to food and prescription medication. The proposed income tax was on income over $250,000.00 a year.
Indeed, clearly higher European tax rates lead to a better recirculation of the wealth and overall fiscal health superior to the US. Unless you actually look at the data. Belgium, Ireland, the UK Spain, Portugal and Greece all have higher private debt defaults than the US as a percentage of GDP, Germany is statistically equivalent. All of those states aside from Germany, despite higher taxes have a higher debt to GDP ratio and again, Germany is roughly equivalent. The Europeans may "love" their higher taxes, but they aren't any better at controlling their spending or debt, quite the opposite. http://online.wsj.com/article/SB10001424052748704140104575056751636031606.html
There are a bunch of arguments for why the rich should pay more (not just dollar wise but percentage wise).
Off the top of my head:
1. They can afford to. It costs $X to run the government and lowering the burden on the poor by increasing that on the rich is considered a reasonable thing to do by many people (not you obviously).
2. They use more government resources and hence it's fair they pay more. The military provides more benefit to the rich - they lose more if the Russians invade and confiscate all the property. The legal system provides greater protection (in terms of the value protected) for their property.
3. The marginal propensity to consume falls as income rises. If you think the economy is demand driven then taking more money from the rich and less from the poor will be better for the economy.
4. Income exhibits diminishing marginal returns in terms of utility (a person earning $100,000/year gets less utility from an extra $1000 than a person earning $25,000/year does). Hence taxing the rich at higher rates than the poor will result in higher total utility than a flat percentage system.
You are obviously not a Washington State citizen or resident, or if you are - you are profoundly ignorant of the political situation here.
Nobody in the State House or Senate will ever propose an income tax. Ever. It's a third rail issue here, and even proposing an income tax could be a career ender. Voting in favor of an income tax would be political suicide.
Every time an income tax has been placed before the voters it has gone down in flames by a wide margin.
If you live here, you may trust Olympia and place your naive faith in them 'listening to' the high income earners... But your fellow citizens, after suffering through the past decade and a half, are not so trusting and naive. We've seen, again and again, how the people have attempted to rein in State spending - and how again and again the Legislature has tried to work around the will of the people.
Well, Washington won't have to increase their sales tax after eliminating income tax because they never had one in the first place. The sales tax is 6.5% in Washington, with counties adding from 1.5% to 3.5%.
For most states and municipalities, things were going swimmingly before the bust. With revenues up, they double-downed on spending: half-billion dollar schools, $1.5 million city manager salaries. The problem is they refused to cut the fat during lean times.
Even if you believe in Keynesian economics, spending money to promote economic activity is the prerogative of the one government (the Feds) that has a printing press.
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