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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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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.
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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.
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.
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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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.
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.