You are here

Prof. Victor Menaldo in The Seattle Times, "WA’s capital gains tax will have unintended consequences"

Submitted by Stephen Dunne on April 14, 2023 - 9:24am

Prof. Victor Menaldo in the Opinion section of The Seattle Times argues that the recent WA Supreme Court decision to uphold the State's capital gains tax will have unforeseen consequences and a possibly result in less business investment.

Prof. Menaldo notes that this excise tax will affect most businesses and could have a huge impact on our economy, "Capital gains taxes on these businesses’ investments affect their invested capital, which is the money they can deploy to run their business and expand. While Washington’s new capital gains tax allows firms to deduct ordinary investments used to offset depreciation such as wear and tear, it will nonetheless reduce a firm’s capital expenditures and R&D investments and increase its labor costs, so these taxes will induce it to invest less and hire less....

...Other distortions engendered by capital gains taxes may include a firm trying to offset capital gains with capital losses, therefore hastening the sale of assets it may have otherwise hung onto and timing their sale to reduce its tax liabilities. Conversely, a business may try to hang onto assets it would otherwise shed to avoid paying capital gains taxes....

...Plus, the fear that the Washington Supreme Court ruling will open the door to future taxes, including taxing C-corporations’ capital gains in the form of a corporate income tax, may lead to several chilling effects. It may deter larger businesses from being born. Keep incumbent businesses from expanding or moving into our state. Precipitate those businesses leaving the state, even if they already hold a lot of their investment capital offshore."

Please link here for the full article in The Seattle Times.