A new Washing State tax plan could cost Jeff Bezos $2 billion a year. The state wants to add a 1% tax on all wealth above $1 billion. And Jeff Bezos lives in the state.
According to CNBC, the tax would be a levy placed on total wealth and not annual income. So if Jeff Bezos is really worth $200 billion on paper then he would have to cough up $2 billion in cash, forcing him to sell off some of his assets.
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Such a tax is unprecedented, however. Nowhere in America is anyone’s total wealth taxed. No matter how wealthy one may be, no matter how high the tax bracket, people are only taxed on their actualized wealth. This means that their annual total cash income is taxed. As for financial assets, these are only taxed when an investor cashes out by selling.
Profits that an individual earns on paper are never taxed. So if you own stock and it goes up in value you do not have to pay a tax on the profit. But the moment that one sells an asset, whether it be stock, commodities, bonds or a share in ownership of any business or property, a capital gains tax is assessed. This tax is usually a flat tax with no deductibles and it is applied only to the profit taken; the sale price minus the original price paid and any fees taken.
Governments, as a rule, do not tax unrealized wealth. A person could have $10 million in investments on a given day, but months later the value of these investments could plummet. Everyone knows this, which makes such a tax so hard to accept.
Bill Gates also resides in Washington State. His net worth is estimated at $135 billion and so he would need to pay $1.35 billion should the tax be assessed. His fellow Microsoft owner Steve Ballmer would owe an estimated $870 million.
The main reason why observers feel that this tax will never come into being is that so few people would need to pay it. So the billionaires like Jeff Bezos would simply move away to another state. They could still run their Washington based businesses from somewhere else and be able to enter the state up to 182 days a year.
In the end, Washington would simply lose whatever tax revenue it currently brings in from these people without adding a single dime more.
