Washington state to implement tax on incomes of big banks

Discussion in 'Budget & Taxes' started by kazenatsu, Sep 30, 2021.

  1. kazenatsu

    kazenatsu Well-Known Member Past Donor

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    Washington state is imposing a peculiar type of tax.

    Like the progressive income tax, this tax would impose a higher percentage of tax depending on how much money is earned.
    Except instead of doing this on individual people, this would apply to businesses.

    The tax is on banks and financial institutions with profits over $1 billion. But this type of thing is going to set a precedent.

    The question can be asked about the fairness of this different type of tax, and whether it even makes sense.

    The main arguments against this tax seemed to be that it discriminated against banks that were outside the state, and thus ran into trouble with the US Constitution that requires states not to put taxes on commerce coming from outside the state that is different from commerce within the state (economic protectionism). However, a judge pointed out (perhaps correctly) that using that type of argument could lead to an absurd outcome like the state not being able to tax tobacco because all tobacco is grown outside the state. Supposedly the tax is not discriminatory because all financial institutions with profits over $1 billion, no matter which state they are in, are subject to the tax, with only their profits derived from within the state subject to taxation.
    The US Supreme Court might take up the case and examine this argument.

    I do wonder about a state taking into account for taxation purposes factors about a person's or business's income that is outside the state. That almost seems equivalent to an indirect way of taxing income that is outside the state.

    I also wonder whether taxing profits at a higher rate based on income even really makes sense for businesses. Why should one business pay the tax but two separate businesses, that are each half the size of the first, not pay the tax?
    Some of this seems like it may just be emotionalism.

    If this is accepted, it is going to set a precedent, and then we might eventually see different percentage taxation rates on businesses depending on how big those businesses are. Something I think would be asinine and not really make logical sense or be fair.

    Washington Supreme Court unanimously OKs tax on big banks (msn.com)

    Yet one more additional complicating factor is that the Washington State Constitution has a clause that prohibits any income tax. Taxing a percentage of a business's profits based on the qualifying criteria of how much profit that business earns would seem to violate that.
    The progressives who have a majority in the state government very much want to have income taxes (especially progressive rate income taxes) but the State Constitution stands in the way.

    I personally think this tax might be somewhat beneficial because it could help benefit and foster more locally-owned banks and reduce the economic issue of absentee ownership which contributes to regional wealth inequalities across different parts of the country. But I am concerned by the type of precedent it could set, and this same type of logic could easily be used to implement other taxes that could be bad.
     
    Last edited: Sep 30, 2021

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