By: Grace Deng (The Washington Standard)
What would the initiative do?
Initiative 2109 would repeal Washington’s capital gains tax.
What is the capital gains tax?
The capital gains tax levies a 7% tax on the sale or exchange of long-term capital assets, such as stocks, bonds, and business interests. It doesn’t apply to real estate sales and only covers gains above $262,000 (up from $250,000 for the 2022 tax year, as the floor is tied to inflation). So if someone has $263,000 in taxable capital gains, they would only pay the 7% tax on the $1,000 above that $262,000 threshold.
Lawmakers approved the tax in 2021. It took effect after the state Supreme Court upheld it in a ruling last year. The first payments were due in April 2023.
Each year, up to $500 million from the tax is deposited into a state account for schools, early learning, and child care programs. Any tax collections beyond that amount go to an account that helps pay for school construction and renovations.
Why is the initiative on the ballot?
Let’s Go Washington, a group sponsored by hedge-fund manager Brian Heywood, collected around 420,000 signatures to get the initiative on the ballot.
Critics of the capital gains tax believe it’s a step toward a state income tax, which Washington does not have. They also say it’s unnecessary, and that the state has plenty of revenue to pay for education and child care without it. And they point out that the capital gains tax is a volatile form of revenue, prone to up and down swings, especially during recessions.
If the initiative passes, what would the consequences be?
The capital gains tax generated about $890 million in its first year. To put that number into perspective, the state’s current two-year operating budget is nearly $72 billion. If the tax is repealed, it’ll mean a “big hole in the budget,” Sen. June Robinson, D-Everett, who chairs the Senate Ways and Means Committee and authored the capital gains tax bill, said earlier this year.
Washington’s tax system has long been considered among the most regressive in the country, meaning lower earners pay proportionally more of their income than wealthier households. This is largely due to the state’s heavy reliance on sales taxes and the lack of an income tax, according to policy experts. A report the Institute on Taxation and Economic Policy released in January credited the capital gains tax with helping make the state’s tax system less regressive.
There’s disagreement over the degree to which the tax might cause wealthy people to move out of state to avoid paying it. Amazon founder Jeff Bezos drew attention to that issue last year when he announced he would move from Washington to Florida.