by Jerry Cornfield, Washington State Standard
June 26, 2026
A windfall of capital gains tax payments is providing temporary relief for Washington’s budget, but other collections are down, and lawmakers still expect to face financial difficulties next year.
A revenue forecast released Friday shows Washington hauled in $1.5 billion from the capital gains tax. Those collections are roughly twice what was expected in February. They offset a $423 million drop from other tax sources since the forecast adopted by the Economic and Revenue Forecast Council four months ago.
Legislative members on the council welcomed the news, saying it pretty much wipes out a projected $878 million deficit in the 2028 fiscal year.
But, they cautioned, a shortfall is expected in the next two-year budget as costs for state-funded programs and services rise faster than tax revenues and the economic landscape is unsettled.
“It’s a mixed bag, I would say,” said Sen. June Robinson, D-Everett, chair of the Ways and Means Committee and lead budget writer in the Senate. “We obviously have very positive revenue with the capital gains tax for the very short term. If you took that out, the forecast is generally down.”
Washington levies a 7% tax on the sale or exchange of long-term capital assets such as stocks, bonds, business interests, or other investments and tangible assets. Real estate sales aren’t covered by the tax. In 2025, it applied to gains over $278,000 and under $1 million. Any amount exceeding $1 million is taxed at 9.9%.
Payments for the tax are due in April for the prior year, though filers can get extensions and file as late as October.
For 2025, the Department of Revenue reported $1.5 billion from 9,050 net payments, which is the total of payments received minus the sum of refunds.
Money is deposited into a state account for schools, early learning, and child care programs. Any tax collections above $500 million go to an account that helps pay for school construction and renovations. However, that provision was paused for the current two-year budget and, barring legislative action, will be restored July 1, 2028.
Sen. Chris Gildon, R-Puyallup, the chief Republican budget writer, called the infusion of capital gains tax “kind of a lucky break.”
“It kept this budget from going into negative territory before it even really takes effect next week. Who knows what the future may hold,” he said.
‘A tough budget cycle next biennium’
Washington’s economy is projected to generate $76.2 billion for the current budget that runs through June 30, 2027. That’s up $961 million from the February forecast, largely due to the capital gains tax and budget-related legislation.
For the 2027-2029 budget, revenues from the new statewide income tax on high earners are included for the first time. Those are distorting the fiscal picture. Collections of the income tax are set to begin in 2029, assuming it survives challenges in court and on the ballot.
The forecast shows another $508 million dip in tax collections for the next budget. That decline, however, is offset by $2.3 billion from other changes, mainly the income tax. Overall, Washington chief economist Dave Reich estimates $82.2 billion will be available for that budget, $1.8 billion more than his last report.
This next budget will be the first two-year spending plan Gov. Bob Ferguson proposes to the Legislature. K.D. Chapman-See, Ferguson’s budget director, on Friday tapped the brakes on any excessive optimism stirred by the near-term windfall.
“The capital gains is a helpful addition but the underlying fundamentals of our budget are still going to be very challenging,” she said. Earlier this month she warned agency leaders that the state is facing “a tough budget cycle next biennium.”
On Thursday, Ferguson said the budget he proposes in December will not contain any new taxes. Rather, it will rely on cuts, potentially from newer programs launched since 2019.
Republicans on the Economic and Revenue Forecast Council said the state must curb expenses to avert annual shortfalls.
“Our problem with our budgets is legislatively created, and it needs to be legislatively fixed. It’s an issue of overspending,” Rep. Ed Orcutt, R-Kalama, the senior Republican on the House Finance Committee, said Friday. “Get spending under control.”
But Sen. Yasmin Trudeau, D-Tacoma, who is on the forecast council and the Senate budget committee, pushed back, saying there are obligations the state needs to fund.
“We understand it’s going to be a challenge, and there’s going to be lots of things that need to happen, including looking at what gets passed,” she said. “I don’t agree that it’s fair to look at this as a spending problem. I believe we have a balance that we have to strike.”
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