On March 6, well into a weekend halfway through the year’s 105-day legislative session, the Washington Senate voted 25 to 24 for a capital gains tax targeted at high earners.
It is momentous that the tax passed one body of the legislature. This is the biggest move yet away from the state’s tax system that collects only small percentage from wealthy Washingtonians.
The state does not tax peoples’ incomes, instead creating a trickle-down affect favored by conservatives. Revenue to run Washington depends mostly on property taxes, sales taxes and ancillary taxes. Washington is one of nine in the United States that does not tax income on an individual level.
Washington’s sales tax is high compared to most other states, and its uniform burden impacts people more the less money they have. The effect is that the wealthiest people pay the least percentage of their assets in taxes, while the states’ high sales taxes deeply impact people with less money. Less fortunate Washingtonians may pay nearly 20% of their assets in sales taxes over time, according to various studies of the hotly-debated tax structure.
The state’s property tax, which largely affects people with wealth, is mid-level among states.
This tax structure is often debated and called regressive. But advocates and lawmakers who dislike it have not gained traction to change it. The closest and latest was a 2010, rejected voter referendum.
The one-vote margin that passed Senate Bill 5096 did so with a diminishing amendment that removed its emergency clause. If the tax makes it through the House, too, it will not go into effect immediately, meaning there will be a period during which dissenting citizens can gather signatures to add it to a general-voting ballot.
Dissenters in the legislature and punditry say this will happen because the capital gains tax is an income tax, which their constituents do not want. Dissenters also say the tax will be struck down in court because the state constitution outlaws nonuniform taxation. This clause in the constitution is what lawmakers have interpreted to forbid a state income tax.
The new capital gains tax would have limited application. It would tax 7% of profits that are $250,000 and higher from stocks, bonds and other long-term assets. Proponents of the bill say this will only affect 1% of Washingtonians.
The state House is also considering a bill to tax amassed wealth that exceeds $1 billion.
This new success comes close behind the Seattle City Council passing a payroll tax on big businesses in summer 2020.
Read more of the Mar. 10-16, 2021 issue.