Washington state Democrats have made a renewed push for a tax on the ultra wealthy in the 2023 legislative session through a new 1 percent tax that would apply to wealthy individuals and households who own more than $250 million in intangible assets such as stocks and bonds. Only assets totalling up to more than the $250 million exemption would be taxed.
According to Carolyn Brotherton, a policy associate with the progressive think tank Economic Opportunity Institute (EOI), the new “wealth tax” would raise about $3 billion a year for public services.
The wealth tax legislation follows a decade-long effort to enact a capital gains tax in the state, a bill that passed in 2021 and is currently mired in litigation at the Washington Supreme Court.
The wealth tax proposal has gathered significant support in both houses of the legislature, with 43 sponsors in the state House and 19 sponsors in the state Senate. To pass, the bills will need 50 and 25 votes, respectively. No Republicans have supported the tax so far.
In a poll commissioned by the State Innovation Exchange and published on Feb. 2, researchers found that 67 percent of Washington voters supported the wealth tax proposal, compared to 28 percent who opposed the policy. Among Democrats, 86 percent supported the tax and 8 percent opposed it. Independents also supported the tax, while Republicans narrowly opposed it by a margin of 51 to 45.
Brotherton said, in addition to raising much-needed revenue, the wealth tax was a way to help correct Washington’s regressive and outdated tax structure, which causes working and lower-income households to pay more relative to their needs in state and local taxes compared to the very wealthy.
“In Washington state, we have a broken public revenue system. Our tax code is the most unfair in the country,” she said.
According to a 2020 report by the Washington Tax Structure Work Group, people with annual incomes of between $17,000 and $30,000 pay about 8 percent of their income in state taxes, while people who make more than $208,000 pay less than 2 percent of their income. That’s because most of these taxes are paid in the form of sales tax, and, as household incomes increase, the amount of purchases rises at a slower rate.
After all, there is a limit to the amount of goods an individual can use, even if they choose to shop at pricey artisanal supermarkets.
If passed, the new tax would fund four categories of public investment: special education and support for disabled people, affordable housing, funding for general and higher education and a new taxpayer justice fund that would pay for tax credits to support lower-income taxpayers and reduce the impact of the regressive tax structure.
For state Rep. My-Linh Thai (D-Bellevue), the sponsor of the wealth tax legislation in the House, increasing funding for special education programs is particularly close to home as a former school board director.
“I have a very soft spot in my heart when it comes to our students who are currently in the education system [and are] receiving services in special education,” Thai said. “Our state has not fully funded special education. It is a civil rights issue.”
According to an analysis by EOI, Thai’s 41st district contains the largest number of households with wealth in excess of $50 million, comprising about 0.8 percent of the total population. Only a fraction of those families would even exceed the $250 million exemption. So far though, Thai said that these potential ultra-wealthy taxpayers have not reached out to her about the proposal.
EOI estimates that, in total, about 4,400 households in Washington have a net worth of more than $50 million, the majority of whom live in King County. A fraction of those households — roughly 700 people — would actually pay the tax, Brotherton said. This amounts to approximately 0.01 percent of the state’s total population.
The new tax proposal is part of a nationwide effort to tax the ultra rich. Alongside Washington, Democratic lawmakers in New York, California, Illinois and four other states also unveiled wealth tax legislation on Jan. 19.
State Sen. Noel Frame (D-Seattle), who is sponsoring the Senate version of the tax legislation, said that just these eight states contain about 60 percent of all of the wealth in the country. Frame also said that Washington state advocates and legislators have been among the foremost leaders in the wealth tax movement.
“It’s totally doable, and I think it’s the next step in the big fight for tax reform here in Washington state,” she said.
One potential concern with the legislation is the prospect of billionaires moving out of the state to avoid the tax. Brotherton argues that research suggests most wealthy people don’t move to evade taxes.
“Sociological research, particularly from Cristobal Young, who I believe is at Cornell University, shows that the ultra wealthy, including billionaires, are actually embedded in the communities in which they made their wealth,” Brotherton said. “And typically billionaires move when they’re younger and then kind of stay put. This is in contrast to the hyper-mobile billionaire story that we have in our culture.”
In a Jan. 19 press conference, Gov. Jay Inslee suggested that, if it passed, he would be open to signing the wealth tax legislation into law.
“I’m not opposed to this concept of a property tax on intangible assets, ” Inslee said. “I’m going to continue these discussions with legislators. … I don’t see any constitutional hurdles.”
Frame said that she is fairly optimistic that the wealth tax could pass the state legislature this year.
“I’ve had a conversation with every member of the Senate Democratic Caucus about this bill, and even those who didn’t co-sponsor, I’m encouraged by the conversations that I’m having,” she said. “But we would have to get the bill to a vote to see how that would go.”
Guy Oron is the staff reporter for Real Change. Find them on Twitter, @GuyOron.
Read more of the Feb. 8-14, 2023 issue.