Editor’s Note: We enjoy hosting a robust debate here at the Washington State Wire. The capital gains tax enacted by the Legislature last year, and the initiative campaign to repeal it, is one of the most contentious issues in Washington State in recent years. In observation of Tax Day, we offer the first in a series of op-eds on the issue. This piece was submitted as an open letter from nine progressive-leaning academics.
Washington state’s upside-down tax system, the most regressive in the nation, is back in the news. Last year the legislature took an important step toward balancing Washington’s tax code by passing a capital gains tax on the extraordinary profits extremely wealthy people make by trading stocks, bonds, and other lucrative assets. Forty-one states, including the other West Coast states, have a capital gains tax. And while capital gains taxes in general only impact high-income people who buy and sell assets, the tax in Washington is especially narrow and will be paid by only the wealthiest individuals in our state.
The 7% tax applies only to profits from the sale of stocks, bonds, and other non-retirement assets exceeding $250,000 a year. Real estate, retirement accounts, the sale of family-owned small businesses, timber and timberlands, livestock, and commercial fishing privileges would be exempt from the tax.
Only about 0.2% of Washingtonians will be subject to the capital gains tax – just around 8,000 extremely wealthy people in the entire state. Unfortunately, some of them are working to rig the system further in their favor to avoid paying what they owe. Recently, a group of these ultra-wealthy individuals filed Initiative 1929, which would take $500 million a year out of education funding to pay for a tax cut for this small handful of individuals.
According to the Bipartisan Tax Structure Work Group, Washington households earning between $17,000 and $30,000 per year pay 15% of their incomes in state and local taxes on average compared to the wealthiest households which pay just 3.4%. And due to historical and persistent policies designed to benefit white people and create economic barriers for people of color – including exclusionary wealth-building practices – this deeply unfair system has a disproportionate impact on Black, Indigenous, and people of color.
I-1929 would continue to ask those with the least to pay the most by giving a tax cut to only the very wealthy individuals who pay this tax. This tax cut for the super rich would cost our state over $500 million per year in funding for childcare, early learning, and other education services that children and families across Washington depend on.
These investments in childcare and early learning will help create jobs, stimulate economic growth in our communities, and help parents be able to afford childcare so that they can return to work. According to economic forecasts, the tax could add up to 20,000 jobs and nearly $2 billion per year to Washington’s economy. But all of that could be lost if I-1929 passes.
A tax cut for the extremely wealthy, at the expense of Washington’s children and families, is the last thing our state needs.
Katie Baird is Professor of Economics, Division of Politics, Philosophy and Public Affairs, University of Washington Tacoma
Andy Nicholas is a Senior Fellow, Washington State Budget & Policy Center
Dan Jacob is Professor Emeritus, University of Washington Bothell
Anna Lovász is Assistant Professor of Economics, School of Interdisciplinary Arts and Sciences, University of Washington Tacoma
Tim Scharks is a Lecturer in Politics Philosophy and Economics, School of Interdisciplinary Arts and Sciences, University of Washington Tacoma
Carolyn A. Brotherton, PhD, is a Policy Associate – Progressive Revenue, Economic Opportunity Institute
Douglas A. Conrad, PhD, is Professor Emeritus of Health Services, MHA Program Scholar in Residence, University of Washington
Melissa Martinson is Associate Professor, School of Social Work, University of Washington
Robert Plotnick is Professor Emeritus of Public Policy and Governance, University of Washington
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