Washington state lawmakers send capital gains tax bill to Gov. Inslee’s desk
After years of unsuccessful attempts, the Washington state Legislature on Sunday approved a bill to impose a capital gains tax.
The bill, which would put a 7 percent tax on capital gains above $250,000 for individuals and joint filers from the sale of assets such as stocks and bonds, now heads to Gov. Jay Inslee’s desk for his signature.
Among assets that would be exempt from the tax are all real estate, meaning land and fixtures attached to it, used mobile homes, and a few other specifically named assets; family-owned small businesses that meet certain qualifications; livestock; timber; commercial fishing privileges; and retirement accounts.
The final form also includes a deduction for charitable donations over $250,000 that previously wasn’t in the bill.
If Inslee signs it into law, it will go into effect Jan. 1, 2022, and the state would start collecting the tax in 2023.
The tax is expected to bring in about $415 million per year, according to budget documents released Saturday. That projection is lower than in previous reporting because the real estate exemption was broadened in the versions that passed out of the House and the final agreement, according to Senate Democrats staff.
The destination for the new revenue has changed over the course of session. Its final form sends up to $500 million per year in revenue to the Education Legacy Trust Account, which can be spent on schools, expanding access to higher education, early learning and child care, and other efforts to improve education. After that, remaining revenue would go to an account used for financing school facility construction.
“This important step to rebuild our unfair tax code was taken after years of work, years of dialogue, and thousands of voices calling for this policy,” said Sen. June Robinson, lead sponsor on the bill, in a prepared statement.
“We’ve heard that people from every part of our state are ready to move toward a healthier, stronger future together, and it’s time for the wealthiest among us to pay their fair share for that future.”
Only Democrats voted for the bill — and not all Democrats. Paired with the broadly bipartisan passage of a bill to expand and guarantee funding for a long-unfunded tax credit for low-income families and individuals, supporters frame this as a first step to reforming the state’s regressive tax code.
Opponents of the tax often argue that it’s a volatile revenue source, and unnecessary — especially in a year with so much federal money on hand and an unexpectedly solid revenue forecast.
Some also believe it is an income tax that’s unconstitutional, and the new tax is almost certain to draw a lawsuit. Republicans often cast it as a slippery slope to a broader income tax.
“If you think that this tax, if this passes and is put into law, will stay at the level that it’s at, you’re very naive,” Sen. Curtis King said in floor debate.
The final version includes language about the tax being “necessary” that mirrors the state constitution and is expected to prevent opponents from getting it on ballots via a referendum. Opponents could still try to repeal the tax through the initiative process, but it requires twice as many signatures to place it on the ballot.
The Senate had taken similar language out of the bill earlier in the session, along with an explicit emergency clause that also would have taken away the possibility of a referendum. But the House added it back in. After the Senate refused to concur with changes to the bill, a conference committee of lawmakers met to strike an agreement on its final form.
Republican lawmakers, who universally oppose the tax, cast doubt on whether the bill could make it through their chamber with the referendum-barring language. In the end, the Senate passed both the versions — with and without that language — along the thinnest-possible margin, 25-24.
“We have now rubber-stamped that message, of saying the voters will not get a chance to weigh in,” Democratic Sen. Mark Mullet said in floor debate. He voted against both iterations.
This story was originally published April 25, 2021 at 3:21 PM.
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