Capital Gains Tax

Transparent Statement:
We need a capital gains tax to fund education and provide more consistent revenue.

Capital gains refers to the difference in price of an asset, such as stocks, bonds, property or a business, between what you paid for it and what you sold it for. It is taxed by the federal government and just about every state, except Washington of course.

Last year, there was an effort in Olympia to pass a capital gains tax to help fund education. (I personally testified 3 times in Olympia at House Finance Committee hearings in favor of the tax.) The effort failed.

Let's address the easy issue first — the Washington State Constitution seems to outlaw any income tax. But the capital gains tax does not actually tax income, but rather a financial transaction. With an income tax, you are taxed just based on your earning an income. With a capital gains tax though, you do not pay any tax unless you actually sell that asset. There is no tax simply because that asset increased in value. If you never sell the asset, you never pay the capital gains tax. That is why it's legally consider a transaction tax, not an income tax. So yes, it is constitutional.

So why should we implement a capital gains tax?

1. Washington State has the most regressive tax structure in the nation, which means that low-income people pay a much higher percentage of their income in state taxes than rich people (11% vs 2%). That is blatantly unfair.
2. The State does not generate sufficient revenue to fully fund education — or mental health or state parks... Unfortunately, new revenue is needed.
3. When the economy stalls, all tax revenue falls. But Wall Street — and with it capital gains — is the first to recover. Sales tax revenue often does not recover until may YEARS later. Because Washington relies primarily on sales tax revenue, that means state revenue does not recover for years.
4. Almost all other states have their own capital gains tax, including California and Oregon. The claim that those with capital moving to other states is unrealistic.

Please do not be fooled by the State Legislature's suggestion that no new revenue is needed to fund education. That is a crock. The economy is currently performing about the best it will ever do, meaning tax revenue is probably about as high as it will ever be under the current tax system. Even given that, education is under-funded by $1 Billion per year! Once the economy takes a turn, sales tax revenue will take a dive — and we will back to square zero (that comes before square one) in terms of funding education.