OFM corrects overstated revenue loss if capital gains tax repeal passes

(The Center Square) — Opponents of Initiative 2109 to repeal Washington state's capital gains tax are adjusting their marketing materials after a recent correction from the Office of Financial Management.

Reports earlier this year from OFM and a required Fiscal Impact Statement on revenue impacts from I-2109 said revenue collections would plummet by $5 billion over a six-year period if voters approved it, according to the Washington State Budget & Policy Center.

A more recent calculation from OFM says approval of I-2109 would result in an estimated $2.2 billion loss in revenue collections for the state.

The capital gains tax levies a 7% tax on the sale or exchange of long-term capital assets, such as stocks, bonds, and business interests. The tax doesn’t apply to real estate sales and only covers gains above $262,000, which is up from $250,000 for the 2022 tax year, with the floor tied to inflation.

The law was created via the passage of Senate Bill 5096 in 2021, despite a great deal of opposition from business and retail advocates, based on concerns about the volatility of the tax and the potential for wealthy Washingtonians to move out of state.

Treasure Mackley, executive director of Invest in Washington Now, supports defeating I-2109.

She noted that during its first year, the tax brought in $896 million, which was more than was estimated.

"That goes to show how much wealth we have here in Washington state," Mackley previously told The Center Square. 

Rep. Chris Corry, R-Yakima, told The Center Square the capital gains tax is too volatile to rely upon for budgeting purposes.

“The impacts have already seen companies leave and the future impacts mean more companies leave," he said. "People are not going to want to invest capital in Washington state if they know that there are negative economic consequences around the corner; they will go somewhere else."

Corry added, “The state does not have a revenue problem. We don’t need more money to do the things that are important to us as a state. It’s just a priority problem."

Corry thinks the capital gains will mean fewer jobs and less growth in Washington.

“It reinforces how volatile capital gains taxes are, and I think what you’ll continue to see because capital will move in a manner that it is least affected," he explained.

The Center Square reached out to OFM for clarification on how the revenue impacts were so far off in earlier projections.

An email response from spokesperson Hayden Mackley explained: “We transposed a number in the version posted to our website, which we corrected on Monday. The corrected version has an expected revenue loss of $472 million in FY29 — the previous version had $499 million. The Secretary of State’s Office has the correct version for the voter’s pamphlet.”

The updated information from OFM says passage of I-2109, “Will result in an estimated state revenue loss of $2.2 billion over five state fiscal years. This would reduce funding dedicated for K-12 education, higher education, early learning and child care. Future reductions to funds dedicated for K-12 school construction are possible but not currently forecasted. The estimated net savings for administrative expenses for two state agencies are $10.1 million over five state fiscal years. No local government fiscal impacts are known.”

The Washington State Budget & Policy Center and No. I-2109 both now reflect the accurate OFM data online and in their marketing materials.