Repealing capital gains tax would cost jobs and education funding, opponents say

(The Center Square) — Opponents of a statewide initiative to repeal Washington state's capital gains tax are touting a new report from the Washington State Budget & Policy Center that suggests more than 10,000 jobs would be eliminated if Initiative 2109 is passed by voters this November.

If voters approve I-2109, that would mean the end of the capital gains tax that 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. 

Jason Mercier, vice president & director of research at the Mountain States Policy Center think tank, testified against the measure during a January 2021 Senate Ways & Means Committee hearing.

“This is a tax on income, a tax on the federal net long-term gain reported to the IRS for the federal income tax,” Mercier, who worked for the Washington Policy Center at the time, said.

Andy Nicholas with the Washington State Budget & Policy Center testified in support of the legislation establishing a capital gains tax.

“Due to the lasting effects of institutional racism, capital assets remain heavily concentrated among a small group of very wealthy and almost exclusively white households,” he said. “Taxing profits from their sale and investing the revenue in education, healthcare, childcare and other community needs, would help to address the widening racial wealth and opportunity gaps in our state.” 

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

“The first year it [capital gains tax] brought in $896 million which was over what was estimated," Mackley told The Center Square. "That goes to show how much wealth we have here in Washington state." 

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

“You should never prioritize core functions of government based on volatile taxes,” he explained, which he suggested is what's happening.

Corry went on to say, “If these are core tenants and priorities of government, they shouldn’t be funded with new programs and new money."

It's all part of the plan, according to Corry.

“When they want new money, they tie it to emotional programs like police and fire and schools, because that strikes the most emotion,” he said. “You can fund all these programs without a capital gains tax; it’s just a matter of prioritizing."

The No on 2109 campaign sent The Center Square an email Monday: “Initiative 2109 cuts billions of dollars of dedicated funding for K-12 education, higher education, school construction, early learning, and childcare. Voters overwhelmingly oppose a tax cut for just 4,000 Washingtonians that would shift the bill to middle-class families.”

Corry noted education priorities are a paramount duty of state government, but said money coming in via other taxes is sufficient.

“Our budget has grown at historic proportions without this capital gains tax, and we have enough money in our current revenue to pay for these programs if they are a priority for the majority party in Olympia,” he said. “If it is a priority for government, it should be funded with traditional, stable revenue sources – not a new volatile tax.”