By Shauna Sowersby

As another major cutoff date in the Washington State Legislature approaches, the once-controversial capital gains tax appears to have more momentum this year than it has since the idea was introduced nearly a decade ago. 

The bill, which is headed for a likely Senate vote today, would impose a 7 percent tax on capital gains—profits on the sale of assets such as stocks—over $250,000.

Legislators have until March 9 to pass the proposed capital gains legislation out of the Senate where it was originally introduced. A variety of factors have changed the prospects for a capital gains tax since similar  measures were initially floated in 2015.

The most obvious factor: the global COVID-19 pandemic.

Senate Majority Leader Andy Billig (D-3, Spokane), tacking to Democrats’ agenda, told PubliCola the bill has more momentum this year than he has seen in previous years for two reasons: uneven economic recovery and a child care crisis that has been “revealed and exacerbated” by the pandemic.

In order to deal with those issues, Billig said, legislators have two goals in mind. First make the tax system more fair. And second: “increase support for families and workers with child care expenses.”

Each year, the first $350 million in revenues from the tax would go into the Education Legacy Trust Account, which would help support schools and access to education. The rest of the anticipated revenue would be put into a new Taxpayer Relief Account. 

An updated fiscal note issued by the Office of Financial Management reported that only about 8,000 taxpayers would pay capital gains taxes. Those who would owe the tax would have their first taxes due in 2023, producing estimated revenues of more than $522 million, with revenues expected to climb to more than $609 million by 2027.  

There could be other reasons the bill has more support now than in the past. 

A staffer for the Senate Democrats believes there’s been a shift in narrative. The pandemic has laid bare the class divide in the state, the Democratic source said, and Washington state residents have begun to realize the upside-down tax structure is unfair for the working and middle class.

Small business owners are speaking up. During a press conference earlier in the week, Karla Esquivel, owner of the Andaluz boutique in Columbia City, added that the tax would help customers because fixing the regressive tax code would allow them to ultimately have more spending money, which in turn would be beneficial to local businesses.

Another reason the bill actually has a chance to pass the Senate—historically, the place where it hits the skids—is because Democrats have control of the chamber, which was not the case until 2017. Moreover, in the past, some Democrats such as Sen. Steve Hobbs (D-44, Lake Stevens) have been against the capital gains tax. The balance appears to have shifted somewhat, although not entirely. With the debate front and center, some of those Democrats who still find themselves on the fence may have a harder time avoiding the issue.
Continue reading “Capital Gains Tax, Stalled in Previous Sessions, Moves Forward” →

By Shauna Sowersby

Founders and CEOs from more than 120 Washington businesses that are members of the Washington Technology Industry Association recently sent a letter to state senators encouraging a “no” vote on SB 5096, a bill that would impose a 7 percent tax on the sale of long-term capital assets such as stocks, bonds and mutual funds valued at over $250,000.

While rejecting ideas for raising progressive revenue on a state level, at least 58 of the companies whose leaders signed the letter received taxpayer-funded benefits through the Federal Paycheck Protection Program.

Public records reveal that at least 58 of those companies who signed the letter received nearly $34 million in funding from PPP loans, a program established by the federal CARES Act meant to help small businesses stay afloat during the pandemic.

Public records reveal that companies such as ExtraHop Networks, FlyHomes, Widenet, and Neal Analytics received more than $1 million each from the program. Software publisher ExtraHop, which is headquartered in Seattle, received nearly $10 million in assistance, for example. ExtraHop did not respond to an email seeking comment. Several other companies whose leaders signed the anti-capital gains tax letter received over $1 million in loans, although many recipients were under that threshold. 

Another corporation that benefited from the federal loans also held a public fundraiser that raised $7.6 million. AstrumU, a Kirkland business that specializes in custom computer programming services, received nearly $600,000 from the PPP prior to the multi-million dollar fundraiser. 

Businesses that use their PPP loans as outlined by the Small Business Administration can have their loans forgiven.

The WTIA argued in their letter to the senate that “a capital gains tax would penalize founders and their employees during an already unprecedented period.” Additionally, they added, “taxing those gains penalizes employees and encourages founders to form their companies in other states, or to relocate to states that do not have a capital gains tax.”

Only nine states including Washington do not have a capital gains tax.

Political think tank Civic Ventures argued in a response letter to the WTIA that their argument is “absurd,” stating that “California has the highest capital gains tax rate of any state in the country, vastly higher than what SB 5096 proposes, and has more tech start-ups than any other state.” (Full disclosure: Civic Ventures is one of PubliCola’s financial supporters).

Sponsored by Sen. June Robinson (D-38, Everett), the first $350 million in revenue raised by the tax would be put into the Education Legacy Trust Account to fund education in the state, while the remainder would be added to a new Taxpayer Relief Account. The highly debated bill is currently awaiting a floor vote in the Senate.

By Shauna Sowersby

Democrats have proposed several bills this session aimed at taxing the richest Washingtonians, and they passed one of them, a capital gains tax, out of the Senate Ways & Means Committee on Feb. 16, meeting an early session deadline. You can never count out fiscal bills in the state legislature, so some of the other bills, including a wealth tax, could factor in later in the session, but the capital gains tax, SB 5096, now has some momentum.

The bill is being sponsored by Sen. June Robinson (D-38, Everett), at the request of the state Office of Financial Management. Robinson is the Vice Chair of the Senate Ways & Means Committee.

The bill would impose a 7 percent tax on profits of more than $250,000 that result from the sale of certain assets, including stocks, bonds and mutual funds. Unlike a similar capital gains tax that was introduced in the House, Robinson’s version would exclude real estate sales. Other types of capital assets including retirement accounts, timber and certain types of agricultural land would be excluded as well. 

Scott Merriman, a legislative liaison for OFM, noted that the measure is a way to balance Washington’s tax code, which is one of the most regressive in the country. In addition to having no state income tax, Washington is one of just nine states that does not have a capital gains tax. Because revenue in the state is heavily dependent on property tax and sales tax, wealthy households in the state currently only pay about 3 percent of their income in taxes, while the poorest pay more than 17 percent, according to a 2018 report by the Institute on Taxation and Economic Policy. 

“This bill is a key part of helping to provide the resources to support the proposed expenditures in the budget for your consideration,” Merriman told the committee.

In Robinson’s bill, $350 million of the yearly revenue from the capital gains tax would go towards the state Education Legacy Trust Account, which would help fund education. The rest, an estimated $200 million, would be put into a new account called the Taxpayer Relief Account, whose exact purpose legislators have not determined.  Continue reading “Democrats’ Capital Gains Tax Passes First Legislative Hurdle” →