The tax already in place in 42 states would bring some stability and equity to the current tax system, which has the 20 percent of families with the lowest income paying 17 percent of what they earn on taxes.
By comparison, the 3 percent of families with the highest income pay only 1 percent of their earnings to taxes.
This is a regressive, upside-down tax structure that plays a role in keeping low- and moderate-income families stymied in their quest for financial recovery and security.
A 5 percent tax on capital gains in excess of $10,000 per year for a married couple could raise roughly $700 million a year to help bolster the state rainy day fund, help the state meet its responsibility to fully fund public education and reduce the breadth and depth of a budget crisis in tough economic times.
Some of the revenue could also be used to lower the state sales tax rate and finance a tax rebate for working families with children.
Capital gains are primarily profits from the sale of stocks, bonds and vacation homes. It’s important to remember that the tax would not apply to:
• Primary home sales or farmland.
• Retirement savings, retirement income or venture capital.
• Charitable giving, nonprofits or assets left to family members in a will.
A capital gains tax is not a new idea. Other Western states with capital gains taxes include Oregon (11 percent), California (9.3 percent) and Idaho (7.8 percent). But this tax reform measure is just starting to be discussed in any detail in this state.
Last week, the state House Ways and Means Committee conducted a hearing on the topic. The key torch bearers for the capital gains tax proposal at this point are 13 freshman House Democrats and a Seattle-based progressive think tank — the Washington Budget and Policy Center,
As expected, most Republicans in the Legislature are dead set against a capital gains tax — any new tax, for that matter.
As long as it’s viewed as a partisan issue, it will go nowhere in the Legislature. For one reason, it would be a new tax and that would require a two-thirds majority vote.
Supporters of the proposal in the Legislature are realistic. They see this year as an opportunity to educate fellow lawmakers and the general public about the potential benefits of a capital gains tax. They are working hard to distinguish it from an income tax on the state’s wealthy, which voters rejected by a 2-1 margin two years ago.
“Under the proposal, paycheck income from Washingtonians’ salaries and wages would not be reduced in any way,” a Washington Budget and Policy Center white paper on the topic emphasized.
If legislators don’t have the political will to tackle this topic, it could be shaped into an initiative for voters to decide.
Before that happens, lawmakers on both sides of the aisle owe it to the public to have an objective discussion of the pros and cons of a capital gains tax.