Washington ranks dead last out of 50 states when it comes to the regressive nature of our tax code.
State lawmakers have a big job in front of them. Once again they are crafting a budget aimed at funding programs that support families across our state. But there is simply no way they can do their job without more revenue. In short, our state budget is at its breaking point and we are all going to feel the pain in a lot of different ways if we don’t fix it.
What does this mean? It means that if we are going to educate our children and invest in health, housing and services that keep our communities and economy safe and strong, we need to find new sources of revenue.
Our current approach is not working: We can’t keep asking middle and low-income families to shoulder more and more of the load due to our upside-down tax code. Whether they are paying one of the highest sales tax in the nation, increased property taxes (added to their local taxes), or high taxes at the gas pump, those who earn the least pay a greater percentage of their income. Compared to many other states, this is a completely upside-down approach to taxation.
Washington ranks dead last out of 50 states when it comes to the regressive nature of our tax code, according to the Institute on Taxation and Economic Policy. That means that 49 other states have fairer tax structures. Washington makes middle and lower-income households pay a rate up to seven times more than wealthier households who can more easily afford it.
We are not content to abandon generations of our children to a substandard K-12 education. So the question is: where do we get the money?
A simple solution, which has been embraced by 42 other states, would be to encourage our state lawmakers to close the tax break on the sale of stocks, bonds, and other high-end capital gains. A capital gains tax simply asks the very wealthy to pay a little more to reinvest in the state in which they live. It’s a smart policy that would cause our tax code to be more equitable while only raising taxes for a very small percentage of high-income Washingtonians.
Closing the tax break on capital gains, as recommended by Gov. Jay Inslee and proposed by the state House of Representatives, would almost exclusively impact only those at the very top of the income scale. In fact, 92 percent of the tax would be paid by the richest 1 percent of households — those with incomes over $600,000 a year (about 48,000 of our 7 million Washington state residents).
For example, right now, when someone sells significant amounts of appreciated stock or other assets, they pay no state tax. Many folks in these fortunate circumstances have spoken up and made it clear to our Legislature and governor that they will gladly pay their fair share.
In business, when you see a good deal you jump on it. This idea would generate more than $700 million annually, and by not closing this tax break — like the vast majority of other states — we are literally leaving money on the table.
And let’s be clear, as there is a lot of misinformation out there:
• This is not an income tax.
• It will not tax your 401(k), pension funds or retirement accounts.
• It will not tax the sale of your residential home.
• It exempts farmland and farming equipment.
It’s time for lawmakers to do what’s right.
Our success is directly linked to the investments we make in our schools and communities. A capital gains tax is working in 42 other states and would mean generating millions without taxing middle and low income families that already shoulder too much of the tax load. Let’s pass a capital gains tax to help flip our tax code and ensure all Washingtonians thrive.