Two Op-Ed columnists recently weighed in on these pages to argue that a small handful of some of the wealthiest Washington households shouldn’t have to pay state taxes on significant profits they get from the stock market. [“Four reforms to rein in state spending, avoid higher taxes,” March 27, and “Call capital-gains tax for what it really is — an income tax,” March 29.]
As one of the very few households that would actually pay a capital-gains tax in Washington, we wanted to share our opinion: We think it’s time for lawmakers to close the tax break on capital gains and ask households like ours to pay more so we can fund our state’s priorities.
Capital gains are profits from high-valued investments like stocks and bonds, or items like fine art. When you buy a stock and later sell it at a higher value, that’s a capital gain. You would pay taxes on those profits to the federal government and in almost any other state.
But not in Washington.
That could all change before the Legislature goes home. Lawmakers in both the House and the Senate have introduced proposals to close the tax break on capital gains. The proposals vary — the House would close the tax break for couples like us that make more than $200,000 in capital-gains profits in one year, $100,000 for single filers; the Senate proposal would close the tax break for everyone who makes more than $250,000 in profits in one year.
Both proposals would exempt any capital gains from retirement accounts, the sale of homes, small businesses, and various other items like farm equipment.
Who does that leave? Only a small number of some of the wealthiest Washington households would actually pay a capital-gains tax in Washington. The House proposal would impact more households, so for the sake of argument we’ll use their number — only 0.4 percent of Washington taxpayers.
We’re in that 0.4 percent. Every year we claim profits from capital gains above the thresholds proposed in Olympia. Every year we’d pay a tax on those profits to Washington. And every year we’d be glad to do so.
Washington has the most upside-down tax code in the nation. Every year the Institute on Taxation and Economic Policy ranks states based on how regressive their tax codes are, and Washington is consistently ranked 50th out of 50. Why should lower- and middle-income families, with the least cash to spare, pay up to 18 percent of their income on state taxes, while wealthy families contribute only 3 percent of their income?
Not only is that wrong, but it also directly impacts our ability to invest in our shared priorities. Both the House and Senate proposals, while different, help balance our tax code and invest in priorities that lead to healthy families and thriving communities, and we think that’s what Washington families are asking our legislators to do.
The columnist last Friday doesn’t sit on the state Supreme Court, and neither do we, so any conjecture about a capital-gains tax in Washington is just that. A change to our regressive tax system might be met with a challenge in the courts by those who want to preserve the status quo.
More importantly, we don’t think Washington’s working families are concerned with having a debate about the legal definition of a capital-gains tax. Nor are they concerned with how state agencies in other states handle their business. What we think working families are most concerned about is balancing Washington’s unfair, upside-down tax code, and our duty to invest in the priorities that benefit them and their children.
That’s what lawmakers in Olympia have concerned themselves with this session, and we’re with them all the way. By closing the tax break on six-figure capital gains profits while exempting retirement accounts and the sale of homes, lawmakers have proposed asking a small group of some of the wealthiest families to invest in creating a more equitable tax system for our state.
We can both balance our upside-down tax code and invest in our shared priorities that lead to thriving communities.