A capital-gains tax is the best option on the table to fully fund education in Washington state.
A LONG-term solution to the education-funding crisis in Washington is right in front of lawmakers.
Instead of punting to committees and next year’s Legislature, they should buckle down and make the choice to begin taxing capital gains.
Senate leaders have agreed on a bipartisan proposal to meet the state’s constitutional obligation to fully fund basic education and provide an equitable education for all students. They also agree that more revenue will be needed — about $3.5 billion every two years — but now need to decide where it should come from.
Not to be confused with the immediate 2015-17 state budget debate, this would be a longterm funding source as lawmakers replace local education levies with state funding.
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This is a hard pill to swallow, especially for tax-averse Republicans who just won a majority in the state Senate.
The leading options are increased property taxes or a limited tax on capital gains.
Property-tax proposals so far would disproportionately place the burden on people who own homes and business properties in King County. That is not a reasonable fix and would compound the housing-affordability problem that now threatens growth in the core of the state’s economy.
A capital-gains tax, with ironclad limitations to prevent it from being used for anything other than education, is a more palatable option. Capital-gains taxes are common — all but nine states have them, according to the Tax Foundation.
Two capital-gains tax proposals are on the table. Neither would tax gains on the sale of residences, agricultural land or most livestock. Also safe would be retirement-account gains.
Both would lock the proceeds into education funds.
A proposal in the Senate would apply a 7 percent capital-gains tax to 0.1 percent of the state’s residents, or about 7,500 residents. It would only apply to gains over $250,000 for individuals or $500,000 for couples.
A state House proposal calls for a 5 percent tax that would affect 0.5 percent of residents, or about 32,000 people. It would apply to capital gains above $25,000 for individuals and $50,000 for couples.
To put this in perspective, California — our biggest rival for tech talent and investment — has a 13.3 percent capital-gains tax. Oregon collects 9.9 percent; Idaho, 7.4 percent.
Capital-gains revenue would fluctuate with the stock market. The House proposal addresses this by creating a “student investment fund” to fund basic K-12 education and keep higher-education tuition steady. Additional revenue in strong years would be saved, building a reserve to cover costs during down years.
Arguments that these are stealth income taxes should be heard in context. The income in question is largely profits generated by very large investment portfolios, above and beyond retirement accounts.
Taxpayers at this level have benefited directly or indirectly from public investments in education. They would benefit further by supporting an equitable system that provides equal opportunity for students in every school to learn and help build Washington’s future.