If you’re expecting yet another dire warning characterizing the wealth tax on capital gains making its way through Washington’s Legislature as a job killing, big government assault on freedom, you’re reading the wrong Op-Ed. As one of the few people — less than 1% of the wealthiest Washingtonians — who would regularly pay this tax, I’m here to tell you that those warnings are utter nonsense. In fact, the naysayers have it exactly backward: A tax on capital-gains profits would actually create jobs, attract investment and provide needed new revenue.
How can this be? According to industry-standard economic forecasting models, the tax being considered would help create nearly 20,000 new jobs a year — more than half in the private sector — while boosting state gross domestic product and consumer spending by $1.8 billion and $1.2 billion a year respectively, which is exactly what small businesses in every community in our state needs in this pandemic emergency. This is because every single dollar of the $500 million a year raised would be pumped right back into the local economy instead of languishing in financial portfolios and offshore bank accounts of rich people like me.
This is an area I know something about. Investing my capital in starting up new businesses is how I made my fortune. But 40 years of rising inequality has concentrated so much wealth in the hands of those of us at the top, that my friends and I already have more money than we know what to do with. Since the beginning of the pandemic, the richest Americans have grown $1.3 trillion wealthier, while the rest of you are hanging on by your fingernails. A small tax on capital-gains profits exceeding $250,000 a year per person isn’t going to change our spending habits one penny. We’ll still have more money than we know what to do with. And currently, we have the most upside-down tax code in the nation, where the bottom 20% of households pay up to six times more of their income in taxes than the richest 1%.
As for fleeing the state, 41 other states already tax capital gains, so why would we choose to leave Washington for South Dakota or Texas or Tennessee just to avoid paying a tax bill with money we don’t need? Despite a few high-profile exceptions, most of us aren’t simply money-grubbing sociopaths. We love this place and value our community, and we want to invest in it.
As for the familiar trickle-down argument that a capital-gains tax would leave wealthy Washingtonians with less money to invest in creating local jobs, well, that’s just a lie. The superrich aren’t the job creators, you are. Parking dollars in gold or in money markets isn’t investing. Bidding up asset prices isn’t investing. Acquiring positions in existing firms isn’t investing. Here’s the truth: Very little of what most rich people do with our money is actual investing that serves to raise wages or create jobs. But a boost in state spending, putting money in the pockets of ordinary working people, would do both. More demand means more investment and more jobs; that’s how the economy actually works.
We don’t know how much federal aid we’ll receive, or when it will arrive, but even if you assume an influx of federal dollars, we still urgently need new revenue sources to address the multiple emergencies our state is facing. Simply balancing budgets and crossing our fingers for the congressional cavalry to arrive is the exact mistake we made during the Great Recession, and once the federal dollars dried up, our recovery faltered. And before COVID-19 hit, Washington was already mired in a structural revenue deficit that has seen state tax revenue per $1,000 of income steadily fall to its lowest level in more than 60 years. The result is a state government that cannot keep pace with growth in demand for state services.
To imply that a tax on capital-gains profits would be paid by anyone other than a small handful of me and my superwealthy friends is a disingenuous scare tactic meant to advantage people like me over people like you. Don’t believe them. It would not tax gains from the sale of your home, or the family farm, or a family-owned small business, or from the sale of anything in your retirement accounts. Fewer than 1% of our state’s 7.6 million residents would pay this tax. Anyone who says otherwise, in an attempt to foment fear of your retirement accounts or home sales being taxed, should be ashamed.
Look, nobody likes to pay taxes, especially rich people. But Washington can emerge from this crisis quickly, and better for everyone, if we finally require our richest citizens to pay taxes at a rate approaching that of the middle class. When we look at the facts, a wealth tax on extraordinary capital-gains profits is exactly what Washington’s economy needs to recover.