Senate Democrats, led by Kevin Ranker, D-Orcas Island, are floating a narrower version of a capital-gains tax that would hit just 7,500 of the wealthiest Washingtonians.
OLYMPIA — Democrats in the state Legislature have been pushing a new tax on capital gains from stocks and other investments since Gov. Jay Inslee unveiled the idea in December.
Proposals by Inslee and House Democrats would only hit about 45,000 of the wealthiest Washingtonians, raising billions for education and other state spending priorities.
But Republicans and business groups have opposed the idea, arguing a capital-gains tax amounts to a stealth income tax — and is notoriously volatile. Critics including Realtors have argued the tax also could bite investments made by some less-than wealthy families.
But what if the tax was narrowed to hit only the Richie Richest of the rich?
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Some Senate Democrats want to try it. Led by Sen. Kevin Ranker, D-Orcas Island, they dropped a bill on Tuesday that would apply the capital-gains tax to an estimated 7,500 of the state’s wealthiest taxpayers.
Ranker said a light bulb went off for him earlier this year when David Schumacher, director of the state budget office, told the Senate Ways and Means Committee that most of the capital gains in Washington accrue to a relative few of the mega-rich.
That means the state could raise an eye-popping amount of cash while taxing a tiny fraction of the people — think Bill Gates and his neighbors. “These are extremely wealthy individuals,” Ranker said. “I believe this is a thoughtful way to raise revenue.”
Senate Bill 6102, which in addition to Ranker has 18 cosponsors (all Democrats) would impose a 7 percent tax on capital gains above $500,000 a year for couples and $250,000 for individuals. Both Inslee and House Democrats proposed exemption levels of $50,000 per couple and $25,000 for individuals. (The House Democrats’ plan applied a lower 5 percent tax rate.)
Even after exempting so many people, Ranker’s plan would still raise substantial cash: an estimated $531 million in 2017, growing to nearly $1.2 billion in the 2017-19 biennium.
The bill would tie the money to education as part of a larger plan set to be rolled out by Senate Democrats on Wednesday to address the Supreme Court’s McCleary ruling finding lawmakers in violation of their duty to adequately fund public schools.
It’s not at all clear Ranker’s proposal will get traction. Democrats are in the minority in the state Senate and Republican Majority Leader Mark Schoesler indicated Tuesday the usual objections would apply to the narrower capital-gains tax.
Schoesler, R-Ritzville, said Democrats have played games with “dedicated” taxes in the past. He said an estate tax earmarked for schools, for example, has merely given lawmakers leeway to spend other funds on non-education programs. “They fooled the public on the death tax, now they want to fool the public on capital gains,” he said.
Schoesler added that capital gains are volatile and that taxing them could be counterproductive. “If you want less of something, tax it,” he said.
Critics also have argued any capital-gains tax in Washington might violate the state constitution, making a legal challenge all but certain.
Washington is one of only nine states without a capital-gains tax. If lawmakers approve one, the state would become an outlier as the only one taxing capital gains, but not income.
Despite the obstacles, Ranker said he hopes the idea will be in play in the final weeks of the legislative session as budget negotiators grasp for compromises. He argues his narrow proposal will prove more politically viable than other tax-raising options. “The more people you tax, the more people you piss off,” he said.
He’s also proposing a follow-up bill that would amend the state constitution to lock in the high-income thresholds for the tax — a way to assure voters it won’t be expanded to middle-class taxpayers.
Ranker said he’s been cold-calling many of the rich taxpayers who’d be affected by the plan and asking them to sign a letter of support for the idea. As of Tuesday he said he had about 100 signatures.
Rep. Reuven Carlyle, D-Seattle, chairman of the House Finance Committee, said any of the capital-gains proposals would affect a tiny slice of the population while starting to address the state’s regressive tax code, which burdens the state’s poor and middle class.
“These are modest proposals … that ask the wealthiest individuals to contribute slightly more,” Carlyle said.