We’ve talked about how regressive
Washington’s tax structure is and how people in
higher income brackets contribute a smaller percentage of their money to
funding public services. One solution to
this discrepancy was proposed by Representative Laurie Jenkins during the 2012
Legislative Session that would have helped to correct this imbalance.
On February 29, 2012, Representative
Jenkins, and 26 other Democrats, introduced House Bill 2563 - Establishing a
state tax on capital gains – which would have applied a 5% tax on capital gains
over $10,000 per year. For those of you who don’t know, capital gain is the
profit from investing in capital assets (like stocks, bonds, or real estate),
which exceeds the purchase price. So if
you buy a stock for $100, then sell it later for $150, you have a capital gain
of $50. It’s important to note that one
of the exemptions for this tax removed any collection of capital gains from the
sales of homes. Also, the collection of
this tax would mirror the federal model, which would make it easier for
citizens during tax season.
It was projected that, if implemented,
this bill would bring in over $1.4 billion during the 2013-15 fiscal
biennium. Also, 42 other states have a
similar tax on capital gains, 31 of which are higher than the proposed 5% for
Washington. Representative Jenkins
said, “We should join 42 other states in
making sure everyone pays their fair share for public schools and universities,
prisons and parks. Capital gains is a big step toward tax reform and
fairness.” Lastly, according to the
Washington State Budget and Policy Center, 96% of capital gains go to those
with an annual income over $1 million.
This bill seems like a good way to even
the tax burden in Washington. So, what happened? Two things killed the capital
gains proposal. The first was time. When
this bill got it’s first hearing with the House Ways and Means Committee, it
was day 52 of a 60-day legislative session and the cutoff for fiscal committee
bills was two days earlier. This meant that Jenkins’ bill needed to be included
in a proposed budget to survive, but this didn’t happen. The second thing that
would have killed this proposal is Initiative 1053 and
the supermajority requirement on the Legislature for any revenue increase.
It’s unfortunate that this bill fizzled
in the legislature and with any luck it will progress further when lawmakers
return to Olympia next year. This was a
good example of addressing our regressive structure without trying to implement
an income tax. It’s also a popular
revenue source for a majority of states and the federal government. If this concept is to survive the legislature
or the initiative process, people will need to be more aware of the discrepancy
in tax contributions for people with low and high levels of income. People who
are better off enjoy capital gains without paying taxes at the state level.
Others who are less fortunate shouldn’t have to give up a higher portion of
their money to fund government.