A Senate bill that would impose a tax on capital gains in Washington state looked very different than it did when it stepped down from the Senate Ways and Means Committee Tuesday night.
With the changes, the new proposal is expected to generate less revenue than the original one and affect fewer taxpayers.
The bill was requested by the Office of Financial Management and was part of the operating budget proposed by Governor Jay Inslee. Originally, a 9% tax on capital gains – such as the sale of stocks, bonds, and other assets – was proposed over $ 25,000 for individuals or $ 50,000 for joint applicants. It included exceptions like sole proprietorships, houses, farms, and retirement accounts.
Senator June Robinson, D-Everett, introduced the bill and added a striking amendment ahead of the committee vote on Tuesday. Robinson said she amended the bill to address concerns heard at the public hearing.
The new version lowers the tax rate to 7% and increases the threshold earnings that must be exceeded before the tax for individuals increases to $ 250,000. This increases the threshold in the original bill for individuals ten fold. According to the staff, the same threshold applies to joint applicants.
The noticeable change has also changed and added exemptions, including an exemption for “Qualified Small Family Owned Businesses”, which replaces and extends the exemption for sole proprietorships. It also exempts all property sales and exchanges.
“We have had great feedback from community members across the state, in large part thanks to distant statements that make it easier for people to weigh up,” Robinson said in a press release.
“By raising the threshold and widening the exemptions, this capital gains proposal would increase the proportion of state taxes paid by just 2% of the wealthiest Washingtoners. It is a sensible way to ask these wealthy few to join us in building a stronger, healthier state for all Washingtoners – a state where they can thrive. “
The original bill was expected to bring in new revenue of $ 1.1 billion in fiscal 2023 and more than $ 2.4 billion in the next biennium. According to the staff, it is currently raising an estimated $ 550 million annually.
It has been estimated that Inslee’s proposal affects about 1.9 percent of residents. According to the staff, far fewer people will be affected by the new version, but the same level of analysis is not yet available. For now, they’re still communicating 2 percent as a generous estimate, even though they know it will be lower.
“We think it actually affects a lot fewer people than the original proposal, as we’ve significantly raised the exempted capital gains threshold,” said Robinson.
The revenue from the new tax, which would come into effect in 2022, would flow into the escrow account for educational institutions and a new “tax relief account”. The account is not defined in the invoice. In a phone interview on Wednesday, Robinson said the intent is for future lawmakers to use the money to tackle injustices in the state’s tax system.
Governor Inslee said at a virtual press conference Tuesday that he had not seen the amended proposal so he could not comment on it. Democrats have proposed and billed a capital gains tax in recent years in an attempt to address the state’s regressive tax regime by increasing the tax burden on wealthy residents.
The Republicans consistently reject the idea, sometimes saying that it is an income tax and therefore violates the state constitution.
David Schumacher, director of the state’s financial management agency, said in December that the legal analysis he’s seen assumes the tax is legal and that the state can count on it.
Republicans tabled 22 amendments to the replacement bill on Tuesday. Some were withdrawn before a vote was reached and the rest were rejected.
Changes were proposed in the amendments, e.g. B. the increase in the exclusion threshold due to inflation from 2024, the delay until the legislature reviews the recommendations of a working group on tax structures, and the submission of the law to the electorate.
The bill contains an emergency clause that excludes it from the referendum.
“Let’s let the voters decide if they want this capital gains tax in Washington state,” said Sen. Lynda Wilson, senior member of the Ways and Means committee. “They only told us ten times that they didn’t want any income tax. Let’s only let them tell us about it an eleventh time.”
Sponsor Robinson responded that the bill proposed an “excise tax on long-term capital gains” and that legislators would be elected to represent its constituents. On Wednesday she also pointed out that an initiative could still go to the voters.
The substitute draft was passed largely by party politics in the committee, with Senator Mark Mullet, D-Issaquah, voting no and Senator Kevin Van Dewege, D-Sequim, voting without a recommendation.
A House bill proposing a capital gains tax had a public hearing on the House Finance Committee last week.
This bill proposes a 7% tax on capital gains from the sale of real estate and a 9.9% tax on the sale of other assets. It exempts up to $ 200,000 for individuals or $ 400,000 for joint applicants.
The funds in this bill would go to the state general fund and create an account on a separate bill to support childcare and early learning. Legislators coordinate, said Robinson, and talked to each other about similarities and differences.
“We are talking to each other, the proposals are separate and only one may end up on the governor’s desk,” said Robinson. “It is our intention to have the version that we passed from Ways & Means last night out of the Senate and send it to the House.”
Bills are usually negotiated at this point, Robinson said. The Senate’s draft law now goes to the regulatory committee and could be put to a vote by the entire chamber.