OLYMPIA — A new tax on capital gains would be imposed on the sale of stocks and bonds in excess of $250,000 under a measure approved by the state House.
The measure passed on a 52-46 vote Wednesday after nearly two hours of debate in the Democratic-led chamber.
The bill now heads back to the Senate, which will decide whether to concur with the changes before the 105-day legislative session ends on Sunday.
Supporters of the tax say that Washington — one of just a few states without an income tax — leans too heavily on its sales tax, disproportionately affecting those with less income. The money expected to be raised is tagged for child care and early learning.
Democratic Rep. Noel Frame said the measure is taking “another gigantic step towards justice for the working people of Washington state by finally asking the wealthiest among us to pay their fair share.”
“We must rebalance the tax code for Washington’s working families,” she said.
The underlying measure would impose a 7 percent tax on the sale of stocks, bonds and other high-end assets in excess of $250,000 for both individuals and couples. A person whose business makes more than $10 million per year is also subject to the tax if they make more than $250,000 in selling the business.
Retirement accounts, real estate, farms and forestry would be exempt from the proposed tax. The measure, which would take effect Jan. 1, is expected to bring in about $450 million a year. House staff estimate about 8,000 households would be affected.
Opponents of a capital gains tax have argued that it’s illegal under state law, and the debate is certain to end up in court if the full Legislature approves it and Gov. Jay Inslee, who supports the tax, signs it into law.
Republican Rep. Chris Corry said the goal of proponents is to set up a test case for the state Supreme Court as it relates to income taxes in general. A graduated income tax was enacted by initiative in 1932, passing with about 70 percent of the vote. But it was thrown out by the state Supreme Court a year later, which pointed to the state constitution’s call for uniform taxation on property.
“I’m voting against this because I truly believe this is a Trojan horse for a graduated income tax across all Washingtonians, not just the 1 percent,” Corry said.
On Tuesday night, the chamber rejected more than a dozen Republican amendments, including one that would have increased the standard deduction for joint filers to $500,000 and another that would have removed a reference to the tax being necessary “for the support of state government and its existing public institutions.”
That language — added by the House Finance Committee — essentially blocks a voter referendum at the ballot. The version that passed the Democratic-led Senate last month included an amendment that removed an emergency clause on the bill, which also would prevent a referendum. The bill now heads back to the Senate, which will decide whether to concur with the changes before the 105-day legislative session ends on Sunday.
The capital gains tax has been introduced several times in previous years but before this year, has never gained traction in the Legislature. Both the House and Senate included the tax in their budget proposals last month, and a final budget plan is expected to be released by this weekend.
Democratic Senate Majority Leader Andy Billig said he supports the language inserted by the House as it relates to capital gains, but said that his members still need to meet “to see if we have the votes to concur with any changes they made.”
“Whether we end up concurring or taking some other path we’ll have to wait and see until after we have our discussion with our caucus,” he said.