Governor proposes 9-percent capital-gains tax

Governor Jay Inslee has proposed a new capital-gains tax to help fund his proposed 2019–21 operating budget that would increase spending by $9.973 billion (22.3 percent).

This would be a historically large spending increase, following years of substantial spending increases made in large measure to meet the state’s court-imposed education spending responsibilities.

AGCW is opposed to the capital-gains tax increase.

The governor’s proposal would impose a 9-percent tax on capital gains above $25,000 for individuals and $50,000 for joint filers. The tax would not apply to residential real-estate sales, retirement accounts, assets sold due to eminent domain, certain livestock sales, certain agricultural land sales, certain timber sales, or sales of certain personal property used in business. Businesses would be allowed a B&O tax deduction for any revenue that would be subject to both the B&O tax and the capital gains tax, to avoid double taxation. The state’s Office of Financial Management provides this Q&A about the proposal.

“Last year, the Legislature approved a bipartisan budget that made historic investments in education and increased funding for mental health, higher education and state-worker salaries,” said Sen. John Braun, R-Centralia, who serves as the ranking Republican on the Senate Ways and Means Committee. “Based on our current projections, we’ll have billions more to sustain these investments and still improve special education and mental health. Yet somehow that is not nearly enough money for the governor. At a time when taxpayers are already providing billions more in higher tax revenue, he wants a 67-percent tax-rate increase that would hurt small businesses, an unconstitutional tax on income and a complete wipeout of the bipartisan property-tax reforms due to take effect in 2019.”

The Governor describes his new capital-gains tax as an “excise tax” and not an income tax in an attempt to avoid the state’s constitutional prohibition on graduated income taxes, even though the IRS has declared that a capital-gains tax is an income tax.
Other tax proposals in the Governor’s budget include an increase in the business and occupation tax on services to 2.5 percent of gross receipts, up from the current 1.5 percent. He also proposed shifting the real-estate excise tax from a flat rate to a graduated rate. The tax would drop to less than 1 percent – 0.75 percent – on sales of property under $250,000, stay at the current 1.28 percent for sales between $250,000 and $1 million, and rise to 2 percent for sales above $1 million.

The governor’s budget proposal is the beginning of the long budget process that will continue through the upcoming 2019 session. House and Senate budget writers usually craft significantly different spending plans, then struggle to work out a compromise that both chambers and the governor can accept.

For more information or to provide comment, contact AGCW’s Chief Lobbyist Jerry VanderWood, 360.352.5000.