And for more information about capital gains, visit our capital gains webpage.
|What the Op-Ed Says...||Why It's Wrong...|
“[A capital gains tax] would make the state’s revenue system more volatile.”
|Capital gains rebound quickly after a downturn, making volatility a benefit. In fact, between March 2009 and September 2014, capital gains grew 124 percent nationwide. Compare that to employment, which only rose by 4.5 percent.
This kind of rapid growth in the long run would be a boon for a tax system that currently cannot keep pace with costs of maintaining existing, inadequate investments in health care, schools and other priorities. It also offers policymakers an opportunity to create a more robust Rainy Day Fund.
|“It would risk driving investment out of state.”||There is no credible evidence to support the argument that the wealthy families who would pay the tax would leave the state as a result of the capital gains tax. (Also, have you seen how beautiful this state is? People want to move here, not leave!)
Further, the tax will not impact businesses or out-of-state investors. It would only impact a small number of very wealthy residents.
|“You can’t count on just the 1 percent [to solve the state’s budget crisis].”||Given our state’s upside-down tax system, the state is currently relying overwhelmingly on the 99 percent for its revenue. Under current law, working Washingtonians pay up to 9.5 percent in state sales taxes when they buy household goods.
Yet, millionaires pay nothing when they reap huge windfalls from exclusive Wall Street investments. So the 1 percent are overdue in helping make our tax system right-side up.
|“No matter how you parse it, taxing investment earnings is taxing income, something Washington voters have repeatedly said they don’t want.”||A capital gains tax is different from a tax on ordinary income. It is actually a form of excise tax, or transactional tax, under state law. It is not an income tax. While wage and salary earners don’t get to choose when they pay taxes on their paycheck incomes, millionaires do get to decide when they buy and sell stock and other financial assets.|
The truth is that the proposed new excise tax on capital gains is a great solution to preserving and investing in vital community services in Washington state—services like education, health care, child care, and opportunities to pursue higher education at a community college or university. This proposal would greatly improve Washington state’s flawed, 1930s-era tax system while providing much needed resources that help create jobs and build a strong economy.
This is Part 3 of a new blog series to reignite a conversation about poverty in Washington state.
As Washington State policymakers consider the education funding challenges before them, they should remember that quality early childhood education forms the foundation for future success in school and gives families with low incomes economic stability. The proposed Early Start Act presents a unique opportunity during this legislative session to increase investments in policies that we know work for kids and families.
High-quality, reliable early-learning opportunities set both children and their families up for success. Parents who can go to work knowing that their child is in a safe and nurturing environment are more productive. And kids who benefit from experiences that support their healthy development – intellectually, emotionally and socially – are more likely to arrive at kindergarten ready for success.
When parents struggle to find affordable, high-quality care for their children, the entire family suffers. In Washington state, child care costs can eat up more than a quarter of a family’s monthly income – one of the many reasons why 71 percent of 3- and 4-years-olds from low-income backgrounds do not attend preschool in our state. This not only impairs the education and development of our kids, it also means parents struggle to find stable employment, putting the entire family at risk.
This doesn’t have to be the story in Washington state. In fact, we have several tools at our disposal to ensure that all kids and families in our state can have access to high-quality, affordable early learning opportunities that meet the needs of families from all economic and cultural backgrounds.
The Early Start Act would move Washington state in the right direction by (see factsheet below):
- Ensuring continuity of care for families receiving Working Connections Child Care Subsidies (WCCC)- Washington state’s largest child care subsidy program. The Early Start Act would ensure that families could receive WCCC subsidies for 12 continuous months, improving quality of care by strengthening the relationship between children and their caregivers and giving peace of mind to parents while they work or look for a job.
- Expanding the system to improve access for families and targeting resources to address the opportunity gap. The Early Start Act increases access to all models of Early Childhood Education Assistance Program (ECEAP) services—Washington state’s version of the federally funded Head Start program. This will remove barriers for families by improving access to fit parents' needs and set kids up for success in kindergarten and beyond. To make certain that this expansion means increased access to quality early learning opportunities, the act also expands Early Achievers. Early Achievers is the quality rating and improvement system that helps to ensure providers can get the training and support they need to improve their overall quality and that parents have the information they need to make the right choices in child care for their families. Expanding the Early Achievers program will help ensure that providers can respond to the needs of their communities and provide high-quality, culturally, and linguistically competent early learning experiences
- Investing in and retaining a diverse child care workforce. The Early Start Act acknowledges that an increasingly diverse state like Washington requires an equally diverse set of child care options for families and kids. By expanding Early Achievers with intentional focus on reducing barriers to success through additional incentives and supports for providers serving our communities furthest from opportunity, the act will give providers access to the resources needed to meet new quality standards. The act would also award subsidized slots to providers that demonstrate high-quality standards, thereby improving access to high-quality care for families with low incomes.
The Early Start Act is a great place to start, but policymakers can supplement this investment and truly set our kids and families up for continued success by also investing in programs and policies like home visiting programs, infant and early childhood mental health consultation, dual language immersion, and Reach Out and Read.
While access to high-quality early learning opportunities is vital for a family’s current and future success, it is just one of the many factors affecting the economic security of families with low and moderate incomes in Washington state. Our kids and families also need access to safe and affordable housing, transportation, nutritious food, and healthcare. Throughout session we will continue to highlight opportunities available to policymakers and why a two-generation approach – one that focuses on children and their families together – can put all Washingtonians on a path to greater prosperity.
For more information on the two generation approach, read the first post in our series. Click here to download a printable version of the early childhood education infographic. To learn more about what policymakers can do to improve access to high quality early learning during this upcoming session, take a look at the Early Learning Action Alliance (ELAA) legislative agenda.
The Budget and Policy Center staff would like to thank Jennifer Jennings-Shaffer, Early Learning Policy Director from the Children's Alliance, and Katy Warren, Deputy Director from the Washington State Association of Head Start and ECEAP, for their contributions to this post.
A new report released yesterday shows that income inequality not only remains a problem in Washington state – it is getting worse. From 2009 to 2012, all of the income gains experienced in the economic recovery have gone to the richest 1 percent of Washingtonians.
Washington is one of 16 states where income gains flowed entirely to the top 1 percent, while the bottom 99 percent experienced income declines. The result is a lopsided national and state economy, where the average income of the richest 1 percent ($1.2 million) is 27 times greater than the average income of the entire bottom 99 percent combined ($47,500).
Income inequality remains historically high, surpassing levels experienced before the Great Depression, and approaching levels seen prior to the Great Recession. If we haven't learned our lesson yet, it's high time - our economy cannot sustain itself when such a small share of Washingtonians benefit from the economic activity they work so hard to create.
These latest numbers arrive on the heels of a report last week finding that, more than any other state, Washington state’s tax system exacerbates rising income inequality – taking a much larger bite out of family budgets among people with lower and middle incomes than those at the very top of the income scale.
The good news is we can start changing it. Policymakers have multiple opportunities before them to reverse this damaging trend during the current session:
- House Bill 1484 was introduced, which proposes a capital gains tax on profits from the sale of corporate stocks, bonds, and other high-end financial assets that are heavily concentrated among the richest households in Washington state. Revenues from the tax would help fund high-quality early learning for kids, adequate funding for K-12 education, affordable higher education, a clean environment, a reliable safety net, and other investments that create jobs and promote a thriving middle class.
- The Governor also proposed funding the Working Families Tax Rebate, a tax rebate program based on the federal Earned Income Tax Credit. It would boost incomes by up to $614 per year for more than 430,000 hardworking households in Washington state.
- House Bill 1355 would raise the state minimum wage to $12 per hour, which would fight growing income inequality in Washington state by boosting the wages and incomes of over 550,000 workers who have seen stagnant wages for more than three decades.
By Andy Nicholas and Elena Hernandez
While most Washingtonians agree that everyone has a responsibility to help pay for schools, safe communities, health care, and other broadly shared investments that create jobs and grow the economy, the state continues to have the most upside down state and local tax system of any U.S. state, according to a new report, "Who Pays?", from the Institute on Taxation and Economic Policy.
People with lower and moderate incomes – a disproportionate share from communities of color – pay a much larger portion of their incomes in Washington’s state and local taxes than those at the very top of the income scale, who are disproportionately white.
As the graph below shows:
- The poorest fifth of Washingtonians, those with incomes below $21,000 per year, pay an average of 16.8 percent of their incomes in state and local taxes.
- The middle fifth of Washingtonians, whose incomes fall between $40,000 and $65,000 per year, pay 10 percent of their incomes in state and local taxes every year on average.
- The richest 1 percent of Washingtonians, who earn a minimum of $507,000 per year, pay on average only 2.4 percent of their incomes in state and local taxes.
Washington state’s upside down tax system takes an especially heavy toll on people from communities of color. Washingtonians from communities of color are far more likely to be among the poorest fifth of the population, which face the highest effective state and local tax rates, than among the richest fifth of the population that enjoys considerably lower effective tax rates (see graph below). By contrast, white Washingtonians have a roughly equal chance of being in either the poorest fifth of the population or the richest fifth.
Governor Inslee has called for a reasonable reforms, such as enacting a new capital gains tax on profits from the sale of high-end financial assets and funding a rebate program for hardworking Washingtonians with children, that would help to rebalance the state tax system while generating additional resources for schools and other investments that benefit all Washingtonians. Policymakers should follow his lead by enacting these proposals while looking for other ways to make the tax system more equitable and dependable.
An education- funding proposal scheduled for a hearing today by the Senate Ways & Means Committee fails in its goal to fund education while also forcing deep cuts to investments that kids and families need to be successful and secure. This measure is a distraction from the central problem facing Washington state policymakers today – the state’s flawed, 1930s era revenue system. Passing it now would simply pawn tough choices off on future policymakers and Washingtonians.
Rather than raising additional resources to meet the needs of our state, Senate Bill 5063 proposes to rearrange existing, insufficient resources by dedicating two-thirds of all state revenue growth to education for the next 10 years. That’s tantamount to rearranging the deck chairs on a sinking ship.
As the graph shows, if this rigid formula were in place in the coming biennium, it would fall $2.5 billion short of making statutory and court-ordered investments in education. Simply diverting two-thirds of revenue growth to education ($1.8 billion) would not come close to providing the $4.3 billion in resources needed to fund increased enrollments, implement voter-approved initiatives, and make McCleary investments.
Additionally, SB 5063 would result in disastrous cuts to public health, safety, childcare, and services for seniors. The graph shows that resources available for all non-education spending ($900 million) would fall $500 million short of what’s needed to maintain current commitments in these and other investments that support a successful educational experience for kids.
Without raising new revenue, we can’t meet our required spending obligations, let alone make additional investments that make college more affordable, provide high-quality early learning for children, treat people suffering from mental illness, or give public employees a pay increases.
The real challenge facing lawmakers is our outdated revenue system that fails to keep pace with the state’s economy. Although revenues will be higher in the 2015-17 biennium when compared to the current budget cycle, when it comes to tracking economic activity, tax revenue is in decline and will continue to fall without significant reforms.
Enacting a capital gains tax, as proposed by Governor Inslee, would significantly boost revenue while impacting less than one percent of Washington households, almost exclusively those earning more than $490,000 a year. That’s the kind of solution Washingtonians need- one that begins to equalize the playing field for who pays taxes and ensures that we can afford to invest in a high quality of life for everyone in the state.