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Capital gains: A rapidly growing, untapped resource

Posted by Andy Nicholas at Nov 08, 2011 02:20 PM |

Our latest policy brief proposes a new tax on capital gains to help spur long-term job creation and economic growth in Washington state.  While it could not be implemented quickly enough to address our current revenue shortfall, a capital gains tax would significantly improve Washington’s revenue system in the long run.

A key attribute of capital gains is that they grow rapidly over time. As shown in the graph below, capital gains rose by 21 percent on average each year over the last economic cycle, to $24 billion in 2007 from $7.4 billion in 2001. By contrast, taxable retail sales -- the largest component of our current revenue system -- grew by about five percent each year during the same period.

CapGains_vs_RetailSales

Our current revenue system, which doesn’t leverage the power of capital gains, fails keep pace with the costs of maintaining core investments in health care, education, and other important public priorities from one year to the next. Enacting a modest tax on fast-growing capital gains would begin to address this fundamental problem.

For more information, read our latest policy brief, A Capital Reform: Using capital gains to fuel job creation and economic prosperity in Washington state.

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