Updated data: Capital Gains Still More Concentrated Among Wealthiest Few

The capital gains tax proposed in House Bill 2563  represents a bold path to a more stable and adequate revenue system in our state.  The measure would create a new 5 percent excise tax on capital gains in excess of $10,000 each year in Washington state. As we’ve discussed previously (here and here), capital gains – profits on the sale of corporate stocks, bonds, and real estate assets – are highly concentrated among the richest households in our nation. However, new data from the nonpartisan Tax Policy  Center (TPC) shows that capital gains have become significantly more concentrated among the richest few since the onset of the Great Recession.

As of 2010, the TPC’s data show that 96 percent of capital gains were going to a small minority of very wealthy households – those with incomes above $1 million per year (see graph below). Furthermore, on average, households earning less than $200,000 per year experienced net capital losses in 2010, meaning they lost money on sales of stock or other capital assets. (Capital losses would not be taxed under HB 2563. In fact, capital losses are deductible from federal income taxes.)

The extreme concentration of capital gains among the richest Washingtonians means that a tax on these resources would be paid almost exclusively by those at the top of the income scale. Even so, HB 2563 goes a step further by establishing an exemption on the first $10,000 of capital gains ($5,000 for single filers). The $10,000 exemption would limit the tax to only about three percent of Washingtonians.

Accordingly, the measure would tap into a highly concentrated economic resource in order to sustain our public investments in health care, education, and safe communities – all vital to long-term and broadly shared economic growth. 

For more information check out  our policy brief, “A Capital Reform: Using Capital Gains to Fuel Job Creation and Economic Prosperity in Washington State.”