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Accelerate Washington’s Economy, Tax Capital Gains

Posted by michaelm at Feb 23, 2012 03:50 PM |

Capital gains, the profits from the sale of stocks, bonds, and other capital assets, recover rapidly after an economic recession. As we’ve noted in other blog posts, enacting a state excise tax on capital gains would help our state recover much more quickly following tough economic times.

Since hitting a recession low in March 2009, the Dow Jones Industrial Average, a measure used to indicate overall stock market performance, has doubled. Yet, while wealthy individuals who own stakes in hedge funds, mutual funds and other high-end investment partnerships have seen this source of wealth recover and even grow, other aspects of the economy have not fared nearly as well.

Unlike other parts of the economy, capital gains are extremely resilient following an economic downturn. The graph below compares the growth rates of four key economic indicators following the official end of the Great Recession.  Since June of 2009, the stock market has grown by 54 percent, easily outperforming the growth of consumer spending (11 percent), employment (1.1 percent), and wages and salaries (6.8 percent).

Growth of Key Economic Indicators

Notably, had a capital gains tax been in place prior to the great recession, our state’s resources would be recovering much more quickly relative to current projections, and would be poised to grow even more rapidly in the coming years as the recovery gains momentum.

Our current revenue system is inadequate for maintaining the crucial funding needed for the education, health care and public safety services all Washington residents rely on. Taxing capital gains would provide the state a fast growing and resilient revenue source that would help maintain future investments in these critical public structures.

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

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