Schmudget Blog

How the Stock Market Surge Can Help Fund Schools, Other Vital Services

Posted by taral at Mar 08, 2013 01:35 PM |

By Andy Nicholas -- The stock market’s historic gains this week are a potent reminder that state policymakers are missing a key opportunity to build a brighter future for all Washingtonians. Unlike the most other states, Washington state has no tax on capital gains, which are profits from the sale of corporate stocks, bonds, and other financial assets. As a result, while the stock market surges, state tax revenues remain more than $2 billion below the amount needed to meet a court order on school funding and sustain other basic services.

A modest tax on capital gains – such as the one proposed in Senate Bill 5738  – would generate roughly $700 million per year to help fund schools, health care, and other investments proven to foster broadly shared economic growth.

Only a small number of wealthy investors would be affected. Ninety-eight percent would pay no additional taxes under the plan since the first $10,000 would be exempt. One major advantage of a capital gains tax is it rebounds relatively quickly following economic downturns. As the graph below shows, since bottoming out in February 2009, the Dow Jones Industrial Average has grown 102 percent.


dow skyrocking


The skyrocketing stock market stands in stark contrast to the broader economy, which remains fragile at best. The second graph below shows that from 2009 to 2012, consumer spending has grown by only 14 percent, wages and salaries by 11 percent, and employment by less than 4 percent. (The data for these indicators are only available through 2012.) In contrast,  the Dow has grown by 72 percent during the same period.


Dow Jones -two


Policymakers should establish a state tax on capital gains so that all Washingtonians can benefit from recent gains in the stock market. Tapping into these rapidly growing resources would help our economy grow and allow us invest in modern schools, infrastructure, and health care services Washingtonians will need to compete in the 21st century economy. 

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