Statement from the Washington State Budget and Policy Center
The Washington state Supreme Court has ruled in an overwhelming 7-2 decision that the capital gains tax passed by the legislature in 2021 is constitutional – and that the critical funding it provides for early learning and schools is secure. This was a hard-fought victory for people who want to create a brighter future for kids, families, and communities in our state.
The capital gains tax is a thoughtful, well-designed policy. Signed into law by Governor Inslee in 2021, the modest 7% excise tax on annual capital gains above $250,000 is exclusively paid by the wealthiest 0.2% of Washingtonians, whose incomes average $2.6 million per year. The tax generates over $500 million per year in new revenue that is dedicated to K-12 schools, a major expansion of child care and early learning supports for young children, and building new schools across the state.
Over the past decade, the Budget and Policy Center has worked alongside dozens of partners representing kids, immigrant and Black, Indigenous, and People of Color communities, small businesses, and working families to advance this commonsense policy to start to bring balance to our state’s tax code.
A few highlights of the opinion:
- The decision is simple and decisive: “The capital gains tax is a valid excise tax under Washington law.”
- The justices cite an amicus brief filed by the Budget and Policy Center and other partners and plainly state “Washington’s upside-down tax system perpetuates systemic racism by placing a disproportionate tax burden on BIPOC residents.”
- The opinion clearly describes the origins of Washington’s inequitable tax code and declines to extend Great Depression-era precedent to the policymaking actions of the most diverse legislature in Washington state history. The millionaires and billionaires opposing the tax continue to fear-monger about income taxes. But as the Court accurately noted: “This tax is wholly unlike the broad-based net income taxes we previously invalidated under Culliton.'” [They are referencing the 1933 case Culliton v. Chase, which overturned a graduated state income tax that had been approved by an initiative of the people.]
- The court overwhelmingly rejects the flawed legal framework put forward by those who seek to undo the capital gains tax. Throughout the opinion, the justices point out the ways that the plaintiffs arguments “confuse,” “misconstrue,” and “take too narrow a view,” as well as pointing out how their “logic falters” especially in the false comparison between federal income taxes and Washington’s capital gains excise tax.
“Today’s Supreme Court decision is a victory for Washington’s future,” says Executive Director Misha Werschkul. “Advocates fought for this smart, commonsense policy for more than a decade because we know how essential it is that our tax code advances racial and economic justice. We know the capital gains tax will create much-needed revenue that supports the well-being of communities by ensuring the ultra-wealthy pay what they owe.”
Together, the capital gains tax and the Working Families Tax Credit, which people with low and moderate incomes started receiving this year, represent the most equitable adjustment to the state tax code since the early 1930s.
“Advocates fought for this smart, commonsense policy for more than a decade because we know how essential it is that our tax code advances racial and economic justice. The capital gains tax will create much-needed revenue that supports the well-being of communities by ensuring the ultra-wealthy pay what they owe.” – Executive Director Misha Werschkul
Bolstered by this win, advocates are showing up every day to keep fighting for equitable taxes like this capital gains excise tax. This session, lawmakers have the opportunity to enact a wealth tax and commonsense reforms to the estate tax that will help address our state’s forecasted revenue shortage and school funding crisis. Earlier this year, we celebrated progress with the launch of the new Working Families Tax Credit and today the court affirmed a modest tax on a small number of the wealthiest Washingtonians to pay for investments in tens of thousands of kids. We are counting on legislators to keep working to balance the tax code this session.