For another year, essential services in Washington state that that we all rely on, like affordable housing, affordable childcare, school services, and more, will remain underfunded because lawmakers refused to take action and tax the wealthiest households and large profitable corporations.
Despite the recent successes of the capital gains tax and Working Families Tax Credit – equitable tax changes enacted in 2021 and implemented this year – legislators ultimately took no significant steps in 2023 to further rebalance Washington’s upside-down tax code and fund the services that support strong communities.
Revenue actions that will impact the final 2023-25 state budget are summarized below, along with actions lawmakers should have taken to build a more just tax system and fund a higher quality of life in communities across Washington state. In the coming years, lawmakers must prioritize advancing the common good by enacting new equitable sources of revenue.
Missed opportunities to raise progressive taxes on the wealthy in Washington State
Throughout the legislative session, community leaders and advocates repeatedly rallied in support of efforts to raise Real Estate Excise Taxes (REET) on sales of mansions and high-value commercial properties, increase taxes on multi-million-dollar estate transfers (Estate Tax) and enact a new tax on highly concentrated wealth (Wealth Tax). (These and other equitable tax reforms considered during the 2023 legislative session are summarized in this factsheet.) Had lawmakers acted on community leaders’ calls for equitable new taxes in 2023’s legislative session, an additional $7.2 billion over the next four years would have flowed to communities across Washington state.
Had lawmakers acted on community leaders’ calls for equitable new taxes in 2023's legislative session, an additional $7.2 billion over the next four years would have flowed to communities across Washington state. Share on X Those new resources would have fully covered many community funding demands, such as a pilot guaranteed basic income program ($340 million), a Baby Bond savings program ($490 million), a large expansion of the Working Families Tax Credit ($260 million), and much more. In addition to boosting Washingtonians’ economic dignity, these proposals would have made meaningful progress toward rebalancing Washington’s upside-down, unjust state and local tax code.
Increases to Real Estate Excise Taxes (REETs)
A proposal to increase the state and local REETs, which are taxes on sales of real estate, would have generated billions of additional dollars to support affordable housing and other priorities across Washington in the coming years (House Bill 1628). At the state level, the initial proposal would have added a new top REET rate of 4% on sales of properties valued above $5 million, up from the current top rate of 3% on sales of $3.025 million or more. Once fully implemented, this action would have generated more than $400 million per year in new state tax revenue to support housing, health care, enhanced services for people living with disabilities, and other essential services. The proposal would also have allowed local governments to enact a new, 0.25% REET to fund affordable housing. The new local REETs would have increased total local revenues by over $250 million per year. Unfortunately, lawmakers didn’t even approve a more watered-down version of the measure that was introduced late in the legislative session as a compromise to wealthy real estate developers and brokers.
A new state wealth tax
A new state “wealth tax” on individual holdings of corporate stock and other financial assets valued at more than $250 million annually would have represented a major equitable shift in Washington’s tax code (House Bill 1473; Senate Bill 5486). First introduced in 2021, the wealth tax is projected to generate over $3 billion per year in new funding for people living with disabilities, schools, affordable housing, and tax breaks for lower income households. The tax, which has been a top priority for community leaders working to reform Washington’s upside-down tax code, would have been exclusively paid the very wealthiest households in Washington state. While lawmakers should have enacted a Washington state wealth tax this year, the final budget included funding to study similar taxes imposed in other countries and proposed in other states. Findings from the study could help lawmakers and advocates improve the designs of future proposals.
An improvement to Washington’s estate tax
A measure to close loopholes in the estate tax and increase taxes on multi-million-dollar estate transfers would have generated more than $30 million per year to support efforts to reduce intergenerational poverty (House Bill 1795). Under Washington’s highly equitable estate tax, a large estate is subject to progressively higher tax rates – ranging from 15% on transfers between $2.193 million and $3 million, to 20% on those above $9 million – when it is transferred to an heir. Among other things, this proposal would have:
- Narrowed a loophole in which wealthy families transfer assets to a family foundation to avoid estate taxes.
- Increased tax rates on estate transfers above $4 million and added new higher tax tiers on extremely high-value estates, reaching 40% on those worth more than $1 billion.
- Exempted the first $2.659 million in an estate’s value from taxation and required that exemption to increase annually with the rate of inflation. Under current law, the first $2.193 million is exempt from the estate tax, and that amount does not rise annually.
Tax breaks renewed
While lawmakers failed to enact equitable new taxes to support communities in 2023, they did approve or extend some twenty tax breaks and other actions that will reduce public revenues by $26 million in the 2023-25 budget and another $56 million in the 2025-27 budget. Notably, their decision to extend a $14 million per biennium tax break for businesses that process dairy, seafood, and other food products (House Bill 1573) is highly questionable. An analysis by the Legislative Auditor’s office found this tax break costs more jobs than it creates.
Actions that will raise funding for communities or make Washington’s tax code more equitable
While lawmakers failed to enact major, equitable changes to the state tax code during the 2023 legislative session, they did tap some resources to preserve or expand funding for schools, health care, and other community priorities.
Withdrawals from the Washington Rescue Plan Transition Account
The largest of these actions involved drawing down $1.3 billion from the Washington Rescue Plan Transition Account (WRPTA). The WRPTA is a reserve account lawmakers created in 2021 when the state experienced higher than anticipated state tax collections and a large influx of federal funds to address the COVID-19 pandemic. This year, lawmakers channeled a portion of the WRPTA funds to support schools and other community priorities in the 2023-25 state operating budget. Despite the withdrawal from the WRPTA, the final budget still retains some $3.5 billion in unallocated budget reserves or “rainy day funds.” These reserve funds will be available to help preserve funding for communities in the event of a recession, a several wildfire season, or other public emergency.
Extending and increasing the Hospital Safety Net Program
Lawmakers also increased resources in Washington state by extending and increasing the Hospital Safety Net Program (HSNP) (House Bill 1850). That action will channel billions of new federal dollars to communities to support Apple Health, Washington’s Medicaid program, and other health care needs. Insurance providers that manage Apple Health plans will pay insurance premium taxes on the extra federal funds they receive from HSNP. And these higher insurance premium tax collections – about $54 million in the 2023-25 biennium and $74 million in the following two-year budget cycle – will support schools and other priorities in the operating budget.
Changes to the Working Families Tax Credit
The Working Families Tax Credit (WFTC) will now be more equitable and accessible after lawmakers approved House Bill 1477. Launched in 2023, the Working Families Tax Credit provides annual tax rebate payments of up to $1,200 to over 400,000 Washingtonians with low and moderate incomes. With the reforms approved under HB 1477, Washingtonians who file federal taxes under the married-filing-separately category will be able to claim the same full credit as those who file jointly. This will make it easier for those living under the threat of domestic violence to access the credit. Additionally, people will now have three years to apply for the Working Families Tax Credit instead of just one, ensuring that people filing back taxes will receive every penny they are eligible for.
Lawmakers can’t punt on progressive revenue in 2024
Lawmakers took some needed steps in 2023 to make the tax code more equitable, including making improvements to the Working Families Tax Credit, but the bottom line is that the legislature did not go nearly far enough. Lawmakers missed a big opportunity to improve the quality of life in communities across Washington state by enacting new taxes on wealthy households and large profitable corporations. Going forward they must prioritize taking bold action to create a more just state and local tax code that supports our schools, infrastructure, and many other structures that foster strong communities.
