Executive Director Misha Werschkul testified on February 16 at the House Committee on Finance in support of closing the tax break on capital gains in our state. Below is the testimony she prepared.
Thank you Madame Chair and members of the committee for putting forward this proposal and for your commitment to promoting equity in our state tax code.
As you know, Washington state has the most upside-down tax code in the country – in which low- and middle-income households pay up to seven times more in taxes as a share of income than the richest 1 percent. The Budget & Policy Center supports closing the tax break on capital gains because:
- It would take a first step toward rebalancing our tax code, by requiring the very wealthiest Washingtonians to pay a tax on profits from the sale of high-end financial assets. This proposal excludes middle-class investments like the sale of homes, farms, and small family businesses, as well as assets in retirement accounts or college savings accounts. As a result, fewer than 2 percent of the very wealthiest Washingtonians would be impacted by this proposal. This is a modest tax increase for the richest – only 1.5 percent of their incomes on average – but it would constitute a significant step forward in rebalancing our tax code.
- It makes the tax code more sustainable. This is common-sense fiscal policy to provide new resources for the investments that help our communities thrive. This is not a new concept. Forty-one states have enacted capital gains taxes, and every one of those states has a tax code that is more equitable than Washington state’s. Because of our overreliance on a handful of relatively regressive taxes, our tax code also suffers from structural inadequacies. We’ve seen the effects of that structural deficit as we’ve grappled with how to fund public schools. Enacting a tax on capital gains would diversify our state’s revenue streams and make the tax code more sustainable in the long term.
That said, we believe that using the revenue from closing the tax break on capital gains to provide across-the-board property tax cuts is a missed opportunity to address the structural inadequacies of our tax code. Our state’s property tax is a core pillar of funding for public services like public schools. Higher-income households do not need another tax break. A better approach to promote family economic security is to enact targeted reforms to help low- and middle-income families and raise needed revenue to invest in schools, effective mental health services, and other areas.
We encourage lawmakers to use revenue from closing the tax break on capital gains to:
- Strengthen investments in schools and early learning, health care and mental health, work supports, senior services, or a host of other priorities that would provide a brighter future for all of our communities.
- Fund the Working Families Tax Rebate to help keep working families out of poverty and take an additional step toward rebalancing the tax code; and/or
- Enact a property tax safeguard rebate (or circuit breaker), a targeted approach to keeping property taxes from taking too large a chunk out of family budgets for low- and middle-income homeowners and renters.
Thank you for your work on this. We look forward to continuing the discussion.