The Washington State Department of Revenue today shared preliminary data that the second year of the capital gains excise tax has generated hundreds of millions of dollars so far this year for investments in schools and early learning. This news continues to underscore the importance of the capital gains excise tax as a key funding source for early learning and education as well as school construction projects.

Last year’s tax collections were unexpectedly high, as can often be the case in the first year of a new tax. When the tax was passed by the legislature, we expected to see annual numbers closer to this range. Further, revenue from Washington’s capital gains tax is expected to fluctuate year to year based on changes in the economy. That’s why this tax was smartly designed so that the first $500 million (adjusted annually for inflation) goes to ongoing spending commitments associated with the Fair Start for Kids Act, and revenues over that amount pay for one-time school construction expenditures. Washington state’s overall tax base is very stable, so any fluctuations from the capital gains tax can be easily managed.

In 2023, more than 99.8% of Washingtonians were exempt from Washington’s capital gains tax. And the vast majority of those who pay this tax reside in King County, primarily in wealthy enclaves like Medina, Clyde Hill, Redmond, and Kirkland.