Washington House Passes Capital Gains Tax, Now Heads To Senate

OLYMPIA, WA — The Washington Legislature is just one step away from passing a new capital gains tax.

Wednesday, the House approved an amended SB 5096 on a vote of 53 - 46. Previously, the bill just barely passed the Washington Senate on a vote of 25 - 24. It now heads back to the Senate, who will review the bill as amended before deciding whether to pass it on to Gov. Jay Inslee for final approval.

If it can clear that hurdle, SB 5096 will create a 7 percent tax on all capital gains, like stocks and bonds, over $250,000 per year. Anything under that would be exempt, as would home sales and other real estate transactions.

An earlier version of the tax, proposed by Gov. Jay Inslee, would have applied a 9 percent tax rate and would have raised $1.1 billion in 2023 and more than $2.4 billion between 2023 and 2025. It has since been adjusted down, with the latest financial analysis estimating that it would only apply to around 7,000 residents, and raise about half a billion each year.

That money would then go to support childcare and early learning initiatives across Washington, supporters say.

As the Spokesman Review explains, one of the amendments the Senate will be reviewing is the addition of an emergency clause, which would allow the bill to go into effect 90 days after receiving the governor's signature. However, the state still wouldn't receive revenue from the gains tax until 2023.

That delay is likely necessary, as the tax will almost certainly be met with legal challenges.

Critics also argue that the proposal verges on being an income tax, which are illegal under the state constitution. The bill itself refers to it as an "excise tax on gains" which supporters believe makes it legally distinct from an income tax.

If the bill passes, the Washington State Attorney Genera's Office is preparing for at least one lawsuit challenging its constitutionality, the Olympian reported. If that happens, analysts say its most likely the tax would go to the people for a vote.

When asked Thursday if he was worried a referendum would undercut his proposal even further, the governor said he believes Washingtonians understand the state's regressive tax structure is in need of reform.

"People understand basic fairness," Inslee said. "We know that our revenue system has been very unfair to working people. They sometimes pay four and five times more at the bottom of the pyramid. This, very modestly, makes it a fairer system. This money can be used to help working people and will be under a budget that succeeds in our state."