Capital gains and losses debated in Olympia

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Capital gains tax being debated under the Capitol Dome.

Sonya Campion of Seattle's Campion Foundation would pay a capital gains tax if Olympia puts one into law. And she wants to pay it.

"It not too much to ask those who benefit the most from the state's growth to pay a little bit for education," she said.

Campion pooh-poohed the argument that installing a capital gains tax on Washington’s wealthiest 32,000 people would inspire them to leave the state. "There are no other places to go because 41 other states have capital gains taxes. The others (without a capital gains tax) are places I don't want to go to," Campion told the Washington House Finance Committee Tuesday, March 31 during a hearing on a bill containing all of the House Democrats' sought-after tax increases and tax break closures for their 2015-2017 budget proposal.

The highest-profile proposed items are a new capital gains tax and an increase in service firms' business-and-occupation (B&O) taxes from 1.5 percent of gross receipts to 1.8 percent.

House Democrats have proposed a five percent capital gains tax on individuals earning at least $25,000 from investments or on couples earning at least $50,000 from investments. Most homes, retirement accounts, agriculture and timber would be exempt.

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Rep. Reuven Carlyle (left), D-Seattle and the House’s other chief budget co-writer, Rep. Ross Hunter, D-Medina, said the tax would apply to 32,000 of Washington’s wealthiest residents. This is predicted to raise $570 million in 2015-2017 with $400 million of that to go to K-12 education and the rest to higher education.

Carlyle said the capital gains tax -- besides raising money for education -- is an attempt to make Washington's tax system more equitable. He said Washingtonians making more than $1 million a year pay 2.4 percent of their incomes on taxes, while state residents making less than $20,000 a year pay 16.8 percent of their incomes in taxes.

Testimony was almost evenly split on the proposed capital gains tax.

One other person living mostly off of investments, plus organizations focusing on education, labor and social services, supported the concept. Business lobbying groups opposed it.

The supporting arguments were that the wealthy can afford the tax, and that it would go to funding education. The opposing arguments, beyond a general opposition to new taxes, were that it would hit small business owners who sell their businesses. Amber Carter, representing the Association of Washington Business, contended a capital gains tax would likely spark lawsuits because it would be a type of income tax, which the state does not have.

Meanwhile, service businesses such as doctors and lawyers pay a 1.5 percent B&O tax on their gross receipts. The Democrats’ plan would increase that rate to 1.8 percent, but exempt businesses that make less than $100,000 a year. Democrats claim that would exempt for the new rate hike about 15,000 current B&O taxpayers in the service category. The boost is expected to raise $532 million for K-12 education in 2015-2017.

People backing that tax hike did so as generic support for the revenues that would be raised. Between the capital gains and B&O proposals, plus the proposed closing of seven tax breaks, an estimated $1.5 billion would be raised for education. Business groups and some individual businesses opposed it, saying the B&O change would hurt service firms that are operating on tight margins. Carlyle said a B&O tax increase is not as bad as painted by the business lobbyists because service firms don't pay sales taxes.

Most, if not all, of the proposed tax break closures drew individual opposition from businesses and associations affected by them. Carlyle said he will consider Tuesday's criticism of the tax-and-tax-breaks package, and might tweak the bill.

  

About the Authors & Contributors

John Stang

John Stang is a freelance writer who often covers state government. He can be followed on Twitter: @johnstang_8