Wealth tax prospects doubtful — but tax reform isn't dead
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Some Democrats at Washington's Legislature want the super rich to pay more in taxes, and think a new wealth tax introduced Thursday is the way to do it.
Yes, but: The tax reforms lawmakers are more likely to embrace this year are decidedly wonkier, with less catchy monikers than the wealth tax — things like letting local governments collect more in property taxes year over year, or overhauling business and occupation taxes.
Why it matters: Washington doesn't have an income tax and relies heavily on property and sales taxes to pay for basic functions of government.
- That leads to lower-income households paying a higher share of their income in taxes than wealthier households — a system Democrats have criticized as highly regressive and unfair.
By the numbers: According to a 2020 analysis by the state Department of Revenue, Washington households making between $17,000 and $30,000 annually pay 8.2% of their income toward state taxes. Meanwhile, those earning more than $208,000 per year pay only 1.8% of their income in state taxes.
Driving the news: The new wealth tax proposal unveiled Thursday would apply to Washingtonians worth at least $250 million, imposing a 1% tax on financial assets like stocks, cash savings and bonds above that threshold. It wouldn't apply to earned income.
- State Sen. Noel Frame (D-Seattle) estimated the tax would affect about 700 taxpayers statewide, while raising more than $3 billion per year.
- The money raised would go toward affordable housing, targeted tax relief or tax credits, education programs and aid for people with disabilities, according to the current bill draft.
Between the lines: While the bill is expected to have a public hearing, House Majority Leader Joe Fitzgibbon (D-Seattle) told Axios that the appetite for passing the measure this year is "low," and that it might be "biting off more than we can chew."
Zoom out: The wealth tax wasn't one of the bipartisan recommendations to emerge from the Legislature's Tax Structure Work Group, which has spent more than four years examining the state's tax code and weighing reform options.
- Instead, the work group recommended lifting the current 1% cap on property tax growth for local governments, a change local officials have said would help them keep up with inflation and population growth.
- The work group also recommended replacing the current business and occupation tax system with a margin tax, which could better account for businesses' costs. Right now, Washington businesses are taxed on gross receipts, which doesn't consider whether they actually make a profit.
Flashback: It took the Legislature 10 years to pass a different tax measure designed to target the wealthy, a 7% capital gains tax signed into law in 2021.
- Opponents sued over the new tax and the case is now before the state Supreme Court, with oral arguments scheduled for Jan. 26.
What we're watching: Lawmakers may want to wait for a ruling on the capital gains tax before considering another big change like the wealth tax, said state Sen. June Robinson (D-Everett), a vice chair of the Senate Ways and Means Committee who deals with tax policy.