Let’s Debunk the Lies About a New Plan to Invest in Washington State
State leaders are considering a new tax on the exorbitant capital gains profits of the super-rich. Here’s what it will and will not do.
Let’s be clear about what SB 5096, the wealth tax on capital gains that the Washington State Senate approved on Saturday, actually does and does not do. This is a tax on the extraordinary capital gains profits made through the sale of stocks, bonds, and other luxury assets—meaning more than 99 percent of the people in Washington state won’t pay it.
The proposed capital gains wealth tax would go into effect once you make more than $250,000 in profits on the sale of certain assets over the course of a year. So for example, if you bought $750,000 in Microsoft stocks a few years ago and you sell all those stocks in a single year for $1,000,000, you would make $250,000 in profit — and that means you would pay no capital gains tax to Washington State.
But say you bought $700,000 in Apple stocks a few years ago, and you sell those stocks this year for $1 million dollars, earning a $300,000 profit. You would then have to pay the capital gains tax on the $50,000 above the threshold, meaning you would pay Washington state just $3,500 or so in capital gains taxes on that whole million-dollar transaction.
Now that we’re clear on the basics of SB 5096, let’s talk about some of the falsehoods that opponents have been circulating.
SB 5096 is not burdensome.
As radio host Dave Ross suggested over the weekend, nobody is ever going to have to launch a GoFundMe to pay their capital gains tax bill in Washington state. It wouldn’t affect the day-to-day lives of the wealthy at all, or threaten their livelihoods, or endanger their businesses. In other words, if $250,000 sounds like a tremendous, life-changing sum of money to you, you will not be paying this tax. It’s not going to single-handedly turn our regressive upside-down tax code right-side-up, but it’s the biggest and boldest step Washington has made toward fixing the inequities in our tax code that I’ve seen in my lifetime.
SB 5096 is not an income tax.
When SB 5096 passed out of the Senate last week, Republican commentators characterized it as an income tax. The best response to that specious claim comes from Ross, again, who says that if it is an income tax, “it’s the most peculiar income tax I’ve ever seen. Your salary could be a million dollars, or $5 million, or $10 million, and you wouldn’t pay a penny to the state under this tax.”
Federal aid is on the way, but we still need this revenue.
But with President Biden signing the $1.9 billion American Rescue Plan into law today, and with state revenue forecasts not as dire as they were predicted to be this time last year, do we really need the revenue raised from SB 5096? Absolutely. Any federal funds that Washington receives from the American Rescue Plan will be a temporary bridge to help us get everyone vaccinated, to reopen our schools safely, and to reopen the economy. That’s very important, but Washington’s lackluster recovery from the Great Recession of 2008 proves that we can’t just dump some federal stimulus money into the state and walk away. We need a recovery plan which addresses the ongoing problems worsened by this economic crisis, getting funds toward sustainable solutions for childcare, mental health programs, foster care, exorbitant higher education costs, and affordable housing. Otherwise, we’ll be unprepared for the next financial crisis, leaving us even more vulnerable in the future.
Wealthy people and corporations will not flee the state.
One of the most common threats that trickle-downers wield when taxes enter the conversation is that wealthy people and corporations will rather leave the state than pay even a relatively tiny tax like SB 5096. Those threats don’t materialize in real life. New Jersey Governor Phil Murphy, who passed a wealth tax in New Jersey this year to offset some of the damage caused by the pandemic, says his staff researched this threat, and “we haven’t found one bit of evidence that suggests that’s actually true — when people say folks are going to leave, there’s no research anywhere that suggests that happens.” A 12-year study from Cornell University found taxes are a vanishingly small factor in where the wealthy choose to live, and a Stanford University study of 8 state tax increases similarly found “little migration as a result of millionaire taxes.”
The same is true of corporations — we don’t see captains of industry flocking to low-tax Mississippi. Billionaires and corporations alike both want to live where the quality of life is high — and just this week US News and World Report for the second time rated Washington as the best state in America.
Taxes aren’t job-killers.
Despite what trickle-downers have been claiming for forty years, taxes don’t kill jobs. In fact, a mountain of evidence from institutions including the Center on Budget and Policy Priorities and the Institute on Taxation and Economic Policy proves that “there is no obvious connection between tax rates on capital gains and economic growth.”
SB 5096 will not impact 99 percent of Washingtonians.
A criticism that trickle-downers love to roll out every time a new source of revenue is examined is the slippery-slope argument — the idea that any wealth tax will eventually expand to include the middle class. SB 5096 has been carefully designed to not affect the financial lives of ordinary people. It doesn’t apply to the sale of homes. It doesn’t apply to your 401K, IRA, or other retirement funds, so your nest egg is safe. Unless your small business earns more than $10 million in revenue annually, you likely won’t owe a penny if you sell it. (And if your small business does take in more than $10 million per year — congratulations! You’re an unparalleled success, and you will still be among Washington’s wealthiest residents after you sell your business and pay the tax.) The operations of family farms and ranches also aren’t eligible for SB 5096, so farmers won’t pay a tax when they sell the farm or sell cattle or other livestock.
And regardless of what you hear on Facebook, the slope is not slippery: politicians can’t sneakily change the law to suddenly make any of the above exceptions eligible for taxes. If Representative John Smith were to decide that he wanted to tax the capital gains from the sale of small neighborhood businesses, he couldn’t just change the wording on SB 5096 in the dead of night and make it so. Rep. Smith would have to pass a new law through the Senate and House in Olympia — and I guarantee you that I will be by your side protesting such a regressive, punitive tax if that improbable day were to ever come.
Here’s why we need SB 5096 right now.
But enough talk about what SB 5096 won’t do — here’s what it will do: It will raise millions of dollars in progressive revenue that the state can immediately turn around into cash benefits for the people who have been hardest hit by the pandemic. And it will help the neighborhood businesses that have been struggling without a lifeline for the last year as their customer base has stayed home to stop the spread. The latest estimates suggest that it will create at least 20,000 new jobs in Washington per year, boost our state’s economic growth by $2 billion per year, and inject $1.2 billion in consumer spending back into our local economy.
That last bit is crucial. Walk down any street in any business district in Washington state and you’ll find gaps that weren’t there at this time last year — businesses that temporarily closed during the lockdown last year and which eventually just disappeared. We’ve gotten so used to boarded-up storefronts and sad notes from business owners taped to front windows that it’s hard to grasp the immensity of what all those closures mean. And though vaccination rates are rapidly climbing, we’re likely to lose many more businesses and jobs before it’s safe to resume life in a manner approximating our pre-pandemic behavior.
Let’s not mince words: This is an emergency. Our state economy has been under tremendous stress for the last year, and that stress has not affected all of us equally. The fact is that women, small businesses, and communities of color have been hit the hardest, while the wealthiest corporations and people in the state have actually increased their profits to the tune of millions and millions of dollars.
Those exorbitant pandemic gains will not trickle down from the top .01 percent to the rest of us. They never do. That’s because wealthy people and corporations aren’t the real job creators — you are. When we get money directly into the hands of the people who most need it, those people will spend it in their communities, supporting local businesses and creating jobs through their consumer demand. The progressive revenue raised through a wealth tax on extraordinary capital gains profits will allow the parts of the state that have been hardest hit by the pandemic to support their own economic recovery, supercharging the local economy in such a way that we’ll all do better.
As I mentioned above, we have data-driven proof from the last recession that if Washington state doesn’t invest in our neighborhoods and businesses, our economic recovery will be slow and painful, leaving us even more vulnerable for the next economic disaster. We have to be smarter this time. This emergency demands that we fix the mistakes of the past, bolster those who have been hit the hardest, and shore up our economic strength so Washington can continue to be the best state in the union to live and do business for generations to come.
