An initiative to repeal Washington’s capital gains tax, which levies a 7% tax on the sale or exchange of long-term assets like stocks, bonds and business interests, was failing Tuesday night.
Voters were opposing Initiative 2109 by 63.2% to 36.8%. Vote counting will continue in the days ahead.
The tax, which was approved in 2021, took effect after the state Supreme Court upheld it last year. The first payments were due in April 2023. The tax is only on gains over $262,000 — adjusted for inflation — and does not apply to real estate sales.
Supporters of the tax said repealing it would hurt state funding for child care and education. Up to $500 million from the tax is deposited annually into a state account for schools, early learning and child care programs.
Tax collections beyond that amount go to help pay for school construction and renovations, although Office of Financial Management figures show the tax will likely not generate more than $500 million in any of the next five fiscal years.
In 2023, the tax brought in about $786 million. The state collected another $433 million from it as of May of this year.
Estimates show eliminating the tax would drain about $2.2 billion from the budget over five state fiscal years, according to the Office of Financial Management. However, capital gains taxes are prone to up and down swings, which makes future revenue difficult to accurately predict.
The initiative is one of four on the statewide ballot this year for Washington’s voters and one of three pushed by Let’s Go Washington, a group bankrolled by hedge fund manager Brian Heywood.
Heywood and other proponents of the repeal argued lawmakers could find other sources of revenue and the tax is a “backdoor” version of an income tax, which Washington voters have repeatedly rejected. They also said that the tax may cause wealthy people to move out of state.
Washington’s tax system has long been considered among the most regressive in the country, meaning lower earners pay proportionally more of their income than wealthier households. This is largely due to the state’s heavy reliance on sales taxes and the lack of an income tax, according to policy experts.
A report the Institute on Taxation and Economic Policy released this year credited the capital gains tax with helping make the state’s tax system fairer for lower earners.
