Decompiling Oppression #118
Sam McVeety
Meanwhile, in Washington State, we're wrapping up a primary election and preparing for the general. One item on the November ballot that deserves special mention is the proposed repeal of the state's 2021 capital gains tax (accompanied by proposed repeals of the Climate Commitment Act and WA Cares). While it's a fairly mechanical topic, it's also an important one; the fate of this initiative has major implications for education and the overall distribution of wealth in the state. It's also a look into how we might societally identify a place of abundance and invite the sharing of those gifts.
Despite championing progressive policy on LGBTQ+ rights, the environment, and declaring itself a sanctuary state for immigration, Washington's tax code is something of an oddity. Up until 2021, the state had the most regressive tax system in the country (literally: ranked 50th out of 50 states). Specifically, this means that the lower your income, the higher a portion of that you would pay in total taxes; prior to 2021, a family in the 20% poorest income bracket would pay an average of 16.8% in their income, vs. 2.1% for the top 1%.
In 2021, the state legislature passed a 7% excise tax on long-term capital gains over $250,000 (raised to $262,000 in 2023). The details are important here, and at the risk of stating the obvious, this is a very high floor for even triggering the tax (in fact, the highest of any of the 41 states that tax capital gains). For example, if you were to sell $1 million of stock that had appreciated at roughly the average market rate (10-11% per year), you could realize two years worth of gains (a profit of over $200,000) without paying a single dollar to the new tax. (For reference, compare this to the state median income, which is well under $100,000.)
Of course, even if you had those kinds of assets, it's rare that you'd have to sell them all at once. Given all that, I hope it's clear that we are talking about needing a staggering amount of wealth and immediate desire for capital to even start thinking about the implications of this tax. Nevertheless, Washington has plenty of people who have landed over this threshold, and as of the beginning of 2024, the tax had raised $896 million in revenue.
It's worth also mentioning why these kinds of contortions are needed to pass a tax in Washington in the first place, and that goes back to the state constitution. Since the 1930s, courts have held that there is a constitutional prohibition on income taxes based on a broad reading of Article VII, making a more standard attempt at taxation fraught with legal hurdles. Indeed, the capital gains tax still faced a legal challenge, but was upheld 7-2 by the Washington Supreme Court.
Written into the law itself is the requirement that this money be used to fund education throughout the state, with the first $500 million being used for programs, and any funds above that being used for school construction. When districts like Seattle are facing deficits on the order of $100 million, this money is urgently needed: the same households in the bottom 20% of income that pay the highest share of taxes are also the most dependent on public education.
I think it's also important to remember that, in the broader national context, this tax is still relatively modest, and isn't breaking fundamentally new ground. As mentioned above, many states tax capital gains at higher rates, and this tax only moves Washington one spot up in terms of its overall tax structure (now we're number 49!)
Of course, we don't need to be 49th, and Washington State actually has the chance to lead on this issue, should it choose to do so. Legislators like Senator Noel Frame and Representative My-Linh Thai are continuing their work to build support for a wealth tax (per Thomas Piketty and others, supported by a large majority of Washingtonians). Wealth has been and continues to be deeply racialized, and a more equitable distribution of wealth is directly linked to a more racially equitable society.
Here are this week's invitations:
Personal: How does the state of public education affect you and the people you interact with?
Communal: How do we create communal norms of abundance and generosity?
Solidarity: Support the Washington State Budget and Policy Center and their work to advance economic justice for everyone in Washington.
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