(The Center Square) – Possible increases in property taxes and business and occupation taxes have garnered the lion’s share of headlines this legislative session, as has a possible statewide payroll tax and a proposed wealth tax that now appears to be off the table.
Flying somewhat under the radar: rumblings that Washington lawmakers are considering raising the state’s capital gains tax to bring in more revenue.
Washington, which faces a projected operating budget shortfall of up to $16 billion over the next four years, imposes a 7% tax on gains over $270,000 from the sale or exchange of long-term assets like stocks, bonds and business interests.
The idea of raising the capital gains tax rate, however, is not new. In December, Sen. Noel Frame, D-Seattle, emailed a “2025 Revenue Options” presentation to fellow Senate Democrats. She accidentally sent the email to Senate Republicans, too, which quickly reached journalists and was shared online by some lawmakers.
According to the presentation, Democrats considered raising the capital gains tax rate to 9% or imposing a higher rate for gains in excess of $1 million.
The capital gains tax brought in more than $780 million in tax year 2022, but saw a major decline in tax year 2023, bringing in just under $417 million, according to the Washington State Department of Revenue.
The capital gains tax came up at press conferences held earlier this week by the leadership of both parties.
Senate Majority Leader Jamie Pedersen, D-Seattle, didn’t rule out upping the capital gains tax.
“That is absolutely possible to be a tool,” he said of a capital gains tax hike perhaps being part of a revenue package.
Republicans had quite a bit more to say about the prospect of an increased capital gains tax.
GOP leadership noted the volatility of Washington’s capital gains tax amid massive recent stock market fluctuations caused by President Donald Trump’s imposition of tariffs on all U.S. imports.
“I mean, that was one of the chief critiques that Senate House and Senate Republicans had when the capital gains tax was first enacted, that it is wildly volatile,” Rep. Drew Stokesbary, R-Auburn, said. “And it is not wise to have so much of your budget based on such a volatile revenue source. And not only is it volatile, but it is highly correlated with the economy and stock market.”
The House Republican leader went on to say, “And, yes, I suspect that if national politics disrupt the stock market for more than a couple days, if this becomes an ongoing thing, then I’m sure the next revenue forecast will significantly downgrade revenue collections from the capital gains tax.”
His colleague in the Senate agreed.
“We’ve already seen the revenue from capital gains go dramatically down because people adjust their behaviors,” Sen. John Braun, R-Centralia, said.
The capital gains tax was created by the passage of Senate Bill 5096 in 2021, despite major opposition from business and retail advocates, based on concerns about the tax’s instability and the potential for wealthy Washingtonians to move out of state.
“The people who would pay this tax have other options for investment outside of Washington state, have other options for living outside of Washington state – think Jeff Bezos – and they’re going to take those, and we’re not going to see the revenue, and we’re going to destroy Washington’s economy,” the Senate minority leader said.
In March 2023, the Washington State Supreme Court ruled the capital gains tax was constitutional.
Billionaire Amazon founder Bezos stopped selling stock once the tax took effect and resumed selling shares once he established residency in Florida in November 2023, having moved from Seattle.
“The capital gains tax, I mean, it’s a tax on investment,” Braun said. “It’s a tax on innovation. Both things that have served Washington’s economy well. The notion that we’re going to raise the rate – it’s just going to drive those things away from Washington.”
Carleen Johnson contributed to this story.
