(The Center Square) – A proposed capital gains tax in Seattle failed to get a “pass” recommendation out of the Select Budget Committee, with Council Bill 120908 garnering a 4-4 vote, including one abstention.
Sue Romero, communications strategist with the Seattle City Council explained that “although it’s unlikely to pass given today’s vote tally, the cap gains excise tax will be voted on again on Thursday. Technically it advances without a ‘pass’ recommendation from the committee.”
The tax would impose a local 2% capital gains excise tax applicable to non-retirement financial gains over $250,000.
The state levies a 7% tax on the sale or exchange of long-term capital assets such as stocks, bonds, business interests, or other investments and tangible assets. The tax is only on gains over $262,000, adjusted for inflation.
These residents would see a 6.5% to 9% increase in tax burden depending on the capital gains amount and the federal tax rate. However, they could have avoided the tax through a loophole.
The tax is based on where a taxpayer’s permanent residence is located, which means residents with multiple Washington addresses could make a simple switch on their permanent address and avoid the tax.
The Center Square previously reported on the potential exodus of Seattle’s wealthiest residents if this tax had been approved. In 2023, 816 taxpayers in Seattle paid the state capital gains tax. Out of the 816, 163 paid 85.7% of the state capital gains tax.
Seattle City Councilmember Cathy Moore is the prime sponsor of the capital gains tax bill. She said her office received messages from subjected residents who were worried the tax would push them out of the city.
“To those individuals, I want to be very, very clear that this is not an income tax – we are not taxing wages, we are not taxing earnings,” Moore said during Tuesday’s Select Budget Committee meeting. “This is an excise fee that would be paid once somebody has sold their stocks or bonds and they have received over $250,000 in profit.”
Retirement accounts, real estate sales, condemnations, livestock in the conduct of a farming and ranching business, timber, commercial fishing privileges, and goodwill from the sale of auto dealerships would have been exempt from the local capital gains tax.
Councilmember Rob Saka rejected the bill and called the proposal “the right tax at the wrong time.”
Seattle City Council Chair Sara Nelson also rejected the bill. She pointed out that the Office of Economic and Revenue Forecasts’ memo for the proposed tax anticipated that the long-term effect of the tax on economic activity in the city would likely be negative, if passed.
Moore originally proposed the tax to support the city in securing progressive funding sources as the city continues to deal with budget challenges in future years.
Moore previously said the tax proposal has broad public support as shown by a majority of Washington voters rejecting Initiative 2109, which would have repealed the state’s capital gains tax.