(The Center Square) – A novel tax proposal out of Washington state could perform better than expected after a report published Monday disputed claims that higher rates would drive millionaires out of the area.
The findings follow the Washington State Legislature passing budgets on Sunday to close a $16 billion shortfall. Gov. Bob Ferguson promised to veto a plan that relied too heavily on a new wealth tax, but that didn’t stop the Senate from passing a watered-down version of a wealth tax with a symbolic vote. The proposal was not debated in the House.
Many critics argued that a wealth tax would lead to the richest people moving to other states, but the Institute for Policy Studies, a progressive think tank, found the opposite.
“Both Massachusetts and Washington serve as critical test studies on the actual impact of fairly taxing the rich,” IPS researcher Omar Ocampo wrote in a news release. “Taxing high-income individuals at a higher rate is not disruptive and did not cause a mass exodus of millionaires.”
The IPS report analyzed the impact of Washington’s capital gains tax that passed in 2022.
Critics called the measure a wealth tax, levying a 7% fee on long-term profits over $270,000. Regardless, the report found that the state’s millionaire class grew by 46.9% and saw its wealth increase by $748 billion in the two years following the passage of the capital gains tax.
According to the study, Washington’s millionaire class went from over 463,000 in 2022 to more than 681,000 by 2024. Meanwhile, the number of residents with a net worth of over $50 million increased from 2,060 to 2,939, a similar 42.6% increase over the same period.
The capital gains tax raised $1.2 billion during those two years, and the report suggests another 2% wealth tax on individuals with more than $50 million could generate $8.2 billion for the state.
“This new analysis confirms that when the rich pay their fair share of taxes, we all benefit — including the wealthy,” Amber Wallin, executive director of the State Revenue Alliance, wrote in the release. “For years, we’ve had so-called experts claim that higher taxes will mean that wealthy people flee – it’s never been true, but these results show how wrong they were.”
However, some people did leave the state; in fact, one of the richest people in the world left, Jeff Bezos. The Amazon founder stopped selling his stocks when the capital gains tax took effect, avoiding over $1 billion in taxes to Washington state once he moved to Florida.
A proposal in January would’ve established a 1% wealth tax on individuals with a net worth of more than $250 million. According to a fiscal note, it would have raised $3.2 billion annually, but Ferguson was worried about how it could impact the state’s shortfall if the courts intervened.
A novel wealth tax is bound for legal challenges, much like the capital gains tax faced before the Washington State Supreme Court ruled it was constitutional. Ferguson said he’s open to the idea, but it would need to generate around $100 million or less in the first year for his approval.
The version passed on Sunday would have raised about $4 billion annually in its original form by taxing intangible assets owned by residents with $50 million or more. While it failed in the House, the Democrats lowered the rate from $10 to 34 cents per $1,000 of value, which would’ve also dropped the estimated revenue generated.
“Shared prosperity is not a pipe dream. State governments have a key role to play in fairly taxing the ultra-wealthy to help close existing inequality gaps and ensure equal opportunities for all,” Ocampo argued in the release. “The bottom line is: taxing the rich fairly works.”
