WA schools would lose nearly $6 billion if initiative to repeal capital gains tax is approved
Washington state could lose nearly $6 billion in funding for education, early learning programs, and childcare over five years if an initiative to repeal the capital gains tax is approved by voters, according to a fiscal note released by the Department of Revenue Thursday, Feb. 8.
The capital gains tax, signed into law in 2021, imposes a 7% tax on profits over $250,000 from the sale of assets including stocks, bonds, and mutual funds. The tax is paid by a small percentage of wealthy Washingtonians.
Farms, real estate, retirement, and many other accounts are exempt from the capital gains tax.
But Initiative 2109, sponsored by Let’s Go Washington, makes the future of the capital gains tax — and the funding for schools and their construction the tax supports — unclear, as the proposal to repeal the tax will go before voters on the November ballot.
Revenue from the capital gains tax is added to the Education Legacy Trust Account and the Common School Construction Fund.
I-2109 was certified by the Secretary of State in January. Lawmakers have a month left in the session to introduce an alternative proposal to go on the ballot with the initiative, let it go to the ballot as is, reject the initiative or take no action at all.
With a Democratic majority who enacted the capital gains tax, lawmakers have not had much interest in conducting hearings on the initiative to repeal it. The lack of hearings has angered many Republicans.
Democrats have similarly ignored Republican lawmakers’ repeated calls to hold public hearings on the five other certified initiatives, all of them also sponsored by Let’s Go Washington.
On Tuesday, Feb. 6, ranking House Republican members and assistant ranking members sent letters to House committee chairs and vice chairs urging them to hold hearings on all six initiatives.
“Over 400,000 Washingtonians signed each of these initiatives, telling us that these are important public policies that should be adopted,” said Rep. Ed Orcutt, R-Kalama, and Rep. Cyndy Jacobsen, R-Puyallup, in a letter. “Their voices deserve to be heard in the legislative process.”
They noted too that the Washington Constitution directs lawmakers to “extend ‘precedence’ to certified initiatives to the Legislature.”
“Although no case law specifically addresses what ‘precedence’ entails, we believe that at the very least it requires the Legislature to engage in formal consideration of the policy brought before us by the people,” they wrote. “The way each chamber begins its formal consideration of a policy is through a public hearing.”
Democrats, when pressed why the initiatives have not yet had hearings, have argued that many initiatives in prior years have not had hearings during legislative session, and instead have gone directly to ballots. Their main focus this year, they say, is passing policy bills before a firm deadline, whereas initiatives are not subject to a rigid cutoff date other than adjournment.
House leaders also have said in news conferences that conversations are happening in the background to determine the legal and financial impacts of the initiatives.
The legislative session ends on March 7.
The Washington State Supreme Court upheld the capital gains tax as constitutional in March 2023. In January, the U.S. Supreme Court declined to hear the case.
The capital gains tax was introduced and passed in response to Washington’s regressive tax structure, and went into effect in 2022.
This story was originally published February 9, 2024 at 5:00 AM with the headline "WA schools would lose nearly $6 billion if initiative to repeal capital gains tax is approved."
