In 2017, Jeff Bezos sold over $1 billion in stocks to fund his dubious plan to move "dirty industry" off the planet and "send the vitamins down to Earth."
If he lived in any one of the 41 states (plus D.C.!) with a capital gains tax, which would have taxed the profit he made on that transaction, he would have paid hundreds of thousands of dollars to the state. But because he lives in Washington, he didn't have to pay a dime. That money could have helped fund our special education needs (which are dire!) or our housing needs (also dire!), but, thanks to the concerted efforts of Republicans and conservative Democrats in Olympia over the last seven years, Washingtonians got nothing.
That can change, but only if you want it.
As you may have heard by now, according to the Institute on Taxation and Economic Policy, Washington has the most unfair tax structure in the country. We're worse than Texas, Florida, South Dakota, Nevada, and Tennessee—in that order.
How much worse? Low-wage earners in Texas pay 13 percent of their income in taxes, whereas low-wage earners in Washington pay nearly 18 percent of their income in taxes. For comparison, people making the least amount of money in Idaho only pay 9.2 percent of their income in taxes.
Meanwhile, the top one percent in Washington—people making more than $545,900 per year—are only paying three percent of their income in taxes.
That means poor people are paying six times more of their income on taxes than rich people in this state. And middle-income people are paying two to three times more than rich people. At this point, it's genuinely surprising to me that people haven't been breaking into the mansions of Medina en masse and stealing all the bad, expensive art they can find.
Passing an excise tax on capital gains is the absolute least thing the politicians in Olympia can do right now to help create a fairer tax system, and to increase revenue that would help pay for basic education, mental health care, regular ass health care, and whatever we need to do to keep the goddamned orcas from carrying around their dead children for weeks.
A modest tax would increase rich peoples' contribution to the public good by approximately 1.5 percentage points, making their share closer to 4.5 percent of their income, according to Misha Werschkul, executive director at Washington State Budget and Policy Center. "This still means wealthy people in Washington would pay an effective tax rate less than almost any other state, but is one of the most progressive tax changes in Washington since the elimination of the sales tax on food in the late 1970s," she said in an e-mail.
Last December, Governor Inslee included a capital gains tax in his budget. And right now, legislators are considering two different capital gains proposals that would help turn the state's upside-down tax structure right-side up. Senate Bill 5314 and House Bill 1172 tax capital gains at 9 percent, but they use half of the revenue to lower property taxes. The other plan, SB 5129 and HB 1343, taxes capital gains without the obligation to offer property tax "relief." Both bills would bring in approximately $1 billion per year starting in 2021. We'll talk about which bills are better in a second, but first...
What Is a Capital Gains Tax?
A capital gains tax is a tax on the profit from the sale of investments.
Let's say, for instance, that you're one of the 54 percent of people who own stocks. While you're out working your challenging job, those stocks, on average, are just sitting there appreciating in value. You're not doing anything to increase the value of those stocks, but you will likely benefit from them in the future. You're essentially making money for doing absolutely nothing.
Right now, if you sell those stocks and make a large enough profit off them, the federal government takes anywhere between 10 and 37 percent of that profit from stocks you've had for less than a year, and anywhere between 0 and 20 percent of the profit for stocks you've had for more than a year. How much you get taxed depends on how rich you are.
The Details of the Proposals Plus a Short Explanation of Why I'm So Mad Right Now
• If the tax passes, any profit a person makes from the sale of longterm stocks, bonds, and other assets over $25,000 will be taxed at a rate of 9 percent. For joint filers, that bottom threshold is $50,000.
So if you bought stocks for $20,000 and then sold them for $50,000, you would make $30,000 in profit. The state would then tax $5,000 of that $30,000 profit—i.e. the amount of money you made above the $25,000 threshold—at 9 percent, which means you'd have to pay $450 on that transaction. Congratulations, you're still rich.
• There will be exemptions for the sale of all residential real estate, retirement accounts, farms and cattle, farmland equipment, "small business equipment," and timber.
• This tax will only effect 42,000 of the wealthiest households in Washington state, the vast majority of whom are millionaires and billionaires. According to the Budget and Policy Center, 67.4 percent of all capital gains in Washington were claimed by people whose annual income was $1 million or more. So, chances are that's not you.
• Why am I so mad right now? Mostly because Washington doesn't even have an income tax in place. The fact that legislators are only considering taxing capital gains at 9 percent when the federal government takes more than that and imposes a federal income tax shows you how delicately these politicians dance around the concerns of rich people. Democrats and Republicans should be FURIOUS that a tax structure they completely control impoverishes so many of their constituents while only making their richest ones wince.
Even Wealthy People Like This Tax
Back in 1983, Ruth Lipscomb got a job as a programmer at a start-up. After working there for only 10 years, she was able to retire with plenty of money in the bank. She hasn't worked since. That start-up, of course, was Microsoft.
Over the phone, Lipscomb said she didn't work any harder than anyone else, she just "happened to hit the lottery of choosing the right career and the right company."
Lipscomb calls capital gains "the best things to tax" because they're totally unearned income. "They’re not paying for someone’s labor," she said. "People like me, who have been retired forever—I don’t have to do anything to get that money. And there’s no reason why the state shouldn't have some minimum tax on that."
Lipscomb assured me that such a tax wouldn't send rich people to the poor house. "It’s paid once a year, so it’s an ouch when you write the check, just like it’s an ouch when you renew your car tabs, but you still eat dinner at the same restaurant you were going to eat at that night," she said.
Some of her wealthy friends—people like Nick Hanauer, Sonya Campion, and 100 others—have signed a letter to the Governor in support of the legislation. But some of her other millionaire friends aren't quite there yet.
A couple weeks ago she was out to dinner with some friends who told her they were against the capital gains tax not because it'd hurt their pocketbook, but because "they don't see the reason to give the government more money." They weren't pushing back because of the mechanics of the tax, they were pushing back against taxes in general.
Lipscomb's friends sound like typical Republicans—and a couple Democrats—in Olympia.
Will the Tax Pass?
Democrats in the Legislature have proposed a modest capital gains tax nearly every session for seven years, and, because of Republican rule and the recalcitrance of conservative Democrats, they've all gone down in flames. With healthy Democratic majorities in the House and Senate, it's possible, but not at all certain to pass this year.
Republicans argue that the capital gains tax is really an income tax, which is currently illegal in Washington state. This argument, however, is dumb. A capital gains tax is not an income tax. It's an excise tax. As we've discussed, states impose an income tax on labor, whereas states impose capital gains tax on money you get when you sell an asset. The capital gains tax is closer to the real estate excise tax than an income tax.
Nevertheless, if the tax passes, Republicans will likely challenge the law in court, which could delay implementation for a couple years. "You hear it’ll be tied up for a decade, some people say the Supreme Court will take it right away, it’s hard to predict," said Werschkul. All the more reason to pass the legislation ASAP.
However, the legislation faces resistance from Democrats, too. Right now, Sen. Mark Mullet of Issaquah, who sits on the Ways and Means Committee, is a hard no on a capital gains tax. "Over the last year, state revenues have grown from $44 billion during the budget cycle to $50 billion. With that level of revenue growth, I don’t support creating new taxes," he said in an e-mail.
It's true that the Washington State Economic and Revenue Forecast Council increased the Near General Fund forecast for the next budget cycle to a little under $50 billion, an increase of 9 percent. But the state's baseline budget has grown by 14 percent this year, thanks largely to the financial commitments the Legislature made to K-12 education following the McCleary decision. So revenue has increased, but so has the basic shit we need to fund.
That revenue increase, by the way, is mostly due to "an increase in housing values." And that increase still comes at the expense of non-wealthy people. Mullet and others who think like him want to double down on a broken system, rather than help fix it and raise revenues for stuff we need at the same time.
In any event, Sen. Guy Palumbo, another Democrat on the Ways and Means Committee, declined to comment on his support for either of the two capital gains bills.
Citing the fact that Democrats haven't discussed capital gains as a caucus yet, Sen. Steve Hobbs says "he hasn’t made decisions" on support for a capital gains yet.
Things might look a little better in the House, though lawmakers are still cautious. Rep. Laurie Jinkins, who has introduced the capital gains bill in the House for the last seven years, told me over the phone that she "sure as hell hopes" it'll pass this year.
"It's way too soon to predict," Jinkins said. "When I first filed the bill, members had no idea what an excise tax on capital gains was. We're now in a place where members very clearly understand what it is and understand how it would address the revenue challenges that face us."
"What Steve Hobbs said is really true," said Rep. Gael Tarleton, who chairs the Finance Committee and who sits on Appropriations along with Rep. Jinkins. "The Senate hasn't even discussed or considered this, whereas the House has been discussing it for seven years."
Rep. Tarleton said she expects to be talking about the Governor's proposal more routinely, and that by the end of this week the caucus will have a better picture of "the bills that have passed, the bills that are dead, and what we want to buy."
As for recalcitrant Democrats, Rep. Jinkins says pushing people on the bill right now isn't going to get Washington any closer to passing a capital gains tax. "There are a lot of dials you can turn to get to the right spot with regard to exemption amounts, but if you try to push people into a yes or no, you're backing people into the corner," she said.
"I like to think of the budget process as a baseball game," Rep. Tartleton added. "We're in the first few innings, and it's amazing what can happen when we get to endgame and we're in the 7th or 9th inning."
That said, both lawmakers agree that now is the time for supporters to get into the heads of their representatives and encourage them to support the bill. So, you know, if you're not doing anything over lunch, you might give your State Senate and House reps a ring.
During an interview last month, House Speaker Frank Chopp told me he thought the capital gains proposal that includes a property tax relief bill had the best chance of gaining support. But requiring half of capital gains to go to property tax sucks because it diverts a substantial amount of money away from badly needed services to lowering one of Washington's more progressive taxes. Yes, some people are house rich and cash poor, but implementing something like Sen. Rebecca Saldaña's Working Families Tax Credit could go some way in addressing that problem.
But no matter what, Bezos is going to keep spending $1 billion worth of his Amazon "winnings" on his sci-fi vanity project. The longer legislators drag their feet on capital gains, the longer he and wealthy people like him get to keep dreaming of space without meaningfully helping to solve the problems we have down here on Earth.