Is a Controversial Capital Gains Tax Headed for Repeal?

Editor's Note: Washington's capital gains tax is on the November state ballot. For more information, see our latest coverage: Capital Gains Tax Repeal on Election 2024 Ballot.

Debate over capital gains taxes continues. The Washington Supreme Court upheld the state’s controversial 7% tax on the sale or exchange of long-term capital assets last year. Now, a conservative group, Let's Go Washington, is spearheading efforts to eliminate the tax.

The organization, also fighting Washington’s long-term care payroll tax, recently gained momentum by submitting over 433,000 signatures to the Secretary of State's office to repeal the capital gains tax. The signatures could eventually help the group place the disputed taxes on the November 2024 ballot, where voters could decide their fate.

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Capital gains tax

The capital gains tax in Washington was initially introduced to establish a more progressive tax system. As Kiplinger has reported, after being upheld by the state’s Supreme Court, the controversial tax, which imposes a 7% tax on profits exceeding $250,000 from stock and bond sales, generated nearly $900 million in its first year.

• Only the portion of gains above the threshold is subject to the tax, and some assets are exempt. 
• A relatively small number of Washington taxpayers are subject to the tax.

Opponents of Washington's capital gains tax have argued that capital gains should be treated as income and subject to property tax laws. The state constitution limits property tax to 1%, meaning the proposed 7% capital gains tax would violate the constitution. However, the state's highest court has upheld the tax as a legal excise tax. Last summer, the Freedom Foundation appealed to the U.S. Supreme Court, asking the Justices to take up the case. However, the High Court recently issued an order indicating it would not hear the case.

Let's Go Washington, primarily sponsored by Redmond hedge fund manager Brian Heywood, proposed a ballot measure (1-2109) to let Washington residents decide whether to keep the capital gains tax. Here is the summary: 

“This measure would repeal an excise tax imposed on the sale or exchange of certain long-term capital assets by individuals with annual capital gains of over $250,000.”

The signatures were certified on Jan, 24, meaning the initiatives will be presented at the legislative session that began on Jan. 8. According to the state constitution and local reporting, lawmakers can either accept, reject, or propose alternative policies. 

If they decide to reject the proposals, as they have reportedly done, the measures will be put on the November ballot. The measures would also be included on the ballot if lawmakers had instead proposed alternative policies. (In that scenario, the alternatives and initially proposed measures would be included on the ballot.)

Cost of long-term care

Meanwhile, Let's Go Washington is also challenging a new Washington payroll tax through a legislative initiative that would allow Washingtonians to opt-out.

The WA Cares Fund is financially supported by a first-of-its-kind state payroll tax. Its main objective is to help eligible families struggling with the high costs of long-term care. Traditionally, some of these costs were covered by long-term care insurance. Here, the funds to help residents pay long-term care expenses come from payroll tax deductions of 0.58% of residents’ wages.

Notably, data show that 35% of long-term care beneficiaries are below 65 years old. Additionally, according to A Place for Mom, a senior care network, the average cost of long-term care in Washington state is over $5,100 per month. 

• WA Cares provides qualifying Washington residents access to up to $36,500 beginning in 2026.
• Proponents have said that more than 3 million Washingtonians could benefit from the program.

Some critics of WA Cares argue that it is unpopular and poorly designed. Others say the program doesn’t provide sufficient benefits and that Washington state, one of nine in the U.S. without a personal income tax, doesn't need another payroll tax. Several states, including California, are considering long-term care payroll taxes.

Let’s Go Washington has submitted nearly 425,000 signatures in support of an opt-out, which some proponents of the payroll tax worry could financially hamper the program. The ballot measure summary for initiative 1-2124 reads as follows: 

“This measure would amend state law establishing a state long-term care insurance program to provide that employees and self-employed people must elect to keep coverage under RCW 50B.04, allow employees to opt-out of coverage under RCW 50B.04 at any time, and repeal a current law governing exemptions for employees who had purchased long term care insurance before November 1, 2021.”

Washington state

Let's Go Washington's current legislative initiatives extend beyond Washington’s capital gains and long-term care taxes. Other measures involve income tax, law enforcement pursuits, parental control in education, and environmental policies, including a proposal to end the state’s carbon tax. For more information on these initiatives, visit the organization’s website. 

For more information about the Washington payroll tax, visit the WA Cares program website. For details on the Washington capital gains tax, see Kiplinger’s report on the Washington Supreme Court's decision to uphold the tax and visit the Washington State Department of Revenue website.

Related

• State Tax Changes: What's New for 2024
• Controversial Capital Gains Tax Upheld in Washington
• Is a Capital Gains Tax Dispute Headed to the U.S. Supreme Court?