Inslee Signs Capital Gains Tax, Working Families Tax Credit Bills

TUKWILA, WA — Gov. Jay Inslee is celebrating the passage of two pieces of legislation aimed at improving Washington's regressive tax system.

"This is a day where Washington state starts to make progress on making our upside-down tax system fairer and more equitable," Inslee said at a signing event Tuesday in Tukwila. "Today, we are taking steps to address this out-of-date system where working families pay a much higher percentage of their income than those who make a lot more.”

At the Tukwila Community Center Tuesday, Inslee signed both pieces of legislation into law.

The first, the Working Families Tax Credit, a bill that finally fully funds a tax credit that passed back in 2008, but had remained underutilized. Thanks to the fixes in the new law, next year working families will receive $300 per year from the tax credit. Families with three or more children will be eligible to receive up to $1,200 each year.

“This is personal for me," said Patty Liu, an advocate with MomsRising who attended the signing. "Full time child care for both my kids costs more than our house and car payments combined. Even with a good job, my salary just barely covered the cost. This pandemic didn’t cause these problems, it has only laid bare for everyone else to see what us moms, and particularly moms of color, have long known. The system we have now isn’t working. And when child care doesn’t work, neither can we."

The second and more controversial proposal signed by the governor was the new capital gains tax. That bill creates a 7 percent tax on all capital gains — like the sales of stocks, bonds and other high-value assets — above $250,000 a year. The bill provides several exceptions for gains like real estate and retirement accounts, enough that lawmakers estimate only around 7,000 Washingtonians will ultimately end up paying the tax.

A lawsuit has been filed to prevent the tax from going into effect. Opponents argue the tax is a form of income tax, and therefore forbidden by the state constitution. Proponents argue that the tax is an excise tax untethered to income.

If the bill can hurdle the legal challenge, the new tax will go into effect Jan. 1, 2022 with the first payments due April 17, 2023.

Taken together, lawmakers hope the legislation could become the first of many steps addressing the state's imbalanced tax code. According to the governor's office, low-income Washingtonians pay around 17 percent of their income in taxes, while middle class families pay around 11 percent and the state's wealthiest earners pay just 3 percent.

“Together, these two historic pieces of legislation represent the biggest improvement in Washington’s state tax code in at least 90 years,“ said Budget & Policy Center executive director Misha Werschkul "With the passing of these bills, 400,000 low- and middle- income Washington households will become eligible for a direct cash refund every year. We’re going to pay for new investments in child care with a capital gains excise tax that will be paid by a tiny fraction of the very wealthiest Washingtonians – but will benefit all of us."