OLYMPIA — Democrats in the Washington Legislature introduced a measure Thursday to tax Washingtonians who have more than $250 million.
The state would tax 1% of the fair market share of a Washington resident’s wealth like stocks, bonds or other assets, but the first $250 million would be exempt.
The move is part of a nationwide campaign, unveiled this week, to tax wealthy residents. Washington is joining state legislatures in California, Connecticut, Hawaii, Illinois, Maryland, Minnesota and New York in similar efforts.
“We are here to put billionaires and ultramillionaires on notice that it is time that they pay what they owe and that state legislators are the ones to make them do it,” said Sen. Noel Frame, D-Seattle, who is sponsoring the bill.
The proposal is already receiving opposition from Republicans.
“There’s no financial justification for adding more taxes in our state,” Senate Republican Leader John Braun, of Centralia, said on Tuesday, before the text of the bill was released Thursday. “Just doesn’t make any sense.”
In Washington, which has no income tax and is home to some of the world’s wealthiest people, the proposal is another attempt to balance a tax structure that critics say requires low- and middle-income residents to pay a disproportionate share.
Washington does have property and estate taxes, but the property tax exempts intangible property like stocks and bonds.
The proposal lands amid an ongoing battle over another state tax. Next week, the Washington state Supreme Court is due to hear oral arguments in a lawsuit challenging a new tax on capital gains passed by lawmakers in 2021. That measure taxes profits greater than $250,000 on the sale of stocks, bonds and other investments.
A wealth tax of 1% with $250 million exempted could raise about $3 billion annually, according to an October analysis by the state Department of Revenue. It would affect about 700 Washingtonians, Frame said.
According to this year’s proposal, the money raised through the tax would go to education, housing, disability services and tax credits for low- and middle-income families.
Washington lawmakers twice failed to pass a similar tax in 2021 and 2022, on intangible assets of $1 billion and more.
“By extending the property tax to include financial assets, the Washington state wealth tax ensures that extremely wealthy Washingtonians, including some of the richest people in the world, are taxed on their assets, just like middle-class families are already taxed on theirs,” Frame said.
Frame said that while she believes the proposed tax is constitutional, she expects it would face a legal challenge if were to pass.
Jared Walczak, vice president of state projects at the Tax Foundation, a right-leaning think tank that researches tax policy, said countries that have imposed wealth taxes have backtracked after seeing residents leave.
“Policymakers recognize them as both economically destructive and as driving people out of those countries,” Walczak said. “And it is, of course, much easier to leave a state than it is to emigrate from a country. So that risk is even more pronounced in the United States.”
But Emmanuel Saez, professor of economics at the University of California, Berkeley, who spoke Thursday at a news conference of state legislators across the country proposing wealth taxes, said he did not expect “the mobility response to be that large.” He pointed to California and New York, states that already have “progressive” income tax systems.
“It shows you right there, you know, that the effect of higher taxes on the wealthy cannot drive away all the rich,” Saez said.
Frame said “we had those same threats two years ago when we passed the capital gains tax,” and yet Washington has not seen a “mass exodus of wealthy people.”
“Our economic fundamentals are very, very strong,” Frame said of Washington and the other states proposing wealth taxes this week. “When we talk about the core fundamentals of economic competitiveness, it’s about the investments that we make in our states. Our public institutions, our education, our transportation. That’s why the wealthy bring their businesses to our state, because we’ve got the pool of talent here.”
Walczak said revenue brought in by the tax could fluctuate significantly if even a few taxpayers with enormous wealth relocate to another state, and the tax could cut sharply into any gains wealthy people make.
“Wealthy individuals are the source of venture capital for new firms,” Walczak said. “They are important for everyday investors who are, you know, in the stock market. They are important for the overall economy. If investment becomes prohibitively expensive in some cases, if more investments aren’t worth the return, that affects everyone.”
It’s also “extremely difficult” to assess a person’s wealth as opposed to their income, and it’s not established that states can tax assets in other states, he said.
Gov. Jay Inslee, speaking to reporters Thursday, said he was “not opposed” to the proposed wealth tax, but he hadn’t seen specifics.
“I’m appreciative of the leadership that are bringing ideas to bring more equity to our state,” he said.
