Senate majority leader says repealing the state's capital gains tax will be 'even worse than we thought'

Feb. 12—Repealing the capital gains tax will result in effects "even worse than we thought," Senate Majority leader Andy Billig, D-Spokane, said in a statement to The Chronicle Friday.

The comment comes after a fiscal note prepared by the Office of Fiscal Management estimated Initiative 2109 would result in a $5.66 billion reduction in education funding through 2029.

"The initiative would reduce K-12 funding and devastate early learning and child care programs relied on by families across Washington," Billig said in a statement. "For many parents, these programs are essential in order for them to have a family and a career. For businesses, these programs are essential to meet their workforce needs. For kids, early learning is the best way to get a strong and healthy start to their education."

The 7% tax, passed by the Legislature in 2021, applies to earnings on bonds and stocks over $250,000 a year. When signing the bill into law, Gov. Jay Inslee estimated that less than 1 percent (.23%) of Washingtonians would pay the tax. Forty-one other states, and the District of Columbia, tax capital gains.

"The capital gains tax is paid by approximately 3,300 of the richest households in our state — including just eight in Lewis and Skamania Counties combined — but all 8 million Washingtonians feel its benefits every day," Billig said Friday.

If passed, I-2109 would cost the state $1.6 billion in revenue through fiscal year 2025, $1.92 billion in revenue between fiscal years 2025 and 2027 and $2.13 billion in revenue between fiscal years 2027 and 2029, the fiscal note shows.

"The governor has said the capital gains tax is a tool that not only helps us address our regressive tax system, it also provides significant support for our schools," Mike Faulk, a spokesperson for Gov. Jay Inslee, said Friday. "This demonstrates that."

Fiscal notes on three other initiatives — the prohibition of a state income tax, a parental bill of rights and reforming police pursuit requirements — show the proposals would have minimal to no impact on the state's budget.

As of Friday, fiscal notes on proposals to repeal sections of the Climate Commitment Act and to allow residents to opt out of the state's long-term care program weren't available.

All six Initiatives to the Legislature have been certified by the Secretary of State. If legislators fail to act during the current session, the initiatives will appear on the November 2024 ballot.

"Bureaucratic fiscal notes always reflect bias. This one does, too. I-2109 doesn't reduce funding for education at all. Zero," GOP Chairman Jim Walsh said in a statement to The Chronicle Friday. "The state government has doubled its spending in a decade and it is still running billion-dollar budget surpluses."