Washington state capital gains tax

21 Replies

Very interesting read.... Live to know the thoughts if people in this forum, especially people from seattle, washington or anywhere in washington state actually.

I just copied and pasted the article....

Gov. Inslee proposes capital gains tax for Washington
3 minutes ago

OLYMPIA, Wash. (AP) - Gov. Jay Inslee on Thursday proposed a new capital gains tax to help address a projected state budget gap of more than $2 billion over the next two-year budget cycle.

A state tax on the sale of stocks, bonds and other assets would raise nearly $800 million during the 2015-17 budget period, Inslee said.

Another new tax proposed by the governor this week would raise an additional $380 million for the state's general fund by charging polluters for carbon emissions. The governor also wants to increase the state cigarette tax by 50 cents a pack, as well as repeal five tax breaks.

Inslee says the state needs new money to answer a Supreme Court order to better pay for public schools andaddress environmental issues.

"It is time to reinvest in our state, and this budget does that," Inslee told reporters.

The governor's proposed tax and revenue changes add up to about $1.4 billion and are part of an overall $39 billion operating budget.

Inslee's wants to spend most of his budget - $18.2 billion - on public schools. Washington is under court order to increase the amount of money it spends on K-12 education. Social and Health Services would get $6.4 billion, the Health Care Authority would receive $4.4 billion and the state's colleges and universities would receive $3.4 billion.

The governor wants to levy a 7 percent capital gains tax on earnings from the sale of stocks, bonds and other assets above $25,000 for individuals and $50,000 for those who file jointly. The levy would begin in the second year of the biennium, or January 2016. Inslee says this would raise nearly $800 million and would affect less than 1 percent of families in Washington. Washington's capital gains tax would be less than similar levies in Idaho, Oregon and California, Inslee said.

He also said a proposed levy on carbon polluters would raise $380 million and a 50-cent per pack tax on cigarettes, along with a separate tax on e-cigarettes and vapor products, would raise an additional $56 million.

Inslee's plan would also repeal tax breaks on royalties and for oil refineries, limit sales tax exemption to $10,000 on trade-in value of used cars, and impose a tax on the sale of bottled water to consumers.

Inslee said Washington still faces an "enormous budget challenge" because revenues aren't keeping up with projected expenses, especially in light of the McCleary state Supreme Court decision mandating more education funding.

"We're still digging out of the massive hole left by the Great Recession," the governor said.

In his 2012 campaign Inslee said he wouldn't raise taxes. Asked why his proposed budget included tax hikes, the governor said the Legislature had failed to close tax loop holes and that more money was needed to pay for things like education.

""We simply have not been able to generate the revenue necessary," he said. "I have tried to avoid this route."

A recent state budget outlook released projected a more than $2 billion budget gap, in large part due to a new voter-approved initiative to shrink class sizes. That projected shortfall does not include half of the expected financial obligation needed to increase funding for education as directed by the state Supreme Court, nor does it count the additional amount needed if collective bargaining agreements with state workers are approved.

"Starve the beast." -Milton Friedman

I moved to WA because of its preferential tax climate.  It seemed a better place for me to make my daily toil.   State policy seemed to celebrate wealth creation, rather than confiscate it.  

This is a step in the wrong direction, then.  It would further incentivize a buy-and-hold strategy, where you access cash through HELOCs not sale transactions.  

Question: If you made a sale, could you avoid the CapGain tax by 1031ing into another property?

Yes you can still 1031 of course. I don't think the proposal said anything about 1031s

@Andrew Kniffin  and Account Closed 

IRC Section 1031 is a Federal IRS code and doesn't apply to state capital gains or state income taxes unless that stat's code would allow a tax free exchange.

With income inequality at historic levels and growing, I think this budget proposal represents a step in the right direction. It is clear that our state needs to raise new revenue and for once we have a plan that doesn't involve squeezing the middle class and poor. Washington already has one of the most regressive taxation systems in the nation since we raise nearly 40% of revenue through sales taxes. So other than going with a state income tax, a capital gains tax seems like a fair option.  

Hate it.  Agree that the education system and health care system need an overhaul, but throwing more money at broken systems is just throwing money away.  I might be more excited if there was a concrete plan to improve traffic and mass transit with it.  Maybe this will make Washington be a less desirable place to live and lower prices in Seattle metro, I can dream!  

The 1031 Exchange is a Federal code, but 49 states follow or observe Section 1031 of the Internal Revenue Code (Pennsylvania is the one hold out).  Generally, the states tax code taxes you on the recognized taxable gain and since the Federal code allows you to defer the taxable gain their is no tax to compute the state tax on.  It would seem likely that the State of Washington would follow suit, but we'll have to wait and see.

Alongside the 2% title transfer fee in Washington, I imagine this will have a negative impact on WA state flippers (7% on capital gain PLUS 2% on transaction price (basis)) and thus lead to more eyesores, and dilapidated houses.

@Bill Exeter  great input.  Thanks for sharing.  Certainly makes me more likely to consider 1031s!

Regressive?  

A tax that applies to everyone uniformly is no more "regressive" than the gallon of milk you buy at the store.  It is the same price (rate) for everyone, regardless of their status.  It does not favor one person over the other, and is thus nondiscriminatory.  

At our best, our laws and actions are colorblind.  Why shouldn't we aspire to do the same with our tax policy?

@Andrew Kniffin  

  and really effect those of us who live in PDX and flip in Vancouver... we not only get hammered with the exise tax you speak of .. but the cap gain .. then because we are Oregonians and every one wants to live here we get to pay the highest state income tax or at least one of the highest state income tax's in the country... But we have no sales tax. 

The other shoe that just dropped is the feds just sunseted the 250 million a year bail out they gave rural logging communites when they decided the spotted owl was more important than timber related jobs.. !!... Now those rural counties are really screwed. will be interesting to see were it all flush's out.. in the meantime rural Oregonians flock to PDX for work creating a house and rental shortage.. talk about a hot rental market  Sheesh.

@Bill Exeter  

Thanks for the clarification, I knew that PA doesn't recognize IRC 1031, but wasn't aware that it was the only state not to.

@Andrew Kniffin   actually a uniform tax that applies to everyone is the definition of regressive (see link) and sales taxes are a prime example of this. Uniform taxes may seem like a great idea at face value but the reality is that buying a gallon of milk has outsized impact on a minimum wage worker compared with someone with wealth. Would you also propose that people in poverty pay the same income tax rate as millionaires? I think our taxation system should support the success of individuals at all income levels rather than blindly apply uniform rates. 

@Michele Fischer   I too think that transportation in Washington needs a huge boost and in fact Inslee's plan has $12B dedicated toward projects across the state. And remarkably this is not funded through tax increases on everyday folks but instead is taxing big polluters. This plan has the dual benefit of improving our transportation infrastructure and taking action on global warming.

BP is not the place for a protracted conversation on tax policy, so I'll just make a few comments:

  • You advocate discrimination when you favor that the law treats people differently based on income. 
  • No one cries "foul" when milk costs the same to the prince as it does to the pauper.  Why is it so bad, then, for tax policy to do the same? 
  • Good intentions do not equal good results.  There are always unintended consequences of policy.  

@Andrew Kniffin   Well this thread is actually a discussion of tax policy based on the title...albeit a proposed capital gains tax rather than tax policy generally.

I agree with you that progressive taxation is discriminatory. However, we are allowed to legally discriminate in many instances (we can discriminate against pet owners and not let them rent our houses). And I agree there are always unintended consequences of government regulation/policy like inefficiency. But there are also unintended consequences of less taxation and deregulation (failing schools, and financial meltdowns). 

The crux of the issue is what represents a fair allocation of the burden for funding our government. Based on your statements you believe that even the poorest in our society should shoulder the same percentage share of this cost as millionaires. I think this is fundamentally destabilizing for society as it forces those already struggling into a downward spiral (pay your taxes or buy groceries for your family), and it is morally bankrupt.

So in bringing this full circle to the topic at hand, I applaud Inslee for proposing new sources of revenue to pay for improvements to our state that don't raise money on backs of the poor and middle class citizens.

@Garrett Poshusta I think your comments are fair.  Hope we can meet up sometime and talk further on these issues.  Don't know that we'll reach perfect harmony, but happy to try!

I'm a young father too in Seward Park area of Seattle...looks like you're up to some cool rehabs.  Good for you. 

@Andrew Kniffin Thanks! I'm up near the UW. The best path forward is usually somewhere in the middle.

Originally posted by @Andrew Kniffin :

Alongside the 2% title transfer fee in Washington, I imagine this will have a negative impact on WA state flippers (7% on capital gain PLUS 2% on transaction price (basis)) and thus lead to more eyesores, and dilapidated houses.

 (Federal) Capital gains doesn't apply to flips since they're earned income, so I don't see this effecting flippers at all. Buy and holder types yes because they're the ones selling with Cap-gains down the road.

Garrett you seem to be confusing an economic discussion with a political one. A consumption or flat tax isn't regressive, that's a phony political term the far left uses. to elicit an emotional reaction from itherewise reasonable people for pilitical reasons. Secondly taxing the rich more isn't going to close the "income disparity gap". So while it may make the left feel good by getting more money out of the evil rich, it isn't going to solve any actual problem but I doubt that is the actual point anyway. Finally your tax statements are naive or Ill informed, the poor don't pay tax, those they aren't on federal assistance who have any mcjob actually receive federal money through your arch enemies Bush foolish "making work pay program". claiming anyone is making a choice between eating and paying tax is laughable at best (especially considering generous state food subsidy programs).less laughable than before as we seem to have more and more vindictive political types that think in these "get even with them" ways. I would advise you dont take your economic arguments from MSNBC, The Daily Show, and Morher Jones.

Originally posted by @Andrew Kniffin :

Alongside the 2% title transfer fee in Washington, I imagine this will have a negative impact on WA state flippers (7% on capital gain PLUS 2% on transaction price (basis)) and thus lead to more eyesores, and dilapidated houses.

Flippers that are "dealers" under IRS tax code 1221 don't qualify for capital gains treatment and so this would have no impact on flippers. Plus, there are still so many other real estate tax loopholes such as the "real estate professional" designation that the wealthy land owners won't be affected any way. This has no real effect on the gap between rich and poor.

Many would disagree but I truly believe the gap between rich and poor is between the Know and Know Nots. Seek to become a millionaire because you have to personally develop into a better person (leadership, drive, focus, communication, empathy) to become a millionaire.

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