As back-to-school season starts, opponents of a ballot initiative to repeal Washington’s capital gains tax are highlighting how losing the money could undermine school construction and child care programs.
“Our youth are struggling,” said state Rep. Tina Orwall, D-Des Moines, who sponsored one of many proposals to tax wealthy individuals in 2021, the year lawmakers passed the capital gains tax. “We need to use every tool we can to support them.”
Initiative 2109, which will appear on voters’ ballots in November, would repeal the 7% tax on realized capital gains over $262,000 (adjusted for inflation annually, which means the threshold likely increases with each tax year). Those gains usually come from the sale of investments like stocks, bonds or business interests. The tax does not apply to real estate sales.
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In 2023, the tax brought in about $786 million. The state collected another $433 million from it as of May of this year.
Estimates show eliminating the tax would drain a total of $2.2 billion over five state fiscal years, according to a fiscal impact statement prepared by the Office of Financial Management. However, capital gains taxes are a volatile source of revenue, which makes future revenue from the tax difficult to accurately predict.
Money from the capital gains tax has gone to fund 171 school construction projects across the state during the 2023-25 fiscal year, according to the Washington State Budget & Policy Center. “Almost one in each county,” Orwall said. The Office of Financial Management figures show the tax would not generate more than $500 million in any of the next five fiscal years, keeping it below a threshold where money gets deposited in an account that goes toward school construction.
Proponents of the repeal say lawmakers could find other sources of revenue and the tax is a “backdoor” version of an income tax, which Washington voters have repeatedly rejected.
“The no campaign is capitalizing on people’s fear,” said Brian Heywood, the hedge-fund manager bankrolling three initiatives on this year’s ballot, including Initiative 2109. “Let’s be clear: Washington state schools are guaranteed funding from the state’s constitution, so there will be no stripping funding from the institutions that educate our kids.”
The Budget & Policy Center also credits the capital gains tax with contributing to a roughly $350 million increase in state funding for child care and early learning programs in the current two-year budget.
Diana Llanes Macias, who operates a family home day care and bilingual preschool, said that if the tax is repealed, as many as half of the families she works with will no longer be able to afford child care.
Heywood blamed other state policies for driving up child care costs.
“Day care prices have skyrocketed because of the overregulation created by Olympia lawmakers, so now they’re trying to fix something they broke by breaking our economy,” he said. “It’s disingenuous to try to convince people that repealing an income tax that’s been implemented within the last two years would somehow decimate all funding for school projects.”
Orwall and advocates from “No on I-2109” spoke on Tuesday in front of Tyee High School in SeaTac, one of the schools receiving construction funding from capital gains tax dollars.
Jurnee Robinson, a Tyee senior, described the poor conditions in the school’s old building, including leaking roofs and poor air quality.
“The students and teachers at Tyee watched as wealthier school districts got new schools long before we did,” Robinson said. “Then finally, thanks in part to the capital gains tax on extraordinary profits, we got ours.”
Schools in Washington are funded with state dollars and local property tax levies, but smaller, rural and poorer districts often have difficulties gaining voter approval for levy hikes and more heavily rely on state dollars.
Orwall said the capital gains tax is particularly important for those communities and she often hears similar stories to Robinson’s in schools around eastern Washington.
While Robinson will not be a high school student by the time Tyee’s new school building opens in 2025, she said she’s excited future students — including her brother — “will have the learning environment they deserve.”
**This article is being reposted with permission from Washington State Standard, part of States Newsroom, the nation’s largest state-focused nonprofit news organization.
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