Challengers of Washington’s capital gains tax hit another roadblock this week. The U.S. Supreme Court determined it would not take up Quinn v. Washington, the lawsuit arguing that the tax is an income tax called by another name.
Washington lawmakers passed the 7% tax on profits gained from the sale or exchange of stocks, bonds, and other assets and investments above $250,000 in 2021. Funds raised by the tax are earmarked for early childhood, child care, education programs, and school construction funding. The tax raised $900 million for those programs in 2023, the first collection year.
But it has also faced challenges.
Opponents of the tax argued in court that it is really a tax on income — something not allowed by the state constitution. Last year the Washington Supreme Court overturned a Douglas County judge’s earlier ruling in Quinn v. Washington. State justices determined the capital gains tax is, in fact, an excise tax and thus constitutional. Opponents appealed to the U.S. Supreme Court (SCOTUS).
On Tuesday, when justices decided not to hear the case, that route became another opposition dead end.
“The U.S. Supreme Court’s decision today was a huge victory for Washington kids and families,” said Treasure Mackley, Executive Director of Invest In Washington Now. “It preserved $900 million a year to support Washington’s child care and education programs, far more than was initially projected to be collected from this tax. This decision could not have come at a more critical time as school districts across the state are facing funding shortfalls.”
The capital gains tax funds the Fair Start for Kids Act. It boosts the coffers of state-funded kindergarten readiness and childcare programs, including the Early Childhood Education And Assistance Program (ECEAP) and Head Start. The tax increases funding for the Education Legacy Trust Account, which supports child care, pre-schools, special education, and community and technical colleges; it also funds the Common School Construction Account, which helps with renovating, repairing, and building schools.
It’s also a big win toward changing the regressive tax system in Washington, a state where the wealthy pay a lower share of taxes than lower-income earners. Approximately 0.2% of Washingtonian taxpayers will see enough profits to pay the capital gains tax. The tax does not apply to real estate and retirement accounts like IRAs, family-owned small businesses, and farms.
Dr. Stephan Blanford, executive director of the statewide Children’s Alliance, told Seattle’s Child in March:
“The capital gains tax is an important step in making our tax code more fair and just. With it, we can begin to undo decades of historic and current racism and disinvestment that have hurt families, communities, and small businesses. Study after study has shown how racist policies impact the financial well-being of Black and brown people, and our tax code can help us reverse these consequences.”
Despite the SCOTUS decision not to hear the case, the Washington capital gains tax is not entirely out of the challenge woods. Opponents of the capital gains tax have filed a petition to repeal the tax so voters may see the question on the ballot in November.
A statement on the Conservative think tank Washington Policy Center website stated: “The chance of any individual case being taken up by the Supreme Court is small, so the case being taken was always a long shot. This leaves voters with the final say on the tax, with an initiative on the ballot this November that would repeal the tax. Another initiative would ban all future income taxes in Washington.”
Mackley feels confident: “Polls show Washingtonians strongly support making the wealthiest pay what they truly owe in taxes for services all of us depend on.
“When the wealthy pay what they owe, just like the rest of us, our communities are stronger,” Mackley added. “Only when we have a fair tax code can we undo decades of disinvestment in education that hurts families, communities, and small businesses and disproportionately impacts BIPOC children.”