When the state Legislature convened for a new session in January, lawmakers faced two major challenges: Helping the state rebound and recover from the pandemic and adopting a new two-year budget.
Agreeing on a budget is usually the most difficult job facing state lawmakers, but this year is unusual to say the least. Washington is just one of seven states in the country where tax revenue actually increased since the pandemic began, meaning lawmakers can balance the budget without needing to raise taxes. Amazingly, after all we’ve been through over the last year, there is no budget crisis in Washington.
One would assume such circumstances should make it easy to focus on pandemic recovery, but unfortunately some lawmakers remain intent on raising new taxes despite the lack of an urgent need. One of the tax proposals, Senate Bill 5096, would impose a capital gains tax.
This is not a new idea. It has been tried and rejected many times before, and for good reason. It should be rejected again. A capital gains tax would hurt small businesses, open the door to an income tax on all Washingtonians and take away one of Washington’s best competitive advantages.
If approved, a capital gains tax could be especially damaging to small communities because it would disproportionately hurt small businesses — the businesses that have invested in the communities for generations. Many small business owners do not have a 401(k) but plan on selling their business someday to pay for their retirement. A capital gains tax could take a significant bite out of their retirement plan.
It could also create a strong incentive for businesses to move to another state where they would be treated more equitably and recognized for their positive impacts on society.
Passing a capital gains tax would open the door for an income tax on all Washingtonians, regardless of income. Supporters say it would target only the rich, but once adopted lawmakers could increase the tax rate and extend the tax to anyone with a simple majority vote.
It is not hard to imagine the tax extending to the middle class. Washington’s state sales tax started at 2 percent. Today, it is 6.5 percent. The gas tax started at 1 cent per gallon. Today, it is nearly 50 cents per gallon and may increase even more. The federal income tax applied initially only to the wealthy. Today, it applies to virtually everyone, while federal and state estate tax rates continue to climb.
It is beyond frustrating to read about lawmakers considering any new taxes at this moment in history when they should be laser-focused on pandemic recovery, particularly when a new tax is not necessary to balance the budget.
COVID-19 is not just a public health crisis, but an economic crisis. Many of the jobs lost during the worst of the downturn last spring have returned, but the recovery is uneven and far from complete. Too many people are suffering and remain out of work, and too many businesses are facing the grim reality of permanent closure.
Here in Clallam County, unemployment peaked at nearly 19 percent in April, fell and then bumped back up to 8.4 percent by the end of last year. Jefferson County unemployment peaked at 17.3 percent in April, fell to 6.5 percent and then rose to 8.2 percent by the end of the year. Other rural areas and economies have been hit just as hard or harder by the pandemic, and rural communities simply don’t recover at the pace equal to the more urban areas of the state.
Washington voters understand what is important and needed right now, even if some lawmakers don’t. A recent Crosscut/Elway Poll reported that voters want legislators to focus on the pandemic and the economy. A majority of voters — 54 percent — said they oppose a capital gains tax.
That may be why the capital gains tax proposal includes an emergency clause, making it difficult for voters to undo with a referendum.
Adopting a capital gains tax will not create new jobs or grow the economy; rather, it will be punitive and damaging. Lawmakers should stop wasting time talking about new taxes at a time when the state is, thankfully, not facing a budget crisis. They should instead focus on what’s really important: recovering from the worst pandemic in a century.
Our focus should be on recovery and growing the economy, not taxing it more at perhaps one of the worst times imaginable.
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Tyler Crow is President and CEO of Green Crow Corporation in Port Angeles and serves on the board of directors of the Association of Washington Business for the 6th Congressional District.