by Marilyn Watkins
Washington’s State Senate has taken a major step toward a more just and lasting recovery from COVID-19 with passage of a new tax on extraordinary profits from the sale of stocks and other assets of the super-rich. Revenue generated from individuals who have continued to rake in wealth during the pandemic will help fuel the urgently needed rescue of families and small businesses and provide a start toward the long-term investments in child care, public health, and other supports our communities need to thrive.
If Senate Bill (SB) 5096 makes it past additional legislative hurdles to final passage, it will generate over $500 million annually from 8,000 or so of Washington’s wealthiest residents. The first $350 million of new public funds will go into the education legacy trust fund to finance childcare and early learning, K–12 education enhancements, and college access. Revenues beyond that will go into the general fund to support other priorities such as public health and housing and into a new taxpayer fairness account where it could finance the Working Families Tax Credit and other relief for lower-income households.
SB 5096 would require people who make more than $250,000 in a year off the sale of stocks, bonds, and other investments to pay 7% on those extraordinary profits. Retirement accounts, real estate, farm assets, and small businesses would be exempt. This new tax would fuel a faster and stronger economic recovery by addressing three interconnected weaknesses in Washington’s tax code: inequity, unsustainability, and inadequacy.
Today, millionaires and billionaires in Washington pay a far lower percentage of their income to state and local taxes than middle class and low-income households do. The lowest-income 20% of households pay close to 18% of their income in sales, property, and other taxes, while the top 1% pay only 3%. The even more elite at the tip-top, who would pay this new tax, contribute even less to the basic structures and services that keep our economy humming. Washington has the biggest gap of any state between what the wealthy pay and what everyone else pays.
Overall in Washington, Black, Latino, and Indigenous households pay higher tax rates than do white households. Recent analysis from the Washington State Budget & Policy Center shows that the top 20% of white households hold close to half the state’s total income yet pay less than one-third of the taxes that support essential public services.
Our tax structure starves public services along with exacerbating racial inequality. For decades, Washington’s investments in education, health care, and other priority services have grown at a much slower rate than population and the overall economy. In the early 1990s, Washington’s general fund that finances K–12 education, higher education, early learning, parks, social services, and more represented 6.6% of our total state economy. By 2008, on the eve of the Great Recession, that percentage had dwindled to 5.8%. When COVID-19 struck at the end of a decade of population and economic growth, our state budget had gone up in dollar terms but had shrunk to represent just 5% of the overall economy. Our over-reliance on sales taxes and lack of taxes on those with the most money is at the root of our state budget problems.
This declining rate of funding means we haven’t been able to make the investments in health care, childcare, housing, and college affordability that our people and communities need to rebuild from the legacies of racist policies and lay the foundations for economic resilience. Inadequate funding for core services meant that even before the pandemic upended our lives and economy, families faced housing insecurity, childcare was on the brink of collapse, and our public health system was operating on a shoestring.
Passage of SB 5096 by the Senate is a milestone we should celebrate, but we the people have to keep pressing our legislators to take bold action. The bill still has several hurdles to clear — including passage through the House — and it has vociferous enemies.
According to a U.S. Census Bureau survey, nearly 3 million Washington workers have lost employment income since the pandemic struck, 330,000 households are behind on their rent or mortgage, and 218,000 families with children don’t always have enough to eat. Essential workers continue to risk their own and their families’ health, while the super-rich have enjoyed soaring profits from stock market gains. We’re facing an emergency from which neither the vaccine nor the federal government alone can save us. We need Washington’s legislators to follow through with significant new revenues both for immediate rescue and stimulus and for long-term investments in public services. Without major State investments, we will emerge from COVID-19 with even more racial, gender, and economic inequality than before the pandemic. New revenue from SB 5096 and additional progressive sources such as the wealth tax and an expanded estate tax would help break the downward spiral and propel us onto a path of thriving communities and dreams made real.
Marilyn Watkins is policy director of the Economic Opportunity Institute, a nonpartisan policy center focused on building an economy that works for everyone.
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