Spokane7
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November 19, 2011 in City
No capital-gains tax? We’re at a loss to explain that
Here’s one for St. Jude, the patron saint of lost causes: Why don’t we tax capital gains to help balance the bleeding Washington state budget?
Oh, I know, literally, why we don’t: Because the state’s political atmosphere, a combination of a Republican minority and Democratic timidity, have produced the conventional wisdom that only an all-cuts approach is feasible. It’s horribly sad, it really is. But it’s all we can do. It’s just a damn shame, the governor says. These cuts will have dire repercussions for our citizens.
If only there were something we could do. There is, of course, something we could do. There are many somethings we could do – though we almost certainly will not do any of them. But as we slide toward simply accepting the all-cuts narrative as irrevocable, as permanent, as just the way it is, maybe we ought to at least allow that there is something else we could do, if we had the will.
We could tax capital gains.
Capital gains are profits on the stock market, mainly. That is the portion of the economy that has not sucked in the last couple of years, and we in Washington do not tax the winnings in this particular casino at all. Most states do. Business-friendly Idaho does. The federal government does. If we decided to join them, and let the first $10,000 in capital gains go untaxed and levied 5 percent on everything above that, the state would bring in a half-billion dollars a year in revenues.
This is, roughly, the proposal of the Washington Budget & Policy Center, which is putting forth the idea as a way of bringing in more revenue, stabilizing the budget going forward, and offering a chance to rebalance the tax burden. Andy Nicholas, a policy analyst with the center, says there’s reason to believe the idea might have some support, as lawmakers again prepare to wrestle with billions in budget-cutting and facing the long-term instability of relying heavily on sales tax.
This tax would have the advantage of not affecting the vast majority of Washingtonians. Ninety-seven percent of us, according to the center, do not gain such capital in a given year, and this would target the remainder. You know, the rich. It seems like a modest enough thing to ask, given the boom times in capital gains – a millionaire’s taxes would increase by nine-tenths of 1 percent.
Figure out the federal tax write-off, and it’s less than that, Nicholas said.
Tell you what: Just to show solidarity, I’ll support raising my own taxes by less than nine-tenths of 1 percent, too. Since I’m a little shy of the millionaire mark.
Or, as long as we’re being absolutely beyond crazy, tax capital gains at 10 percent and raise the sales tax by a penny.
If we did that, we’d raise about $3 billion in a biennium.
That’s more than the current budget shortfall – the $2 billion the state Legislature will convene to carve away in another couple of months.
To be clear, no capital-gains proposal could be put in place to handle the immediate shortfall, even if the Legislature were to vote one in or if it were put on a statewide ballot and approved by voters. We could, of course, raise a little money through the sales tax or by closing a loophole or two, but let’s not hold our breath. But the capital-gains tax sounds sensible as a way to stabilize the budget and shift some of the burden away from the poor and middle class – who are disproportionately hit by a sales tax – and toward high-end, non-paycheck income.
Nicholas is optimistic that something like this might work. I wish I were, too, but all I hear from politicians is a drone about the reality of the situation. The governor’s budget proposal outlines page after page of cuts and not one word about new revenue.
You don’t raise taxes in a recession. Right? Doesn’t everyone know that? In a recession, what you do is kick 35,000 people off the Basic Health plan. In a recession, you cut university funding by another 15 percent. In a recession, you scale back on supervision of paroled criminals. You stop giving money to property-poor school districts. You cut social workers, eliminate domestic violence programs, stop subsidizing child care, shorten welfare time limits, suspend Medicaid drug benefits and stop covering health care costs for 134,000 children who are almost, but not quite, poor enough.
But you never, for a second, consider raising a millionaire’s taxes by less than nine-tenths of 1 percent.
Will this continue to be our value system here in Washington? Whatever its chances in Olympia, the capital-gains tax is worth a look – if only to pause and reconsider in the headlong rush to declare it impossible.
Shawn Vestal can be reached at (509) 459-5431 or shawnv@spokesman.com. Follow him on Twitter at @vestal13.
The draw of the unknowable 
jimvw2 on November 19 at 5:18 a.m.
Good to know at least someone at the S-R has their head screwed on straight. The anti-tax mantra is not sufficient when corporate profits (capital gains) are booming and wage income is falling.
Yes, more taxes alone won’t dig us out of this hole; but they will help, and they won’t ruin the economy or the millionaires who float at the top of it.
rterrylynch on November 19 at 7:39 a.m.
Dear Shawn, I think I can call you Shawn as you enter my home twice a week in the paper. After working at my small business for over 38 years (no one cut me a pay check) I was fortunate to sell the business and property. Good old Uncle Sam took his cut (created mostly by inflation of the dollars) and now you want good old Christine and others that never did one whit of work to make my good fortune of selling happen to take a piece.
Shame on you. It is paycheck receivers that never gambled their entire career that think they have a right to take from the folks that invested blood, sweat and tears and loads of time well beyone anything you ever did. All the while being involved with community help/service groups for 38 years. Shame on you. Get a real job and invest your whole worth in property and when you sell… give your valuables to those that will not invest. Shame on you.
mmcgee on November 19 at 8:33 a.m.
I read this article in the paper that was delivered to my house this morning, and I thought it was good enough to share on facebook. I got on your website, created an account, that I’m told is free because I already pay for home delivery, and I still can’t access the whole article. That’s disappointing. I guess I’ll forget about providing the word-of-mouth advertising for the paper.
On the other hand, I thought this was a great article. Difficult choices made in difficult situations should include everyone. Sometimes those who have more need to give more.
Lewis on November 19 at 8:57 a.m.
you people do realize those with investments with capital gains already paid tax on the income that was spent for the investments right?
so you buy into a investment with money you made and paid tax on now that the investment paid off your expected to pay more tax?
but if investment is a losing bet and they lose that money, too bad?
My dads businesses net 300 grand a year he pays 40+ grand a year in taxes while 50%f the population pays no tax cause they are poor, now he must pay more if his investments come out good? i know of many that did not, but that is OK?
Explain to me why anyone would invest? they will just keep the money under the mattress and then what?
it wont stop there, too bad most poor folk don’t understand this. if we had a across the board tax for all income earned this would not be a issue.
I remember in high school we had a assignment half the class made money other half didn’t, the half “with” paid all tax, as the years dragged on more and more just decided to sit down with the folks that pay no tax. At the 10 year mark everyone was sitting down, finding out it was cheaper in the long run to be poor.
horse_feathers on November 19 at 10:51 a.m.
When your child comes home asking for more money after spending his college fund and blowing off college for the high life, would you get another job to continue to enable his reckless spending and life style?
Shawn probably would.
sowinso on November 19 at 11:11 a.m.
Hey, Shawn: Did you know that I pay property tax and sales tax on the money I earned from work on which I already paid income tax? And you know, those businesses had to pay B&O tax on that gross revenue. And then they had to pay employment taxes for their workers. And the employees got paid and…oh my!…they had to pay income taxes!
I give the “that’s taxes on taxes” argument 10 points for longevity. But I’m forced to take away several thousand for it being specious. Until this state is ready to go to a tax system composed entirely of a strongly progressive personal and business income tax, this is not a worthy argument to make.
scaleram on November 19 at 2:46 p.m.
I have a novel idea. Something that never occurs to politicians and especially liberal ones. Why not cut spending? Why not bring the compensation for government employees in line with the private sector? Why not eliminate unnecessary bureaucrats?
Oh never mind. I was just dreaming.
Rand on November 19 at 3:13 p.m.
Back door to an income tax anyone?
GaryP on November 19 at 5:34 p.m.
Great idea to tax people more for investing and spurring the economy. Lewis and most of the other people posting seem to understand. The person who wrote this article is clueless
selkirk on November 19 at 11:36 p.m.
mmcgee… simply search for what you seek and you will find what you are seeking.