Nick Hanauer. (Civic Ventures Photo)

Editor’s note: We asked two Seattle venture capitalists — Civic Ventures’ Nick Hanauer and Madrona’s Matt McIlwain — to defend their opposing viewpoints on the new capital gains tax in Washington state that was ruled constitutional by the state Supreme Court last week. Tech leaders shared both praise and concern for the law, which imposes a 7% tax on capital gains of more than $250,000 from the sale of stocks and bonds. Below is Hanauer’s post — you can read McIlwain’s post at this link.

  1. Washington has the most upside-down tax code in the country, where our lowest-income families pay up to 18% of their income in state and local taxes and people like myself and the other contributor to this article pay next to nothing.
  2. An economic system within which the wealthiest pay nothing and the majority pay dearly shreds the reciprocity norms that social cohesion in a democracy depends on. You cannot have a civil society or a functioning democracy with searing inequity in economic arrangements like what we have in Washington’s tax code.
  3. Rich people like me are not the true job creators — middle-class consumers are. All empirical economic evidence shows that a thriving middle class is the cause of economic growth, not its consequence. So increasing tax rates on the wealthiest, while annoying to wealthy people, is not harmful to growth — in fact, it leads to economic growth because it gives us the resources to invest in and grow the middle class.
  4. Because it exempts homes, retirement accounts, and family-owned small businesses, this tax will only be paid by the absolute richest of the rich, and we’ll still pay next to nothing. If I have a $1 million windfall in stock profits, I’ll owe the state $52,500 — a pretty measly sum to super-rich folks like us — toward funding education and childcare for Washington kids.
  5. We have a massive childcare crisis that is seriously affecting the productivity of parents in the workforce, and this tax helps fund childcare for working- and middle-class families as well as new school construction. This will create jobs in local communities, which means more people with more money to spend in our economy.
  6. There is zero evidence — none — that taxes have any significant bearing on where rich investors choose to locate themselves, or that taxes on the rich hurt job creation. The idea of “wealth flight” has been extensively studied and debunked as a myth — they’re just empty threats by rich people who are used to getting their way. If it was true that high tax rates killed innovation and growth, Silicon Valley would not exist.
  7. On the contrary, businesses flock to Washington because we invest in our people, our infrastructure, our world class universities, and our spectacular parks and public spaces. That’s why our state is consistently ranked as a top state to do business and the number one economy in the nation, including since the passage of this tax on capital gains profits.
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