Democrats in the Washington state legislature are trying again to make the state’s wealthiest residents pay up with a bill that would tax wealth surpassing $250 million.
The proposal, sponsored by Sen. Noel Frame, would trigger a 1% tax on financial assets such as stocks and bonds, excluding the first $250 million.
“This is a commonsense bill that ensures that some of the richest people in the world, some of whom live right here in Washington state, pay property taxes on their assets just like middle-class families who own a home pay taxes on theirs,” said Frame in a statement.
Frame said the wealth tax, if passed, would affect around 700 taxpayers in Washington state, including many who made their fortune in the tech industry.
Democrats tried to pass similar taxes in 2021 and 2022, but those measures failed.
In 2021, tech workers showed up to hearings to voice support and concern about a wealth tax. Some believe such laws can dissuade businesses from coming to the state and undermine the region’s status as a technology hub.
But Frame said she doesn’t see that happening.
“I don’t believe for a minute that it will drive businesses out of state,” Frame told GeekWire. She cited research from Western Washington University that found “no robust relationship between taxes and economic competitiveness.”
Unlike most states, Washington has no income tax; instead it relies on sales and property taxes to fund government programs. But property taxes don’t apply to assets like stocks and bonds.
The wealth tax bill is one of several legislative attempts to tax wealthy Washingtonians without instigating a formal income tax.
Many Democrats in the legislature say the crux of Washington’s current taxation system is that residents with the least end up paying a much higher percentage of their income in taxes, often to the detriment of home ownership and other investments that build generational wealth. The state has the least equitable tax system in the country, according to the Institute on Taxation and Economic Policy.
“It’s time we start rewarding work rather than wealth, and build an economy that works for everyone,” said Rep. My-Linh Thai, who is co-sponsoring the bill. “Through this bill, we can make transformative investments in our communities and address our upside-down tax code.”
Michael Schutzler, CEO of the Washington Technology Industry Association, said the wealth tax isn’t the most effective way to change the tax code.
“We’ve consistently advocated for tax reform for the better part of ten years,” he said in a statement to GeekWire. “Yet another arbitrary tax on top of a 90-year old tax code isn’t the right way to build economic stability, fund education or other essential state services in our region.”
The proposal is part of a broader push across the country to tax wealthy Americans. Various wealth taxes have been proposed in seven other states, including California, Hawaii and New York.
If Washington’s tax bill eventually ends up becoming law, tax revenue generated by would be funneled into education, affordable housing programs, disability services and a taxpayer justice program designed to offset taxes paid disproportionately by low and middle-income families.
The proposal has already drawn criticism, with opponents saying it’s just an income tax in disguise and that it should require constitutional amendment to be legal.
Jason Mercier, director at Washington state’s Center for Government Reform, disputes whether the legislature has the authority to pass a non-uniform tax on the value of stocks, bonds, and similar assets.
“The claim from Sen. Frame that the legislature has blanket exemption authority is a novel one,” Mercier said. “That exemption authority has always been understood to be for classes of property, not value.”
The latest proposal comes at a time when the state’s Supreme Court is also reviewing the legality of a capital gains tax passed last year.
The wealth tax proposal will also almost certainly face constitutional scrutiny.
“The key issue is whether a tax on wealth is a property tax, which it probably would be found to be,” said Hugh Spitzer, a constitutional law professor at the University of Washington.
The state constitution says that taxes imposed on certain classes if property –—stocks or bonds, for example — must have a uniform rate of taxation, which could pose a stumbling block for this proposal.
What’s more, Spitzer said taxing intangible assets is tricky — and not just in Washington state.
“There’s no federal wealth tax, so each state would have to set up its own system for determining how much wealth each potential taxpayer has,” he said. “It’s easy with real estate, because you can’t hide a house or a farm in a mattress. But it’s not so easy with intangible wealth in New York, Louisiana, or the Cayman Islands.”
The proposal, called SB 5486 and HB 1473 respectively, is still in its infancy and has yet to be referred to committee or to have a public hearing.
Other tax reform bills in this year’s legislative session include SB 5482, which would replace the business & occupation tax system with a margin tax that some say would help small businesses.
