Walsh, GOP seek tax break for Puget Sound wealthy, stiff kids here and statewide

Initiative 2109 would repeal capital gains tax, paid mostly by affluent King County residents and supports child care, early leaning and other school programs

State Rep. Jim Walsh and his GOP House caucus are playing Robin Hood for the rich through their fervent advocacy of Initiative 2109.

They’re seeking a tax break for wealthy Puget Sounders at the expense of school children in Cowlitz County, his legislative district and across the state.

If voters approve it in November, I-2109 would repeal a 7% tax on the sale or exchange of long-term capital assets, such as stocks, bonds, and business interest. Real estate sales are exempt, and it is not a tax on business profits.

The tax covers capital gains exceeding $262,000, so only a relatively few wealthy people pay it.

Just eight Cowlitz County taxpayers did so in 2022, compared with 2,187 from King County. About 65% of the 3,354 Washingtonians who paid the tax that year were from King County. Those King County residents paid in just short of $750 million, or 83.6% of the $869 million collected statewide in 2022, according to the state Department of Revenue.

Repealing the tax would reduce funding for K–12 education, higher education, early learning and child care and school construction by $2.2 billion over the next five years, according to the state Office of Financial Management.

Walsh and other supporters of I-2109 want to benefit wealthy Puget Sounders at the expense of school children and rural communities across the state.

The state reports that just 21 residents from Legislative Districts 19 and 24 paid the tax in 2022, generating $1.123 million for the state (Walsh, who also is state GOP chairman, represents District 19, a six-county area that stretches from Longview to Aberdeen. District 24 encompasses most of the Olympic Peninsula.)

It’s no surprise that King County is the state’s leading capital gains tax generator. And it’s no surprise that Walsh’s chief I-2109 ally is Redmond hedge fund manager and multimillionaire Brian Heywood. Heywood sponsored Let’s Go Washington, which collected 420,000 signatures to put the measure to voters.

What is surprising — and distressing — here is that Walsh and other supporters of I-2109 want to benefit wealthy Puget Sounders at the expense of school children and rural communities across the state. As a representative of a rural and economically struggling district, Walsh should be a champion of the tax, not an ideological opponent of it.

According to the Washington Budget and Policy Center, capital gains tax revenues have paid $386 million for child care and early learning programs. That amount includes $101 million for pre-kindergarten learning for 4,000 children and $240 million for the Working Connections Child Care program, which subsidizes child care for low-income people to work, go to school or obtain job training. The Center reports that 132 Cowlitz County children have benefited from capital gains tax funding for those two programs.

The need for more early childhood learning has been well documented and is key to helping children succeed and stay in school. It saves bundles of money in social and law and justice needs in the long run.

Lower Columbia College’s Head Start and Early Childhood Education and Assistance Program (ECEAP) programs receive money from the capital gains tax. ECEAP and Head Start jointly provide free early learning child care or preschool to support children’s development and learning.

“As you might know, a hedge fund manager has placed 1-2109 on the ballot in hopes that voters will repeal (the capital gains tax. The … tax only impacts the wealthiest in our state but helps our littlest learners by investing in childcare and (early childhood education),” according to a recent memo to membership written by Joel Ryan, executive director of the Washington State Association of Head Start and ECEAP.

In addition, capital gains tax revenues have provided $500 million for 171 school construction projects statewide, according to the Budget Center. All but 24 were outside King County, and 35 were in Southwest Washington. Locally, Cowlitz County schools got $907,000; Wahkiakum County received $330,000.

State revenue forecasters project that the capital gains tax likely will not yield enough to significantly fund additional school construction projects in the next few years. But the need is there, especially in ”tax poor” rural school systems such as the Wahkiakum School District. The district was so desperate for $50 million in building repairs that it (unsuccessfully) sued the state in 2021, contending that the Washington Constitution mandated it to finance school building construction and maintenance.

Walsh knows all this. Wahkiakum County is in his district. And his Democratic opponent in the general election — Westport real estate broker Mike Coverdale — has been blasting Walsh for his stance on I-2109.

Sill, Walsh and the House GOP caucus are adamantly opposed to the capital gain tax.

Their talking points on behalf of I-2109: Olympia has a spending problem, not a revenue problem, and the state can afford these school and children’s programs through existing revenues. That the state is already overtaxed. That the capital gains tax is a prelude to establishing a dreaded income tax. That the tax will thwart investment and prompt the wealthy to move elsewhere.

Don’t buy into these: They are scare tactics and grossly misleading. They’re meant to bamboozle the public and shelter the rich from finally paying an equitable share toward the state’s expenses.

If you take nothing else from this column, remember this: I-2109 would give a tax break to only 0.042% of the state’s 8 million residents. That’s 1 of about 2,400 people.

Washington is far from overtaxed. It is one of 42 states that impose capital gains taxes, which range from 2.5% to 13%. They include our neighbors, Oregon and Idaho. Washington is one of only seven states with no income tax (Although Seattle has a progressive payroll tax often called “The Amazon Tax).

Washington’s tax burden has steadily declined since 1960, and it changed little in the decade from 2011 to 2021, according to the Revenue Department.

Although it has high sales and gas taxes, the state’s overall tax burden generally ranks toward the middle of the pack nationally, depending on the yardstick. Notably, though, the cost of local and state taxes as a share of Washington’s Gross Domestic Product is 8.3%, ranking 44th in the nation. The state ranked 14th in local and state taxes per capita, according to the State Department of Revenue.

For decades, Washington’s tax system had been rated the most regressive in the nation, mostly because about 51 percent of the state budget is financed through the retail sales and use tax. The poor and middle income pay a much bigger share of their income than the wealthy.

With no income or capital gain taxes, Washington has been a tax haven for the affluent. The capital gains tax helped change that, and late last year Florida displaced Washington as the nation’s most regressive taxing state.

For years, Americans have advocated for more taxes on the rich. Doing so in this state is more than justified. Its far-fetched to think that this tax is going to cause a mass exodus of businesses or rich people from the state.

Walsh and I-2109 supporters point out that the state operating budget has slightly more than doubled since 2013-15, from $32.75 billion to $66.25 billion 2023-25, according to OFM. The state has enough to pay for child care and school programs without the capital gains tax, they say.

It’s easier to say so than to do so. And just to put the state’s spending increases in perspective, manh if not most states have seen significant spending growth due to the same drivers at play in Washington: the pandemic and ensuing inflation, the rising costs of medical care and education, and population growth. Washington is not adding workers to its payroll any faster than its population increases, according to the state Office of Financial Management.

Walsh never met a tax he liked, and as a libertarian he wants smaller government. He questions the constitutionality of the capital gains tax. But the State Supreme Court upheld it, 7-2, in March last year.

He, Heywood and their allies are now trying to stoke up anti-tax sentiment to repeal the tax through the initiative process and achieve what they failed to do through the Legislature and the courts.

1-2109 is tax relief only for the wealthy few. It’s an assault on tax equity. And it’s a blow against kids.

Mr. Walsh, whom are you working for, the kids and families of your district, or the rich from Puget Sound?