Tax Foundation warns against imposing capital gains income tax

May 16, 2016

While many states across the country are working to reduce the impact volatile capital gains income taxes have on their budgets, some in Washington are flirting with enacting the first standalone capital gains income tax in the country. The Tax Foundation warns that doing so would be a mistake. Jared Walczak with the Center for State Tax Policy at the Tax Foundation wrote in a guest editorial for the Tri-City Herald

"Foregoing an income tax is the Washington tax system’s competitive advantage, an inducement to individuals and entrepreneurs alike. And make no mistake, a capital gains tax is a form of income tax. Every tax system has its selling point, and this is Washington’s—one that could be seriously undermined by capital gains taxation. More importantly, such a tax could undermine the very programming it is designed to fund."

This competitive advantage is something the Washington Department of Commerce previously advertised on its "Choose Washington" page.

Cutting through the linguistic gymnastics of whether a capital gains tax is in fact an income tax, Walczak writes: 

"Forty-one states tax capital gains income. In all cases, it is captured by the state’s individual income tax and not by a discrete tax on capital gains. Indeed, all states currently treat capital gains as income. Proposals to label a Washington tax as an excise on buying and selling stock, designed to elide constitutional restrictions, fall apart when one considers that the 'excise' is imposed on realized gains less losses (that is, income), and not on total share value or financial transactions."

To learn more about capital gains income taxes and what imposing one would mean for Washington's competitiveness, please attend Washington Policy Center's Solution Summit on May 18 in Kennewick or May 19 in Bellevue. Walczak will be speaking on the topic along with former Attorney General Rob McKenna (Kennewick) and Matt McIlwain of Madrona Venture Group (Bellevue). 

Additional Information
Capital gains taxes are too unreliable to fund education (Jared Walczak - Tri-City Herald)
"Choose Washington" - no capital gains taxes
Proposed capital gains tax is likely an unconstitutional income tax