A new bill proposal would increase Washington’s capital gains tax by adding a 2.9% surtax on annual investment profits over $1 million, increasing the effective rate for high earners.
The legislation is part of various new tax increase proposals meant to address the state’s projected $16 billion budget shortfall, as reported by the Washington State Standard on Tuesday.
The existing 7% tax on capital gains applies to gains above $270,000 from the sale of stocks and bonds, excluding revenue from real estate and retirement accounts, among other exceptions.
The new proposal adds an additional 2.9% surtax on any profits above $1 million.
The state passed the original tax in 2021. It sparked controversy within the tech industry because it targets stocks, a key part of compensation for startup leaders and employees at large corporations. Critics warned that the tax would drive companies away from Seattle.
The law survived a legal challenge as well as a statewide referendum last year that would have eliminated the tax.
The capital gains tax went into effect in 2022 and brought in $786 million in its first year, exceeding projections. But tax collections dropped to $433 million a year later. Revenue funds early learning and public school efforts.
Previous tax plans for the new state budget included a 5% payroll tax that would have impacted tech giants such as Microsoft. The Redmond-based company has joined a bevy of businesses voicing opposition and funding campaigns against tax increases.
The latest plan removes the proposed payroll tax but adds an increase in a surcharge on tech companies and other taxes on large businesses.
Lawmakers have until April 27 to finalize the budget and send it to the governor’s desk.
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