As published on geekwire.com, Wednesday 27 January, 2021.
A new proposed wealth tax in Washington state would impose a 1% tax on billionaires, affecting Seattle-area tech and business leaders such as Amazon CEO Jeff Bezos, Microsoft co-founder Bill Gates, and about 100 other ultra-wealthy residents.
House Bill 1406 would produce an estimated $2.25 billion in 2023 and $2.5 billion in 2024, according to Rep. Noel Frame (D-Seattle), chair of the state’s House Finance Committee who introduced the bill Wednesday with House Majority Leader Pat Sullivan (D-Covington).
In an interview with GeekWire, Frame said the intent of the wealth tax is part of a larger effort to help to restructure the tax code in Washington state, which she described as the most regressive in the nation. Washington is also among nine states that do not have income taxes.
“We have a tax code that asks low-income people to pay six times more than the wealthiest, in terms of how much tax they’re paying as a share of their income,” she said. “As a state that considers ourselves a social and economic leader, I just don’t think it’s acceptable. It’s completely out of line with our values.”
The Washington state Department of Revenue estimates that there are 100 taxpayers with wealth in excess of $1 billion.
The bill would tax “extraordinary financial intangible assets” such as cash and cash equivalents; publicly-traded options; futures contracts; and stocks and bonds. The first $1 billion of assessed value would be exempt.
The revenue would be used to offer credits against taxes paid disproportionately by low-income and middle-income families, as well as small companies and low-margin businesses. It would also fund education, child care, public health, public housing, and public safety services.
Frame pointed to the bill’s sponsors — including House Majority Leader Sullivan — as a sign that lawmakers are serious about the legislation. “It should signal to folks that this is much more than a message bill,” she said.
There have been similar wealth tax efforts in other states and on a federal level. Proponents of wealth taxes say they can be used to battle inequity and drive more revenue.
However, taxing someone’s wealth, as opposed to their income, can get complicated.
Tracking wealth of the ultra rich — especially when it is spread across stocks, LLCs, philanthropic efforts and other assets — is no easy task. Asked about the challenges of tracking and enforcing a wealth tax, Frame quipped that all tax law is complex.
Critics of wealth taxes argue that the complexity makes them hard to enforce, eventually leading to repeal. Others say they drive wealthy individuals to lower tax locales.
There are also potential constitutional questions about the legality of wealth taxes. And there have been several wealth tax attempts in Europe that did not succeed.
New York Times contributor Neil Irwin wrote about wealth taxes in 2019, citing research that the number of developed countries imposing wealth taxes had dropped from 10 in the early 2000s to just three.
As part of her presidential campaign, Sen. Elizabeth Warren pitched a federal wealth tax that would have placed a 3% tax on a family with $1 billion or more of wealth.
Other states are pushing forward with efforts to implement wealth taxes, in part to help boost pandemic-related budget shortfalls.
Washington state lawmakers plan to pass a $2.2 billion COVID-19 relief package, using money from the federal government. In the future, Frame said she does not want the state to rely on federal assistance in times of crisis.
“Let’s pass this now so that if we get hit with another crisis like this, we’ve got better tools to work with,” she said. “This is a actually a really good time to have this conversation.”
Several states are considering various “tax the rich” policies amid the pandemic and “K-shaped recovery,” CNBC reported. Washington Gov. Jay Inslee wants to implement a 9% capital-gains tax as part of his 2021-23 budget proposal.
Nick Hanauer, a Seattle venture capitalist and founder of public policy incubator Civic Ventures who frequently comments on economic justice and corporate greed, said taxes on the wealthy are needed, particularly right now.
“At a time when our country is being torn apart by radical inequality and our state is in the throes of an economic crisis, every sensible wealthy person should be in favor of any policy that will materially make our economy healthier,” Hanauer said in a statement to GeekWire. “To drive economic recovery in Washington we have to raise revenue to invest in the people of this state, and the revenue needs to come from the wealthy. I haven’t read the details of Rep. Frame’s proposal yet, but if it checks those boxes, then I’m for it.”
In an opinion piece for Crosscut, former Seattle mayor Mike McGinn wrote that it’s “time for the wealthy to step up.”
“Nobody likes new taxes,” he said. “But this is a crisis and we should not be burdening those with the least by cutting essential services or raising regressive taxes.”
Gravity Payments CEO Dan Price, an outspoken advocate for tax reform, said he planned to toss his support behind Frame’s bill.
Since the wealth tax legislation was just introduced today, many groups that follow public policy such as the Washington Technology Industry Association and Washington Research Council had not yet dug into the bill. However, policy watchers said they were unaware of a wealth tax ever being seriously considered in the state.
The bill will be discussed at a Feb. 2 hearing at 1:30 p.m. PT.