Taxation with representation: Senate holds hearing on capital gains tax

• Small businesses sales would be taxed

Jan. 17, 2019--People representing small business owners and low income workers had plenty to say at a public hearing Jan. 16 on Gov. Jay Inslee’s proposal to impose a state capital gains tax.

Thirty-three individuals testified before the Senate Ways & Means Committee. Those in favor of the tax noted that Washington’s current state tax system unfairly and disproportionately strains the budgets of low-income wage earners. Others were concerned that taxing proceeds from selling off a small business to fund a retirement could hurt retirees.

Profits from the sales of residences, property used in a trade or business, cattle, livestock, timber and agricultural lands, and traditional retirement accounts would be exempt from the proposed tax. Small business sales are not exempt, which, some speakers said, is their primary source of retirement, despite earning an average salary.

“That’s my retirement,” said Wayne Lunday, who spoke on behalf of the National Association of Insurance and Financial Advisors. “That’s the retirement of all the NAIFA members that are out there building those small agencies and small businesses. And it’s going to devastate them if they have to write a check for 9 percent of what their business is worth to the governor.”

Inslee’s proposal would tax long-term capital gains over $25,000, and $50,000 for joint filers at 9 percent, starting in 2020 and would add about $975 million to the state’s coffers.

The governor’s proposed two-year budget has an operating fund of $54.4 billion, with money set aside for goals that include mental health reform, measures to save Puget Sound orcas, as well as initiatives to combat climate change, according to the Office of Financial Management.

In Washington state, capital gains accounted for about 9 percent of total income reported on federal income tax returns, according to briefing materials presented at the hearing.

“Imagine somebody that has a regular salary. Has $1 million in their 401k plan,” said Gary Franke, a member of the Washington Association Health Insurance Underwriters. “And being taxed $85,000.”

Last fall, a report from the Institute on Taxation and Economic Policy showed that the lowest 20 percent of earners pay almost 18 percent of family income in taxes, while the top one percent pay just 3 percent in taxes. Multiple people testified that Washington’s “upside-down” tax system needs to be changed.

“We see people at food banks who are working two or three jobs,” said Claire Lane, director of the Anti-Hunger & Nutrition Coalition. “They are hard workers, and they are paying a far bigger share of their income in taxes than people who have a $1 million profit.”

The current tax code is “not only unfair, it’s inadequate to meet the needs of our state,” said Samantha Grad on behalf of a local chapter of the United Food and Commercial Workers Union. “We need to rebalance our tax code so that we can make investments that create thriving communities with access to opportunity that works for all of us.”