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Originally published Wednesday, February 29, 2012 at 4:15 PM

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Wash. House Dem freshmen call for tax code changes

Washington state's freshman House Democrats on Wednesday called for wide-ranging changes to the state's tax code, from creating a state capital gains tax to eliminating the out-of-state sales tax exemption.

Associated Press

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Freshman Dems, your mammy and pappy taught you well. Tax me again for what the Feds... MORE

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OLYMPIA, Wash. —

Washington state's freshman House Democrats on Wednesday called for wide-ranging changes to the state's tax code, from creating a state capital gains tax to eliminating the out-of-state sales tax exemption.

A dozen lawmakers - one of the 13 freshmen was caught in traffic - said at a press conference that the measures are necessary to make the state's tax system more equitable and stable.

"Our fundamental problem in this state, in terms of revenue long-term, has to do with fairness, adequacy of resources and stability of the resources that we bring into this state," said Rep. Laurie Jinkins, D-Tacoma.

Washington is one of eight states that don't tax capital gains and the only one exempting out-of-state consumers from its sales tax.

Because the state relies heavily on the sales tax, Washington has the most regressive tax policy in the country, according to the left-leaning Institute on Taxation and Economic Policy.

While the richest percent of Washington state residents pay about 3 percent of their income on state and local taxes, the bottom fifth pay more than 17 percent of their income toward the same, according to a 2009 ITEP study.

Supporters of a capital gains tax say it would be more responsive to an uptick in the economy, noting that the stock market has outperformed the economy at large since the depth of the recession in 2009.

Opponents say capital gains are more volatile than other sources of tax revenue and so taxes generated from them are hard to forecast.

A bill championed by Jinkins to enact a 5 percent tax on capital gains on stocks and assets of over $10,000 per year per couple received a public hearing Wednesday in the House Ways and Means Committee. The measure includes exceptions for proceeds from selling a house or farmland, retirement savings and inherited wealth.

A measure to end the nonresident sales tax exemption was heard by the same committee last week.

That measure would bring in an estimated $26 million in additional annual tax revenue, which would be put toward paying for full-day kindergarten programs.

Both measures need two-thirds support in both the House and Senate, which means that majority Democrats would need Republican votes in support.

Republican House and Senate leaders expressed opposition to both measures Wednesday, saying they were out of step with the priorities of most Washingtonians.

"I don't think Washington state is ready" for a capital gains tax, said House Minority Leader Richard DeBolt, R-Chehalis. "That's up to the voters to decide."

Rep. Andy Billig, D-Spokane, said he would prefer to see the measures pass this session, but noted that Republicans last year opposed a Democratic proposal to eliminate tax breaks for big banks providing a home's first mortgage and have now come around to support it.

"If we have to work it over the interim and come back next year to see the results, then that's fine too," Billig said.

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