A bill in the Washington Legislature seeks to increase taxes on the state’s top earners.
Under House Bill 1406, top earners would see a 1% tax applied to paper assets such as cash, bonds, pensions, and stocks in excess of $1 billion. Treasury and municipal bonds would be exempt.
Such a tax would be the first of its kind in the country and would have violators would pay a 5% penalty for every month a return is overdue.
The bill would take effect New Year’s Day of 2022 and generated revenue would go straight into the state’s general fund. Its sponsor, House Finance Chair Rep. Noel Frame, D-Seattle, said that money would be put towards tax credits for working families and businesses.
“We shift the responsibility of funding the state’s paramount duty and other community investments to Washington’s low and middle income families and small and startup and low margin businesses,” Frame said. “In the midst of this COVID-19 pandemic and economic downturn, we got to ask ourselves who is going to pay for economic recovery?”
Public calls for new taxes on Washington’s wealthiest residents have grown amid the COVID-19 pandemic and pressing demands for housing, vaccinations, and eldercare.
In 2020, U.S. billionaires saw their collective networth grow by about $42 billion per week, a report by the Americans for Tax Fairness and the Institute for Policy Studies found.
Washington state, home of Amazon CEO Jeff Bezos, is estimated by Forbes to boast the richest collection of billionaires in the nation next to New York and California.
Bezos, the world’s richest man valued at about $190 billion, would pay roughly $1.9 billion under the tax, and make him one of 10 people in the state to owe any money at all alongside ex-wife Mackenzie Bezos and Microsoft founder Bill Gates.
A wealth tax has been long-championed by progressive tax advocates and most polls show the idea is gaining traction despite a wide partisan divide on what many voters still see as a lesser political priority.
The vast majority of the people testifying to the House Finance Committee on Tuesday supported the bill on the grounds it could help the state avoid a years-long stream of deep budget cuts. They ranged from working-class people of color to entrepreneurs and wealthy retirees who even called for a steeper wealth tax.
Frame said that some 2,500 people had signed in to register their support for the wealth tax and the Working Families Tax Credit sponsored by state Rep. My-Linh Thai, D-Bellevue, at a Tuesday House Finance committee hearing.
The bill was also written in consultation with Seattle web mogul Dan Price, CEO of the credit card processing company Gravity Payments.
Price, who cut his own annual salary from $1.2 million to $70,000 in 2015 to guarantee the same salary for his workers, told state lawmakers on Tuesday his company’s continued success is proof wealth distribution can’t hurt.
“By taking money from the person that was getting far too much and paying workers more fairly, our team thrived,” Price said. “Billionaire-owned media has pointed to my story saying it proves we don’t need the government and the free market will fix everything. It’s exactly the opposite.”
Chuck Collins, director of the Institute for Policy Studies and a tax consultant for the Gates family, described a wealth tax as a way of democratizing opportunities.
For Mary Curry of Tacoma, the owner of a daycare center and a mother of seven children who she said loaned their way through school, said a wealth tax would mean a fairer tax for working women like herself.
“I grew up as a Washingtonian and I believe this state is a wonderful place to raise a family and to plant roots,” Curry said. “But how do I build when the tax laws are so harsh to the working class such as myself? These divergent differences between the haves and the have nots is illuminating.”
People testifying against the bill on Tuesday said it will chase big businesses out of state and hurt Washington’s economic competitiveness.
Frame argued on Tuesday that Washington companies would likely stay in the state due to its high quality of life stemming from such factors like comparably low poverty rates and educated workers.
The nonprofit Tax Foundation’s International Tax Competitiveness Index lists the U.S.’s overall tax code at 21 out of 35 studied based on both low marginal tax rates and neutrality.
Washington’s sales tax has shown to disproportionately burden what studies show are typically its lowest-income households and not its top-earners.
It remains to be seen how a wealth tax, if passed, would stand up in state courts should it face litigation from affected parties.
Income taxes are banned under the state constitution and scholarship is divided on just where the legal line between property and income begins and ends.
Jim King, an entrepreneur representing the Independent Business Association, argued on Tuesday that a wealth tax could cost the state a fortune in legal bills and leave it to tax small businesses to make up the difference.
“It’s going to be long and expensive fight before you get any money,” King said. “Nobody in their right mind is going to pay a billion dollars a year or more for the privilege of living in Washington state.”
With 26 co-sponsors to date, HB 1406 has more than half the votes it needs to pass the state House. It awaits further action by the House Finance Committee.
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