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A November ballot initiative to repeal the capital gains tax could undercut school and child care funding in Whatcom and Skagit counties.
If passed, Initiative 2109 would repeal the 7% tax on annual capital gains of $262,000 for individuals, as of 2023. This revenue comes from the exchange of stocks, bonds, other investments or tangible assets. It does not apply to real estate sales.
In 2023, the tax generated $786 million in revenue, although the amount could vary widely year-to-year. More than $6 million of revenue from the tax has come to Whatcom County and more than $2.5 million in Skagit County for child care providers and school construction projects. Only 55 people in Whatcom and 37 people in Skagit had to pay taxes on their capital gains in Fiscal Year 2023, according to the Washington State Department of Revenue.
The first $500 million in revenues from the tax are deposited into the state’s Education Legacy Trust Account for schools, access to higher education and child care funding. The remainder is deposited into the Common School Construction Fund for capital investments.
Proponents of the initiative, like the Washington State House Republicans, argue that the capital gains tax is a “major step toward a state income tax” and unnecessary, unpopular and unconstitutional. The Republicans also argued that the tax makes Washington less competitive — “the absence of a capital gain income tax contributed to economic growth in our state — particularly in the technology sector.” The Washington State Supreme Court ruled that the tax was constitutional in March 2023. The tax took effect on Jan. 1, 2022.
The initiative was sponsored by Let’s Go Washington, which is led by Republican State Rep. Jim Walsh and conservative donor Brian Heywood.
Millionaire Heywood is a hedge-fund manager and part-time farmer who spent $6 million to organize and collect 2.6 million signatures for six initiatives. Four of them will appear on the ballot this November:
- I-2109 to cancel the state’s 7% capital gains tax
- 1-2117 to repeal the Climate Commitment Act
- I-2066 to repeal parts of a new law to push Puget Sound Energy to transition away from natural gas and
- 1-2124 to allow people to opt out of the state’s long-term care coverage plan.
Opponents of I-2109 say the tax impacts few people and has an outsized benefit in funding for child care and school construction.
Whatcom benefits
Revenue from the the first two fiscal years of the tax created an estimated 170 child care/pre-K slots in Whatcom County, funded $702,597 worth of child care provider grants and funded two school construction projects, totaling $5,451,593. The Lummi School District received $3.8 million in construction funds for additional school classrooms, and $1.6 million went to pre-construction for the Whatcom County Skills Center, said Executive Director Misha Werschkul of the Washington State Budget and Policy Center in an email.
The Skills Center will expand access to trades education for high school students in Whatcom County once open. The $3.8 million for Lummi school is part of a $5 million package awarded to the school.
Skagit benefits
In Skagit, the funds created an estimated 154 child care/pre-K slots and provided $324,280 worth of grants to child care providers. Four school construction projects, totaling $2.29 million, were funded through the tax revenue: Concrete School District received $985,000, La Conner received $1.2 million, Conway received $22,260 for a planning grant and the Northwest Career & Technical Academy received $104,000 for minor repairs.
The Washington State Budget and Policy Center estimated that if the tax revenue is eliminated, an estimated 173 jobs will be lost in Whatcom County and 95 in Skagit County.
Stephan Blanford, the executive director of Children’s Alliance and spokesperson for the No on 1-2109 campaign, said that only 0.2% of taxpayers in Washington are subject to this tax.
“Our polling number says when people have a basic level of knowledge of what this bill would do or what this initiative would do, it’s overwhelming to vote against,” he said.
Blanford said a repeal of the tax would have a detrimental impact on access to child care and school construction funds, but also on the state’s economy if parents who can’t find child care have to stay home and take care of their kids.
Whatcom County Republicans Acting Chair Misty Flowers argued that the capital gains tax is an “income tax masquerading as an excise tax,” and Washington voters have repeatedly rejected income taxes on the ballot.
She also pointed to a 2021 advisory vote on the legislation that created the tax, in which 61.05% of voters voted against the capital gains tax.
“The true intent of this legislation was to prompt the state Supreme Court to overturn almost a century of precedent, seeking a ruling that ‘income’ is not ‘property,’” Flowers said in an email.
With the Whatcom County’s Healthy Children’s Fund tax and the capital gains tax both in place, Whatcom County is still short roughly 5,000 child care spots.
A previous version of this story misstated how many taxpayers are impacted by this tax. It is 0.2%, not 2%. The story was updated to reflect this change at 11:58 a.m. on Sept. 9, 2024. Cascadia Daily News regrets the error.
Charlotte Alden is CDN’s general assignment/enterprise reporter; reach her at charlottealden@cascadiadaily.com; 360-922-3090 ext. 123.
