♪♪
-Hello. I'm your host, Brian Callanan.
A yes vote on Initiative 2109
would repeal our state's new capital gains tax.
But critics say that would take billions of dollars away
from education and child care.
-Vote yes. Pay less.
-Supporters of I-2109 want to cancel
the capital gains tax Olympia passed in 2021.
They're worried a statewide income tax is next.
-And that's the foot in the door.
That's the beginning of the slippery slope.
And then they're gonna lower the threshold
so that everybody's paying this.
-The people of Washington
have overwhelmingly rejected an income tax.
-The yes camp also says the 7% tax on gains over $250,000
from the sale of assets, like stocks and bonds,
has pushed billionaires like Jeff Bezos out of Washington.
-If this bad tax policy stays in place,
there's gonna be more of that.
-The capital gains tax was just designed
to create a little more fairness in our tax system.
-Critics of 2109 say our state has
one of the most regressive tax systems in the country
and removing capital gains would erase billions in revenue
for education and child care.
-If we want to rip that away now,
it's like we're shooting ourselves in the foot.
-When the tax was approved,
Molly Moon celebrated with an "Eat the Rich" sundae.
Now she's concerned the Let's Go Washington PAC
behind I-2109 and two other measures is biting back.
-All three of these initiatives on the ballot
are basically being paid for by one wealthy billionaire
who doesn't want to pay the taxes.
-Should voters repeal a state tax on capital gains?
Our panel weighs in.
-Washington state doesn't need the money.
They have plenty of money.
-This is a tax that helps to benefit children
and families across the state.
-The debate over I-2109 -- next on "City Inside/Out."
♪♪
Welcome once again to "City Inside/Out."
I'm Brian Callanan, and I have with me a few guests
who are going to help us out with Initiative 2109,
including Paul Guppy.
He is the senior researcher at the Washington Policy Center.
Paul, good to see you again.
-Thanks. Great to be here. -Absolutely.
And we have with us also Dr. Stephan Blanford,
executive director of the Children's Alliance
of Washington.
Stephan, good to see you too.
-It's good seeing you, Brian.
-All right. Let's get into it here.
And time for some opening statements, if you will.
Paul, tell us your thoughts about 2109,
which would repeal our state's capital gains tax.
-Exactly.
So there was a lot of controversy
about enacting this tax in the first place.
The legislature worked on it for years.
It was defeated a number of times.
And I think the reason is because people of our state
are suspicious about any kind of income-based-type tax.
This one's much more narrowly defined on capital gains
and of course hits the highest- wealth people in the state.
And that's by design to make it more acceptable.
There's also the problem that it's unconstitutional
under our state constitution to have a graduated income tax.
So there was immediately a court challenge
that took a couple of years.
Our Supreme Court, in a decision
which we think was wrongly decided, approved this tax.
They labeled it as an excise tax.
-Excise tax. -Exactly.
Which is some technical legal language there.
Again, we see that as a dodge.
I think that the judges had decided
they like the idea of an income tax and they wanted to
make it "legal" under our Constitution.
That's all done now, and the tax went into effect,
and this citizens' initiative
really grew out of a grassroots movement.
It got over 430,000 signatures.
So there are clearly many more people concerned about this tax
than just those wealthy who have to pay it.
-Okay. -And that's where we are today.
Now in November there will be an opportunity to repeal this tax.
-Okay. Got it. Thank you for that.
Stephan, I'll go to you next. Your thoughts about 2109.
I know you have some concerns about this measure.
-Yeah.
I come into this work
as someone who's been an advocate for children.
At Children's Alliance,
we have been in business for 40 years now
and have, you know, 7,000 members across the state,
all who are strongly in support of this tax.
As a former school board director as well,
I know that the benefit
to children and families in the state
outweighs any of the concerns that have been voiced so far.
And I hope we can go into a rich discussion
about some of the benefits that come from it
as well as who is responsible for the tax.
-Got it. Thank you very much.
And this is always one of those difficult things,
where we'd be voting yes for a no,
voting yes to repeal something.
So we'll try to keep this together here.
Stephan, maybe I can stay with you.
I'll touch on this point that Paul made earlier.
Just this concern from the yes camp
that Washington's capital gains tax may be just the beginning.
The argument goes now that it's in place,
we're heading down a slippery slope
towards a statewide income tax,
which as of now, our Constitution prohibits.
How do you respond to that?
-I'm not here actually to debate what could happen
in the future.
What's on the ballot,
what will be on the ballot on November 5th,
is a response to a tax that has been in place,
that has been judged
by the Supreme Court of Washington state
as a legitimate tax, not an income tax,
and that even the U.S. Supreme Court did not take it on.
The tax is one that 43 out of 50 states in the union have.
And so the arguments that I heard
when I was actually listening to oral arguments
were pretty specious.
They don't make any sense.
And so, again,
I think it is a huge benefit to children and families
and an incredible burden
that will be on the hands of middle-income
and working-class people if we repeal a tax
that is generating $6 billion, $5 billion,
that's going into critical infrastructure
around child care and early learning.
-Thanks. We'll dive into some of those pieces in a little bit.
Paul, I just want to kind of hit on this point again.
Because the state Supreme Court did rule
that the capital gains tax is an excise tax, not an income tax,
U.S. Supreme Court doesn't want to hear it,
as Stephan was saying,
plus we have the legislature approving a measure this year
banning a statewide income tax.
So why are 2109 supporters
talking about income tax so much?
-I think they are just --
They don't trust people who are in charge.
They don't feel like they're being listened to.
Our state has sent a consistent message.
Voters have voted 10 times
against a state income tax over the years.
I think that's why the income-tax ban passed so easily.
That also came from a citizens' initiative --
the same citizens' initiative
that created the repeal of the capital gains tax.
So I think voters saw that the two went together.
We want an income-tax ban for the state in general,
and they want to repeal the one that's in place.
And I think beyond -- -It's excise tax.
I want to make sure we're saying that right.
-Exactly. But beyond the technical slicing and dicing,
I think the average person kind of suspiciously understands
that this capital gains income tax --
or excise tax -- is moving in a certain direction.
And that's where you have democracy in action,
where an initiative came up and people said,
"We don't want that tax."
I can address the funding side a little bit too.
So you're right about the $5 billion to $6 billion.
I think that's an estimate over 10 years.
This tax is bringing in
hundreds of millions of dollars for the state.
But the overall point
is that Washington state doesn't need the money.
They have plenty of money.
They just added $3 billion to the budget
in the last few weeks.
The governor signed a budget supplement on March 29th
that increased the two-year operating budget to $72 billion.
That's up from $33 billion only 10 years ago.
So the programs absolutely have to be funded for children,
for early learning, for K-12, for education.
We see those as top priorities that should be funded first
and that they should not be put at risk by attaching them
to some new source of revenue that's untested.
-Okay. You're not worried about pulling that amount away?
It doesn't look like
it's punching a hole in the budget to you?
I think a lot of people in the no camp would say that.
-Exactly.
As a guy who's worked with public budgets my entire career,
there's a sort of La La Land language that's used
about budgets "losing money" or a hole in the budget.
That's not actually reality,
because all of that is prospective.
The money that the state has in the current biennium,
which ends in 2025, is fully funded -- $72 billion.
They have secured that money already.
The debate is about
whether this would lead to "cuts" in the future.
And it's not really a cut.
It's a forward-casted revenue
that won't show up if this tax is repealed.
So in other words,
the state doesn't actually lose money that it has now.
-Stephan, please.
-I'm eager to address that,
because as a former school board director,
I would direct anyone who's interested in it
to conversations that are being held in school districts
and by school boards all across the state,
where they're anticipating huge cuts...
-Seattle's one of them. Yeah. -...because there's not
an adequate amount of revenue.
And I know because we championed child care
and we are the backbone organization for a number
of child-care organizations across the state
where they're talking about the fact
that many of them don't expect to survive
through the end of the year
because there's not adequate funding.
There's been lots of arguments that have been made
to say there's an inadequate supply of child care
and it hinders our ability to recover from the pandemic.
All of those are funded by this tax.
And I think it's important --
It's is easy to lose sight of the fact
that only 0.2% of Washingtonians actually pay this tax.
It is seductive to think that all of us are paying this tax.
It is designed particularly to only be subject
to the wealthiest people in the state of Washington.
That is, 3,765 individuals in the state
that are paying the tax currently.
The rest of us benefit from it.
And if you look at any of the statistics
that have come out recently, those 3,765 individuals,
they did really well during the pandemic.
They have outsized profits.
And this is a tax that helps to benefit children
and families across the state.
-Let me talk about some of those ultrawealthy people,
if I may, with you just for a second, Stephan,
because since the state passed the capital gains measure,
we've seen some high-profile billionaires
move out of the state.
I'm talking about Jeff Bezos of Amazon.
Now in Florida.
Fisher Investments, another multibillion-dollar company,
moved down to Texas.
Supporters of 2109 would say
if Washington keeps a capital gains tax in place,
we're gonna chase away big investors.
We're gonna chase away economic growth.
How do you respond to that?
-Every time there is an investment
that is made by the legislature, there's always that argument,
which is a pretty specious argument.
There is academic research
that says that only 2.4% of millionaires
move from one state to another during the course of a year.
Jeff Bezos was very clear when he moved to Florida
that the reason that he was moving to Florida
was to be with his family.
There's lots of evidence to suggest
that wealthy people tend to stay in the state
where they accumulated their wealth.
And so we can listen to that argument,
but I don't believe it holds much merit.
-Paul, I wanted to follow up on that idea,
because I think Stephan has thought about this, too.
There was some research in The Guardian about this
in 2017 which indicates
that 2.4% number you're talking about.
Doesn't appear that higher taxes push these ultrawealthy people
or their companies to move out of the state.
In fact, I'm looking in the state of Washington.
This tax brought in a lot more money than first projected
in our state when it was collected last year.
So a lot of people with high capital gains
did stick around in our state and paid it.
The no-on-2901 camp would say billionaire flight is a myth.
What do you think about that?
-Yeah, I don't think it's totally a myth.
I don't think that folks who are arguing for repealing this tax
should rely on it too much
for the good reasons that you just gave.
But there is definitely a macroeconomic trend
in the country of people at all income levels
moving to states like Florida and Texas
because they have a friendlier tax environment.
Those two states, by the way, have no income tax,
and that's one thing that attracts them.
There's an interesting trend in California,
which was once the land of golden opportunity,
that they have been losing population
and may lose a congressional seat in the next redistricting.
So far, Washington state has stayed fairly flat
in terms of population.
-And we don't have an income tax here either.
-Exactly. Yeah. Not yet.
-Okay. All right, all right, all right.
-So I'm talking about future trends.
So, you know, I wouldn't completely write off the idea
that people are being discouraged
from coming to Washington state or investing here.
And by the way, I mean at all income levels.
I'm not really too concerned about the ultrabillionaires.
They take care of themselves.
They can also move their residence pretty easily
whenever they like.
They just they have armies of tax accountants
that tell them what to do.
I'm thinking more of the average working family,
the small-business person who does feel
that there's an extraordinarily high tax burden
and yet every unit of government keeps saying
that they don't have enough money.
When we look at the actual terms of revenue that come in,
it's increasing all of the time.
Never as much as they want, okay?
So you always hear about deficits and shortages,
and yet programs never shut down.
And the legislature always seems to come up with the money
and adds more.
They just added $3 billion to the budget.
So I think the state is collecting plenty of revenue
from the people of our state.
I think if the capital gains tax were repealed,
it would have virtually zero effect on public programs.
I don't think that the Democrats in the legislature
are gonna cancel education funding
or early-child-care programs.
It's a matter of setting priorities within the budget
in order to fund important, vital programs first,
primarily for children, and then, you know,
having lower priorities that maybe don't get funded.
-Can I pull back on another macroeconomic issue with you?
Because the research shows, and I know you've looked at this,
that our state has one of the most regressive tax systems
in the country, meaning people who make more money
are paying less in taxes as a percentage
than people who make a lot less.
So supporters of keeping this capital gains tax in place
would say, "Here's a way to make the system more equitable,
with a tax that only affects
roughly 4,000 people in our state.
Why repeal that?
Shouldn't we be working towards a fairer tax system?"
-Sure. So, tax reform is a great idea.
And Washington Policy Center has a lot of ideas
about how to restructure the tax system
so it is more fair and equitable.
The thing about the targeted capital gains tax
is that it it doesn't do anything to address equity.
It just adds a new,
suspiciously looking like an income tax, okay,
on top of our current tax system.
So proponents would have a stronger argument
if they called for reducing the state sales tax, for example,
or reducing the property taxes,
which are the most regressive taxes that we have.
What we found down in Olympia
is that the legislature just doesn't want to give up
any source of revenue that they have now.
They complain bitterly -- and I've seen this personally --
if anybody proposes reducing the regressivity
of our tax system through tax relief.
Washington state has enacted no tax relief
in anybody's memory,
whereas other states -- even California, New York --
have enacted some form of tax relief for their population.
So reducing a regressive tax
is the best way to bring about that fairness.
-Stephan, some thoughts about this tax regressivity.
That's a big piece of this debate.
-I appreciate the fact that you brought that topic up,
because I think it is one of the strongest arguments
to be made in support of saying no to this initiative.
It came about in 2020.
And I know that time really well
because I assumed the job of executive director
at Children's Alliance during that time.
-The capital gains tax came in 2020.
-The capital gains. Right.
2021, actually. -Thank you.
-And what was going on during that time
was a racial reckoning that is still unresolved.
And there was intention and focus
on investments that would help to start the process
of resolving some of those issues.
As an education researcher, a former school board director,
and someone that advocates for children,
I know that investments in early learning
are critically important if you want to live up to
all those people marching in the streets back in the day.
This is a tax on the wealthiest citizens in our state.
It helps to solve the problem of regressivity
that makes us the worst state in the nation.
Now we're number two.
-Forty-nine, I guess, out of fifty.
-We're 49 out of 50 states
as a result of the capital gains tax.
Hopefully there will be other efforts
to solve that regressivity,
because low-income people should not pay a higher percentage
of their income in taxes than wealthy people.
-Got it. Paul, just a rejoinder on that.
Maybe this whole idea of this is a tax
that aims us towards that idea of fairness
and social justice maybe a little bit more.
Some thoughts there? -Yeah.
So if you want social justice, how about cutting the sales tax?
Which would immediately help everybody in the state,
particularly working families.
So, you know, I'm a little...
...confused about why different social issues
and economic and tax issues are used
in order to argue tax policy
when this is a straight-up "What is the financial burden
that our elected leaders are putting on the people
of this state -- of all communities?"
And the people are incredibly frustrated
by the high B&O taxes, property taxes.
Sales tax in Seattle is over 10%.
And yet we hear about regressivity and fairness,
but our elected leaders don't do anything about that.
The best they can come up with
is sock it to these super-wealthy people
and let's get some money from them.
And I just think that's an inadequate response
and doesn't explain why hundreds of thousands of people
signed a petition to put this measure on the ballot
in the first place.
-Did you have a quick thought? -Yeah, I did.
And I'm trying not to be in a debate, right?
-We're having a discussion.
-If it happens, it happens. That's all right.
-But when we talk about sales tax and regressivity,
I think it's important to reflect on the fact
that there are large sectors
that have been hugely impacted by the pandemic
that are still struggling.
Communities, sectors --
One that we spend a lot of time talking about is child care.
-Childcare employees, according to the Department of Revenue,
are the third-lowest-paid profession in Washington state
right now. -Wow.
-And that means that an awful lot of people
are barely struggling to provide care to kids
and take care of their own children and families, right?
And there's a lot of conversation about regressivity,
but the reality is the sales tax and cuts and all of that,
we have a need to actually fund government
so that it can do things for children and families
and those who are harmed the most.
-Can I follow up on another economic point
with you, Stephan?
Because I'm thinking about this.
The capital gains tax brought in close to $900 million
in its first year,
but it's based on a pretty volatile revenue source.
We talk about the stock market here.
I guess my question is if funding for early learning
and child care is so important, why connect it
to a revenue source that's so difficult to forecast?
-Well, I think the legislators
would have to take up that question.
-Yeah.
-The point that I would make
is I know the fiscal note for that bill,
when it was passed, estimated that it would draw in
somewhere between $400 million and $500 million.
It drew in $889 million in the last year.
And the trend is upward.
The projection is upward. -Okay.
-And so I'm anticipating that it will continue to draw in revenue
that can benefit and fund all these programs
that are absolutely essential to the future of Washingtonians.
-Got it.
I did want to talk about one challenge to this, Paul.
I'm thinking about -- -Let me address this
super quickly. -Oh. Please. If you would.
-Number one, we would say fund those essential programs first,
for children, so we're in agreement on that.
We think that should be top priority.
And the second thing is that if there's any dip in the income
that comes in from this tax in the future,
you can be guaranteed
the legislature will extend it to more people.
They will say, "We need to lower the thresholds
at which you pay the tax.
We need to increase the tax rate."
And it won't be just a few thousand people
paying the tax after a while.
It'll be tens or hundreds of thousands.
So that's the tendency that the legislature has.
-That's the concern, I suppose.
I did want to move on to another point here,
just in getting through the X's and O's of this campaign here.
The Let's Go Washington PAC, it's behind this measure,
two other measures on the ballot this fall.
Financially supported by an ultrawealthy hedge fund manager,
Brian Heywood.
And critics would say he's financing this
'cause he just doesn't want to pay his fair share of taxes.
Do you have any thoughts about that?
-He's an activist who organized this.
I don't think that he's really experienced in politics.
He did run some initiatives a few years ago,
none of which qualified.
So maybe he learned from that experience.
But to me, what's important
is how many people responded to his appeal.
So if there were not merit to the initiatives themselves,
I think he would have wasted his money.
As it turns out, each initiative that he proposed
got more than 100,000 signatures than it needed.
Three of them were so popular, bipartisan,
that the legislature enacted them immediately.
And there are three more that are gonna be on the ballot.
-Right. Maybe some thoughts about this, Stefan.
Just the idea that 400,000 people signed on
to these petitions for 2109
and some of these other measures for this fall.
What's your reaction to that amount of anti-tax sentiment,
I guess we're seeing, as a result of I-2109
and these other measures?
-I am not particularly worried about that.
I think, you know, the way that our legislature is set up
and the way that our elections are set up,
someone, a wealthy individual that is subject to the tax,
can bankroll enough signature gatherers
to fund something like that.
And people walk in the store.
They sign whatever so they can go into the store.
The reality is,
when they see the benefits and the cost --
where the costs land and where the benefits land --
it's 0.2% of Washingtonians,
and it benefits communities all across the state.
I think frequently about a study that came out
that talked about the impact of the pandemic,
particularly on women.
Workforce participation by women has plummeted
as the result of the fact that there is no child care.
And we could continue to go in that direction and harm women,
harm low-income people and working-class people,
harm firefighters and teachers
by putting something like this -- giving a tax break
to the wealthiest individuals in our state.
I think that's wrong.
-Paul, do you see this as a tax break for the wealthy?
-No. [ Laughs ]
This tax is only been in place for a year or two,
and the wealthy pay plenty of taxes now.
I think what the legislature is concerned about
is how much revenue they have to pay for the priorities
that you're describing, which we think are top priorities.
So it's not a matter of punishing particular groups
that aren't gonna get increases in revenue.
It's a question of the lawmakers themselves
not putting those programs at risk by attaching them to a new,
untested revenue source -- which is unpopular, by the way.
It's seen as a gateway to a regular income tax,
which is highly unpopular in this state.
So why not fund basic priorities first, secure those,
and then debate about whatever else is left over?
-I will say I saw a Bloomberg report about this recently
and a poll among the big swing states for the election --
77% of people are saying, yes,
let's have a billionaires tax in place.
I think that part of the idea is popular.
Do you have a thought about it?
-Again, if they want to enact it and it gets supported --
And we'll see that in November.
One good point that's made here
is that only 1/10th of the voters signed these petitions.
430,000 is a lot,
but in the general election, there will be 4 million voters.
So that's where the real test will come.
-All right. Thank you very much for this.
It is time to wrap up.
And, Paul, I'd like some closing comments for you if you could.
Voters are considering this measure.
What message do you want to leave them with
when it comes to I-2109?
I can give you about a minute, please.
-Sure. So, just to build on on what I said,
I think what most people don't know
is that the state really does have plenty of money.
They had a big surplus this last session.
I think they will fund priorities going forward --
education, daycare programs for children.
I think those will continue to receive funding,
and I think what people need to think about is,
do they want to start us down the road of an income tax?
Taxing the wealthy? Great.
But it could lead to other things.
-Got it. Stephan, I'll give you the last word.
-I appreciate the opportunity.
And I would say, partially in response to what Paul has said,
if you talk to any school board director,
child-care provider,
parent who's sending their kid to child care,
they would disagree with everything that Paul has said.
We have a woefully underfunded K-12 system
as well as an early-learning system.
And what is being proposed is a tax break for billionaires --
millionaires and billionaires --
the top 0.2% of Washingtonians in terms of their income --
giving a tax break to them at the cost of children's futures.
And I think that's something that is unconscionable.
-Okay. Thank you both for your input here.
And we will be right back.
What are people saying on social media about I-2109,
to repeal the state's capital gains tax?
One person writes...
Another group comments...
We'd like to know what you think.
Send us an e-mail at contact@seattlechannel.org
or find us on social media.
Thank you for that input.
Thank you for your input as well.
And we will see you next time on "City Inside/Out."
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