Seattle eyes capital gains tax

Seattle officials tell KUOW they are considering a local capital gains tax.

This comes after the state Supreme Court ruled last month that a state capital gains tax is constitutional.

According to city council member Teresa Mosqueda, it’s just an opportunity for new sources of revenue in the coming years to fill a “huge revenue gap.”

“I think the court’s decision reaffirms what many of us already knew, which is that capital gains should be considered a viable option at the state or local level,” Mosqueda said.

Mosqueda co-chairs a “Revenue Stabilization Task Force” tasked with making tax recommendations on how to fill a projected “revenue gap” of more than $200 million a year beginning in 2025. According to Mosqueda, a capital gains tax is just one of the ideas that will be on the table for the task force, which is made up of local leaders and policy experts.

A capital gains tax in Seattle would be “part of the suite of tax options that will be evaluated and analyzed,” Mosqueda said.

She added that the current tax code is “regressive,” meaning it disproportionately affects low-income residents.

Currently, the state’s capital gains tax mainly affects the wealthiest residents. It only applies to the sale of stock or other assets for amounts greater than $250,000.

In a written statement, Mayor Bruce Harrell’s office echoed Mosqueda’s concerns about the current regressive tax system and also said the city is considering a local capital gains tax.

“The Supreme Court upheld the capital gains tax as a valid excise duty. As we do with any potential revenue option, the City will further evaluate the efficacy and consequences of implementing a similar local excise tax,” the statement said.

In its decision, the state’s highest court ruled that the state’s capital gains tax is an “excise” tax, similar to other taxes on the sale of assets such as real estate, and not an income tax. This distinction is important because income taxes are not allowed under the state constitution.

Former Attorney General Rob McKenna, who argued against the state capital gains tax in court, told KUOW he continues to believe the ruling was wrong. But he also said he believes any new local capital gains tax in Washington would likely survive court challenges based on this latest ruling.

“It opens the door for local excise taxes because cities have excise tax authority,” McKenna said.

Professor Scott Schumacher, who directs a graduate program in taxation at the University of Washington, said he agreed with McKenna.

“I don’t know of anything that would prevent the city of Seattle or any other city from passing a capital gains tax and having it be constitutional,” Schumacher said.

Seattle’s Income Stabilization Task Force is expected to make its tax recommendations later this year.