Oppose HB 1319 – A New Wealth Tax on Washington Residents

Lakewood Chamber of Commerce
Board of Directors Policy Position
Opposes HB 1319 – A New Wealth Tax on Washington Residents
January 28, 2025

House Bill 1319 proposes a 1% annual tax on worldwide financial intangible assets exceeding $100 million, targeting approximately 3,400 of Washington’s wealthiest residents. While the bill’s stated goals include addressing wealth inequality and generating revenue for the state’s general fund, this legislation introduces significant economic risks, legal vulnerabilities, and administrative challenges that outweigh its potential benefits.

Key Concerns:

1. Unconstitutional Taxation and Legal Vulnerabilities:
HB 1319 raises serious constitutional questions under Washington’s prohibition on income taxes. By targeting financial intangible assets such as stocks and bonds, the tax could be challenged as an income tax in disguise. Additionally, applying the tax to worldwide assets invites legal disputes over jurisdictional overreach and conflicts with other state and federal tax laws.

2. Harmful Economic Impacts and Capital Flight:
Wealth taxes have a track record of encouraging capital flight and discouraging investment. High-net-worth individuals often have the means to relocate to other states or countries to avoid such taxes, taking their businesses, investments, and philanthropic contributions with them. This exodus would undermine the state’s economic vitality and may ultimately reduce tax revenues rather than increase them.

3. Administrative and Compliance Challenges:
Administering a tax of this nature is complex and costly. Requiring taxpayers to report worldwide financial assets necessitates a robust enforcement system, including audits of 10-20% of taxpayers annually. This would demand significant state resources and create burdensome compliance costs for taxpayers, even those who qualify for exemptions.

4. Volatility and Revenue Instability:
Wealth taxes are inherently volatile due to fluctuations in financial markets and individual asset portfolios. This instability makes wealth taxes an unreliable source of revenue for funding critical state services like education, healthcare, and public safety, which require consistent and predictable funding streams.

5. Ineffectiveness in Reducing Wealth Inequality:
The bill’s premise that taxing financial assets will address wealth inequality is misguided. Wealth inequality is a complex issue driven by systemic factors such as wage disparities, education gaps, and housing affordability. A wealth tax, which narrowly targets a small subset of residents, is an ineffective and punitive approach that fails to address root causes.

6. Washington’s Competitive Disadvantage:
Imposing a wealth tax would make Washington one of the few states in the nation to adopt such a policy, putting it at a competitive disadvantage. It could discourage entrepreneurs, innovators, and investors from choosing Washington as a base for their operations, further eroding the state’s economic position.

Recommendations:

* Reject HB 1319: This bill introduces substantial legal, economic, and administrative risks without effectively addressing its stated goals.

* Pursue Alternative Solutions to Regressivity: Policymakers should explore fair and sustainable options for improving Washington’s tax system, such as broadening the sales tax base, revisiting targeted exemptions, or implementing a progressive property tax system.

* Focus on Root Causes of Inequality: Address wealth inequality through investments in education, job training, affordable housing, and workforce development—measures that provide meaningful opportunities for upward mobility without penalizing individual success.

Conclusion:

HB 1319’s proposed wealth tax is a flawed and shortsighted policy that jeopardizes Washington’s economic stability, invites legal challenges, and imposes undue administrative burdens. Rather than adopting a punitive tax that targets a small portion of the population, the state should focus on sustainable and equitable solutions to improve its tax system and address wealth inequality. For these reasons, we strongly oppose HB 1319 and urge policymakers to reject this proposal.