Endorse Initiative No. 2109 – Repeal Capital Gains Tax

Lakewood Chamber of Commerce
Board of Directors
Policy Position
Endorse Initiative No. 2109 – Repeal Capital Gains Tax
May 28, 2024

The Lakewood Chamber of Commerce Board of Directors agree that Washington is a high-cost state for employers, but the lack of an income tax has historically been a competitive advantage.

When lawmakers chose to implement a capital gains tax, we lost one of our key advantages and moved a step closer to an income tax, which Washingtonians have repeatedly rejected. It is our hope voters will say yes to I-2109 –and support tax policies that make it easier, not harder, to start and grow a business in Washington.

In 2021, the Legislature passed and Gov. Jay Inslee signed into law a capital gains income tax aimed at the state’s wealthiest residents. The measure assesses a 7% tax on capital gains above $250,000 a year, such as profits from stocks or business sales.

A lawsuit challenged the tax’s constitutionality, but in March 2023, the state Supreme Court held that it was constitutional.

Key Findings

1. The bill was seen as unconstitutional. The state constitution bars an income tax unless it is applied equally at a uniform rate of up to one percent.
2. Lawmakers got around this provision by labeling the capital gains income tax as an “excise” tax. The state supreme court, in a split decision that overturned its own past rulings, accepted this wording maneuver.
3. A state income tax is highly unpopular. Washington voters have rejected income tax ballot measures ten times, by margins as high as 78%.
4. The new income tax resulted in economic losses to the state, by discouraging investment and because some businesses have re-located to no-income-tax states.
5. The state legislature took no action on Initiative 2109 during their session, so the measure will appear on the November general election ballot, where voters will decide whether Washington should again adopt a policy of having no state income tax.