Olympia, WA – In a bid to address a looming $16 billion budget deficit, Washington state lawmakers have introduced a bill that would raise the capital gains tax rate for top earners by implementing a 2.9% surtax on annual investment profits exceeding $1 million.
The proposal, reported by the Washington State Standard, is part of a broader tax strategy aimed at shoring up the state’s finances amid slowing revenue growth. If passed, the additional surtax would increase the effective capital gains tax rate from 7% to 9.9% for qualifying high-income individuals.
Washington’s existing capital gains tax, enacted in 2021, applies to profits over $270,000 from the sale of assets such as stocks and bonds. The law exempts gains derived from retirement accounts, real estate, and certain small business assets. The new proposal targets gains beyond $1 million annually, layering on the additional 2.9% surtax to existing obligations.
While the capital gains tax withstood both legal scrutiny and a statewide repeal effort in 2023, it remains controversial—especially among members of the tech industry. Critics argue the policy discourages investment and innovation, particularly in regions like Seattle where equity-based compensation is common among tech startups and major firms like Amazon and Microsoft.
The tax generated $786 million in its first year—well above projections—but fell to $433 million in the following year, raising concerns about volatility. Revenue from the tax supports early childhood education and public schools across the state.
Earlier budget proposals included a payroll tax that would have significantly impacted large tech employers. However, in response to industry backlash, lawmakers have scrapped the payroll tax plan and instead proposed increases in surcharges for large businesses, including tech companies.
Washington legislators have until April 27 to finalize the state budget and deliver it to Governor Jay Inslee for approval.
