OLYMPIA, Wash. — The projected revenue collections for the 2023-25 state budget increased by nearly $327 million due to the capital gains tax that went into effect last year.
“Capital gains revenue collections have been stronger than expected and the forecast has been revised up to reflect that,” said Steve Lerch, executive director of the Economic and Revenue Forecast Council. “However, the large number of estimated capital gains tax returns means that final collections from this source remain uncertain. Otherwise, relatively small changes in the economic forecast have given rise to small adjustments in the revenue forecast.”
Total Near General Fund revenues are now projected at $66 billion for the next two-year budget cycle for the state, which begins July 1.
“The early capital gains revenue projections are encouraging, but we’ll have to wait until fall when final returns are due to have more certainty about actual collections,” said Office of Financial Management Director David Schumacher.
The Near General Fund forecast for 2025-27 was also increased by approximately $147 million, with total expected revenues of around $70 billion.
The Revenue Forecast Council expects General Fund revenues will hit nearly $64.5 billion for the current biennium of 2021-23, which began July 1, 2021 and ends on Friday.
What is the capital gains tax?
The capital gains tax is a tax on the state's top investment earners.
It imposes a 7% tax on the sale of stocks, bonds and other high-end assets in excess of $250,000 for both individuals and couples.
The tax took effect July 25, 2021. However, taxes were not imposed until Jan. 1, 2022.
The tax includes exemptions for all real estate, retirement accounts, livestock, agricultural land, fishing privileges, family-owned small businesses, and more. It is estimated to affect about 7,000 of the state's wealthiest taxpayers.
Revenues collected from the tax are deposited in the Education Legacy Trust and Common School Construction Account. The money will be used to fund investments in K-12 education, childcare and early learning.
The Washington state Legislature imposed the tax, without voter approval, in 2021. Gov. Jay Inslee signed the tax into law in May 2021.
Critics argued the capital gains tax is a form of income tax – prohibited by Washington state's constitution. In March of 2023, the Washington State Supreme Court ruled it was constitutional, however.