Initiative 2109 aims to repeal the capital gains tax; the proceeds will go towards child care and school construction

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A November referendum initiative to repeal the capital gains tax could erode funding for schools and child care in Whatcom and Skagit counties.

If passed, Initiative 2109 would repeal the 7% tax on annual capital gains of $262,000 for individuals starting in 2023. This income comes from the exchange of stocks, bonds, other investments or tangible assets. It does not apply to the sale of real estate.

In 2023, the tax generated $786 million in revenue, although that amount can vary significantly from year to year. More than $6 million in tax revenue went to Whatcom County, and more than $2.5 million went to Skagit County for child care providers and school construction projects. Only 55 people in Whatcom and 37 people in Skagit had to pay capital gains taxes in the 2023 tax year, according to the Washington State Department of Revenue.

The first $500 million of tax revenue is deposited into the state’s Education Legacy Trust Account to support schools, higher education access and child care funding. The remainder is deposited into the Common School Construction Fund for capital investments.

Supporters of the initiative, like Republicans in the Washington State House of Representatives, say the capital gains tax is “a significant step toward a state income tax” and is unnecessary, unpopular and unconstitutional. Republicans also argued that the tax makes Washington less competitive — “the lack of a capital gains tax has contributed to economic growth in our state — particularly in the technology sector.” The Washington State Supreme Court ruled the tax constitutional in March 2023. The tax would go into effect on January 1, 2022.

The initiative was sponsored by Let’s Go Washington, led by Republican state representative Jim Walsh and conservative donor Brian Heywood.

Millionaire Heywood is a hedge fund manager and part-time farmer who spent $6 million to organize and collect 2.6 million signatures for six initiatives. Four of them will appear on the November ballot:

• I-2109 to eliminate the 7% state capital gains tax
• 1-2117 to repeal the Climate Engagement Act
• I-2066 seeks to repeal part of a new law that would force Puget Sound Energy to transition away from natural gas and
• 1-2124 to allow individuals to opt out of a state long-term care plan.

Opponents of Bill I-2109 argue that the tax affects few people but brings huge benefits in the form of funding for child care and school construction.

Whatcom Benefits

Revenues from the first two tax years created an estimated 170 child care/preschool spaces in Whatcom County, funded $702,597 in grants to child care providers and funded two school construction projects for a total of $5,451,593. The Lummi School District received $3.8 million in construction funds for additional classrooms, and $1.6 million went toward preparatory work for the Whatcom County Skills Center, Executive Director Misha Werschkul of the Washington State Budget and Policy Center said in an email.

The Skills Center will expand access to career education for Whatcom County high school students when it opens. The $3.8 million for Lummi School is part of a $5 million package awarded to the school.

Skagit Benefits

In Skagit, the funds created an estimated 154 daycare/kindergarten spaces and provided $324,280 in grants to child care providers. Four school construction projects totaling $2.29 million were funded with tax revenue: Concrete School District received $985,000, La Conner received $1.2 million, Conway received $22,260 for a planning grant, and Northwest Career & Technical Academy received $104,000 for minor repairs.

The Washington State Budget and Policy Center estimates that if the tax revenue disappears, about 173 jobs would be lost in Whatcom County and 95 in Skagit County.

Stephan Blanford, executive director of the Children’s Alliance and a spokesman for the No on 1-2109 campaign, said only 2% of Washington state taxpayers are subject to the tax.

“Our polling data shows that when people have a basic understanding of what this bill or this initiative will do, the vote against it is overwhelming,” he said.

Blanford said repealing the tax would have a negative impact on access to child care and funding for school construction, as well as on the state’s economy if parents who can’t find child care are forced to stay home to care for their children.

Whatcom County Republican Party Acting Chairwoman Misty Flowers has argued that the capital gains tax is “an income tax disguised as an excise tax,” and that Washington state voters have repeatedly rejected an income tax on the ballot.

She also cited a 2021 advisory vote on legislation establishing the tax, in which 61.05% of voters voted against a capital gains tax.

“The real intent of this legislation was to get the state Supreme Court to overturn nearly a century of precedent and obtain a ruling that ‘income’ is not ‘property,’” Flowers said in an email.

Despite the implementation of the Whatcom County Children’s Health Fund Tax and the Capital Gains Tax, Whatcom County still has a shortage of about 5,000 child care spaces.

Charlotte Alden is a general affairs and corporate reporter for CDN and can be reached at [email protected]; 360-922-3090 ext. 123.