When we first wrote about the proposed wealth tax on Washington’s handful of billionaires, we noted there was little analysis available. The bill, HB 1406 was heard by the House Finance Committee yesterday. (TVW coverage here; the wealth tax comes on at about the 44 minute mark) There’s now a fiscal note and bill analysis.
The fiscal note estimates the proposed tax would raise nearly $5 billion in the 2023-2025 biennium. The estimate comes with what would appear to be significant cautions. First, there’s a question about the constitutionality of the tax.
-There is some litigation risk that the courts would invalidate the wealth tax on the grounds that it is a property tax that conflicts with the uniformity provisions of Article VII, Section 1 of the Washington Constitution. However, for purposes of this fiscal note, the estimates assume that collection of the tax would not be delayed during the course of any legal challenges and that the tax would ultimately survive any legal challenges.
And, then, there’s the issue about whether the taxpayers subject to the tax would hang around to pay it.
-The distribution of wealth among taxpayers subject to the wealth tax is heavily skewed toward the top. Revenues would be significantly impacted if one or more of these taxpayers were to move out-of-state or take other actions to reduce their wealth tax liability.
– This revenue estimate assumes that no taxpayers move out of state or take other actions to reduce their liability under the tax.
A necessary, if heroic assumption. Tax Foundation analyst Jared Walczak writes,
Only about a dozen people would be liable for the tax, an exceptionally small base, and four of them—Jeff Bezos, Bill Gates, Steve Ballmer, and Mackenzie Scott—would account for 97 percent of the tax’s revenue, according to the most recent Forbes data.
What if they just leave?
Only one of these four (Bezos) has a day-to-day corporate role in a Washington state-based company, and even he spends much of his time in a Washington, D.C. residence not far from his company’s second headquarters in Northern Virginia. What if Bezos, Gates, Ballmer, or Scott, uninterested in liquidating investments every year to pay a Washington state wealth tax, decided to make their primary residence elsewhere? They could still spend up to 182 days a year in Washington without being subject to the tax, provided they could demonstrate that their other location was their primary place of residence.
This would not only foil the wealth tax but would deprive the state of other revenue as well.
Right. We recommend reading Walczak’s brief analysis for more context. (Also, as an aside, the AP reports, The leak of Lionel Messi’s multimillion dollar contract has brought attention to the high amount of taxes soccer players pay in Spain, prompting the league to raise concerns about the departure of its top stars.)
So far, 26 House Democrats have signed onto the bill, representing nearly half the House Democratic caucus. Among the co-sponsors is House Majority Leader Pat Sullivan who said Monday that while the idea has broad support, it’s too early to know if it is likely to pass this year.
“It only affects billionaires in our state, it’s very popular I think in our communities, but let’s see how the hearing goes and we’ll take it from there,” Sullivan said.
Democrats are also once again considering a state capital gains tax which Gov. Jay Inslee has endorsed. It’s not clear how the wealth tax would fit in with that proposal.
Geek Wire’s report on the hearing quotes a backer of the tax whose concerns are doubtless shared by those who oppose it.
The risk of a handful of billionaires moving out of state has some, like retired Microsoft engineer Ruth Lipscomb, asking the legislature to lower the threshold to qualify for the tax.
“I know we’re in the top 1% of wealth in Washington,” she said during the hearing. “I also know that a huge percentage of our neighbors have zero or negative net worth, yet they’re paying a higher percentage of their income in state and local taxes. Those of us in the richest 1% are accumulating an ever-growing slice of the nation’s overall wealth and leaving the rest behind. Building a tax system that is equitable, balanced, and works for everyone is the only way to address that widening wealth gap.”
It’s hard to know how low the threshold might fall. But it’s easy to understand just how shaky are the foundations upon which the $5 billion tax hike is built.