Washington Research Council examines capital gains taxes and potential for boosting school construction funding. It’s iffy.

One of the claims made for the controversial capital gains tax is that it will generate additional revenue for education and school construction funding. It might, but as the Washington Research Council reports, there’s no guarantee that the construction funding will materialize in any meaningful way. 

The WRC provides the background.

The capital gains tax bill (ESSB 5096) specifies that the first $500 million of tax collections each year will be deposited in the education legacy trust account (ELTA) and any remainder each year will be deposited in the common school construction account (CSCA). (The amount deposited in the ELTA will be adjusted by inflation each year.)

The 2021–23 operating budget assumes that the tax will increase state revenues to funds subject to the outlook (NGFO) by $415.0 million in 2021–23 and $840.0 million in 2023–25. According to the Department of Revenue (in the final, revised fiscal note), in FY 2023, the tax is expected to increase ELTA revenues by $500.0 million and CSCA revenues by $27.0 million.

Here’s the problem.

The capital gains revenues would be a substantial boost to the CSCA—if they are ultimately collected. As we noted in our policy brief on the enacted operating budget, the courts could determine that the capital gains tax is unconstitutional, or it could be repealed by initiative. And even if the tax is upheld, it is a highly volatile revenue source. If the capital gains revenues dip below the level dedicated to the ELTA, none would go to the CSCA.

Not a dependable revenue source, as we’ve long said.