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Surprisingly, the Seattle City Council will not move forward with a measure to implement a city-wide capital gains tax. As previously reported, the proposal would have enacted a 2% capital gains “excise tax” on city residents on top of the 7% levied by the state.
As noted in the article:
“An analysis by city council staff estimated that the capital gains tax could raise around $38 million a year, based on Seattle’s share of state capital gains tax revenues from the state capital gains tax. However, the staff report cautions, that estimate doesn’t take into account ’tax avoidance‘ by wealthy people who can move their assets around, and is based on ’an extremely concentrated tax base,’ which could make it an unreliable revenue source from year to year. Just 163 people are responsible for 85 percent of state capital gains tax revenues originating in Seattle.”
An unreliable revenue source, this assessment from the city confirms the assessments of other tax officials nationwide who have consistently argued that capital gains income taxes are extremely volatile.
The council decided to shelve the proposal with the potential repeal coming to the ballot in 2024. While it is wise to see what the will of the voters is on the issue, there were also far more political reasons why the decision was made:
“After the meeting, council budget chair Teresa Mosqueda said the council decided to put off the decision on capital gains ‘to protect the viability of that [revenue] source,’ noting that a new, local capital gains tax might increase support for the campaign to repeal the statewide tax.”
The proposal was offered by Councilmember Pedersen who did not run for re-election. Any similar proposal will have to be introduced by the new council next year.