Washington legislature approves new excise tax on capital gains over $1 million

Washington State lawmakers have introduced Senate Bill 5813, a significant legislative measure aimed at reforming the state's tax system to better support education funding. Introduced on April 18, 2025, the bill seeks to address the pressing issue of tax equity in Washington, which currently has one of the most regressive tax systems in the nation.

The primary purpose of Senate Bill 5813 is to increase funding for public K-12 education, early learning, child care, and higher education by imposing an additional excise tax on long-term capital gains. Specifically, the bill proposes a 2.90 percent tax on capital gains exceeding $1,000,000, alongside a restructuring of the estate tax to create a more progressive rate system. This includes raising the top tier estate tax rate to 35 percent and increasing the exclusion amount to $3,000,000.

Supporters of the bill argue that it is a necessary step toward creating a fairer tax system that alleviates the burden on low-income residents, who currently pay a disproportionately high percentage of their income in state and local taxes. By reallocating these funds to the education legacy trust account, the bill aims to ensure that all Washingtonians have access to quality education and opportunities for growth.

However, the bill has sparked notable debates among lawmakers and constituents. Critics express concerns about the potential economic impact on high-income earners and the implications for investment in the state. Some argue that increasing taxes on capital gains could deter investment and economic growth, while others maintain that the benefits of a more equitable tax system outweigh these risks.

The implications of Senate Bill 5813 extend beyond immediate funding for education. Experts suggest that if passed, the bill could lead to a significant shift in Washington's tax landscape, potentially setting a precedent for other states grappling with similar issues of tax fairness. As discussions continue, the outcome of this bill could reshape the financial responsibilities of Washington's wealthiest residents and redefine the state's commitment to equitable education funding.

As the legislative session progresses, stakeholders from various sectors will be closely monitoring the developments surrounding Senate Bill 5813, with its potential to impact the lives of countless Washingtonians at stake.