State Rep. Laurie Jinkins, D-Tacoma, has proposed a new, 5 percent capital gains tax. Introduced as HB 2563, the measure has picked up 26 Democratic sponsors and will doubtless generate a bit of buzz. At least the think tank that germinated the idea is pleased. Here’s what the Washington State Budget and Policy Center has to say about it today:

House Bill 2563, which would create a new 5 percent excise tax on high-end capital gains in Washington, would tap this highly concentrated economic resource in order to restore public investments in health care, education, and other public structures proven to foster job-creation and broadly-shared prosperity.

The Center displays a graph based on Congressional Budget Office data showing that capital gains are increasingly more concentrated among the nation’s wealthiest taxpayers. The graph ends at 2007, as do most of the media reports of the growing wealth disparity in this country. It reminded me to check back on this Alan Reynolds op-ed in in the Wall Street Journal.

Looking at the CBO’s report on income inequality, Reynolds writes:

…here’s a question: Why did the report stop at 2007? The CBO didn’t say, although its report briefly acknowledged—in a footnote—that “high income taxpayers had especially large declines in adjusted gross income between 2007 and 2009.”

No kidding. Once these two years are brought into the picture, the share of after-tax income of the top 1% by my estimate fell to 11.3% in 2009 from the 17.3% that the CBO reported for 2007.

The larger truth is that recessions always destroy wealth and small business incomes at the top. Perhaps those who obsess over income shares should welcome stock market crashes and deep recessions because such calamities invariably reduce “inequality.”

Setting aside the unanswerable “fair share” questions, let’s consider what taxing capital gains might mean to the state’s revenue stream. As Reynolds points out, incomes at the top tend to be volatile. California serves as a poster child for the hazards of overreliance on taxes that fall most heavily on the wealthy.

Stateline.org reports:

With a revenue system that’s heavily dependent on income taxes on the wealthy, California’s budget has a history of unexpected booms and busts that reflect the vagaries of the national economy. In that context, it’s notable that the state Legislative Analyst’s Office (LAO) has declared that “revenue estimates are an even bigger question mark than usual for the Legislature this year.”

Sure, there’s the uncertainty associated with taking a tax plan to the voters. But even clearing that hurdle doesn’t solve the problem. Capital gains taxes are tricky.

Forecasting capital gains is notoriously difficult. That’s partially because all economic forecasting is imprecise, but also because capital gains can rise and fall suddenly, independent of the expansions and contractions of the economy as a whole…

The very wealthy tend to claim a greater proportion of their income in capital gains. For that reason, the revenue from Brown’s income tax plan depends heavily on the capital gains number. By targeting the rich, Brown’s plan would make California’s tax code more progressive, but also potentially more volatile.

That “potentially” is a nice, but unnecessary, qualifier.

Capitol Weekly has this.

Gov. Brown’s latest budget reflects California’s risky, roller-coaster reliance on uncertain revenues generated by wealthy taxpayers. And there’s no immediate end in sight, given that the governor wants voters’ permission to raise those taxes further in November.

That assessment from the Legislature’s nonpartisan fiscal adviser is at the heart of its analysis of the governor’s draft budget for the 2012-13 fiscal year which he hastily unveiled last week amid a staff mix-up. The year begins July 1.

“Already, California’s budget is dependent on volatile income tax payments by the state’s wealthiest individuals,” the Legislative Analyst noted.

I understand that lawmakers here are interested in some new revenue. If they’re serious about long-term sustainability, capital gains taxes should be the last place they look. No need to take that roller coaster ride.