One of the strengths of Washington’s tax structure is that revenues are relatively stable. Pew estimates that Washington’s tax revenues are the 16^th least volatile in the country.

And one of the strengths of Washington’s budget system is our constitutional rainy day fund (the budget stabilization account, or BSA). Pursuant to Art. VII, Sec. 12 of the state constitution, 1% of general state revenues must be transferred to the BSA each year. Additionally, three-quarters of any extraordinary revenue growth must be transferred to the BSA at the end of each biennium.

These transfers are based on “general state revenues.” The term is defined in the constitution (Art. VIII, Sec. 1). Generally, it means most revenues to the general fund–state (GFS). It does not include revenues to dedicated funds.

SSB 5096, the capital gains tax bill reported by Ways and Means last week, would weaken these strengths.

As we showed in a 2019 policy brief, capital gains taxes are highly volatile. Thus, it would behoove the Legislature to save more of any capital gains tax collections in good times so that the inevitable downturns can be better managed.

To that end, as originally proposed, collections from the bill would have gone to the GFS. From there, they would have been subject to the transfers to the BSA. The version of the bill passed by Ways and Means, on the other hand, would deposit the first $350.0 million in revenues to the education legacy trust account and the remainder to a new “taxpayer relief account.”

This means that no capital gains tax collections would be subject to the constitutionally-required transfers to the BSA.

The Seattle Times suggests that the taxpayer relief account is somehow meant to address the tax’s volatility, but the best way to do that would be to make collections subject to transfer to the BSA. Moreover, the bill does not include any language about what would be funded from the taxpayer relief account (or if any restrictions would be placed on its use).

Kriss wrote about the other aspects of SSB 5096 here. Opportunity Washington has more here.