Although the March revenue forecast increased estimated state revenues for the 2017–19 and 2019–21 biennia, the House Appropriations Committee Chair proposed a new capital gains tax along with his 2019–21 operating budget. The Senate is also considering a capital gains tax, although in this case the proceeds would be used to reduce other taxes rather than to increase the operating budget.

A capital gains tax would be highly volatile. Taxpayers can arrange their affairs to avoid them, and the value of capital gains realized by Washington taxpayers varies significantly year to year. Also, swings in capital gains are much bigger in percentage terms than swings in state sales tax revenue. Volatile taxes require stronger reserves to manage downturns, but the House bill would avoid constitutionally-required transfers to the rainy day fund by directing revenues from the tax to the education legacy trust account.

Additionally, a capital gains tax would certainly be challenged as an unconstitutional income tax. Even if it were eventually found to be constitutional, a court case would likely mean that any revenues would be suspended until after 2019–21. Building the budget around such a tax would be risky at best.

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