The wealth tax bills proposed in the Legislature this year (HB 1473 and SB 5486) are very similar to the 2021 proposals (which Kriss described here). A major difference is a dramatic increase in the amount of financial assets that would be subject to the tax.

HB 1473 (which was heard by the House Finance Committee yesterday) and its companion SB 5486 would impose a 1% tax on a resident’s taxable worldwide wealth, beginning Jan. 1, 2025. All nonfinancial intangible assets (e.g., patents, trademarks, and sports franchises) would be exempt from the tax, as would various government-related debt obligations.

Financial intangible assets (e.g., cash and stocks) of up to $250 million would also be exempt. This is quite the change from the 2021 bills, which set the floor at $1 billion. Additionally, the definition of financial intangible assets in HB 1473 no longer specifically includes pension funds and mortgages and liabilities secured by real property. The HB 1473 definition adds units of ownership and stock in subchapter S entities. (Both the 2023 and 2021 bills include units of ownership in subchapter K entities as financial intangible assets.)

HB 1473 also changes the definition of a Washington resident for purposes of the tax. Before, a Washington resident was someone domiciled in the state at any time during the year—unless he didn’t maintain a permanent place of abode here during the entire year, maintained a permanent place of abode elsewhere, and spent not more than 30 days of the year in Washington. In HB 1473, a Washington resident is someone domiciled in Washington at any time during year. (Under both the 2023 and 2021 versions, a resident could also be someone not domiciled in Washington but who maintained a place of abode in the state and was in Washington more than 183 days of the year.)

Unlike the bills in 2021, HB 1473 adds an emergency clause. So, if the bill is passed by the Legislature, it would not be subject to a referendum.

Wealth tax collections under HB 1473 would be deposited in the following accounts:

• 25% to the education legacy trust account (ELTA),
• 25% to the Washington housing trust fund,
• 25% to the new disabilities care trust account, and
• 25% to the new taxpayer justice account.

Under the bill, the disabilities care trust account could “be used only for persons with disabilities.” The taxpayer justice account could “be used only for providing credits against taxes paid by Washington state residents.” Note that because wealth tax revenues would go to dedicated accounts, they would not feed in to the constitutionally-required deposits to the rainy day fund.

The 2021 bill would have deposited the wealth tax revenues in the Washington tax justice and equity fund. This fund would have been used to offset reductions in revenue from a proposed property tax exemption, from the working families’ tax credit, from an expansion of the small business tax credit, from replacing the business and occupation tax, and from “other tax fairness policies such as those that may be suggested by the tax structure work group.”

Of course, since then, the Tax Structure Work Group has made its final recommendations to the Legislature. The recommendations did not include moving forward with a wealth tax.

All told, the different proposed uses of the wealth tax collections plus the different intentions stated in Sec. 1 of the 2021 and 2023 proposals illustrate a shift in the reasoning for a wealth tax.

Sec. 1 of the 2021 bills stated, “the legislature further intends to achieve equity by using revenues generated by the Washington state wealth tax to offer credits against taxes paid disproportionately by low-income and middle-income families and small start-up and low-margin businesses.”

Now, that part of HB 1473 notes that the wealth tax revenues would be deposited in the four accounts mentioned above “to ensure Washington’s wealthiest residents are sharing more equitably in the responsibility of funding key community programs, including education, housing, and supports for Washington residents with disabilities, including our students entitled to receive special education services.” Although the taxpayer justice account would help fund tax credits, the stated intention behind the proposal has changed from offsetting other tax reductions in the 2021 version to funding spending programs in the 2023 version.

The fiscal note for HB 1473 estimates that it would increase revenues by $6.433 billion in 2025–27. Of that, $1.608 billion would go to the ELTA, which is a fund subject to the outlook (NGFO). (The Nov. 2022 revenue forecast estimates that NGFO revenues will be $70.883 billion in 2025–27.) The Department of Revenue (DOR) estimates that there would be 700 taxpayers under HB 1473, compared to 100 for the previous bills. (With the higher $1 billion threshold, the previous version of the tax was estimated to bring in $3.253 billion in its first full biennium.)

As I wrote last year, initially DOR had not assumed that taxpayers would move or otherwise change their behavior in response to a wealth tax. DOR updated its fiscal note for the wealth tax in 2022 to better account for changes in taxpayer behavior. Similar assumptions are made again in the fiscal note for HB 1473.

When Kriss wrote about the 2021 proposals, he discussed several reasons a wealth tax would be impractical: There are no wealth taxes currently in place in the U.S., which makes estimating the impacts difficult; enforcement would be difficult; wealthy people are highly mobile; and there are serious questions about constitutionality. Those concerns all still apply.