The Washington wealth tax has been making waves since its introduction in 2021. If passed, the policy would bring equity to the state’s notoriously rigged tax code while generating billions for programs and services. However, supporters and skeptics have raised questions about the proposal’s practicality. Some ask: How much revenue would the tax generate? How would a wealth tax be implemented? Can we even reliably tax wealth?

To address these concerns, the legislature allocated $300,000 in the 2023 state budget to fund a study of the tax. This budget item directed the Washington Department of Revenue (DOR), the agency responsible for administering and collecting the tax, to study the policy and report their findings to the legislature. The DOR will present a preliminary report in January 2024, followed by a final report in November 2024.

In this report, DOR will explore wealth tax proposals from other U.S. states and countries, consulting with authorities, experts, and academics in those regions. The final report has yet to be published, but the Department released a promising status update in December 2023.

Read on for our key highlights and takeaways from the preliminary findings.

How the Washington wealth tax proposal works

Before we dive in, a refresher on the policy: As introduced in the 2023 legislative session by Senator Frame and Representative Thai, the wealth tax would enact a 1% tax on the financial intangible property of multimillionaires and billionaires, with the first $250 million of such assets exempted. Very few individuals are wealthy enough to surpass this threshold, and fewer than 0.01% of Washingtonians would ever pay the tax.

Financial intangible wealth encompasses assets like corporate stocks, bonds, and mutual funds and includes both privately held and publicly traded shares of businesses. The Department of Revenue estimates that only 700 Washingtonians have enough wealth in taxable financial assets to qualify for this tax. Even still, it would collect around $3 billion a year for our state’s public services.

It’s important to note that the wealth tax is distinct from the 2021 capital gains tax: the capital gains provision taxes sales of financial assets, while the wealth tax is an annual levy on the total market value of all financial assets and, therefore, does not require a sale of those assets to trigger the tax.

What has the Department of Revenue been studying so far?

In December 2023, the Department of Revenue (DOR) published its first status report. As required by the budget proviso, the Department of Revenue contacted other states and countries with wealth tax proposals in effect. This included the U.S. states of: California, Connecticut, Hawaii, Illinois, Maryland, Minnesota, and New York. And countries such as: Argentina, Belgium, Colombia, Italy, Norway, Netherlands, Spain and Switzerland. Through a questionnaire and interviews, the Department gathered information from regional authorities, experts, and academics.

DOR gathered this information in a narrative overview, answering some of the most asked questions about the policy, such as how taxable wealth is defined and valued, at what rate, how taxpayers file annual wealth tax returns, and the average threshold of exempted taxable wealth.

Washington Wealth Tax Study: Key Takeaways

Other countries are more likely to tax everyday wealth over extreme wealth

Of the international wealth tax proposals included in the study, Norway’s and Switzerland’s are the most similar to the policy proposed in Washington state. However, it’s worth noting that all of the foreign wealth taxes have much lower exemption thresholds than those proposed in the United States. The exemption thresholds range from Argentina’s of $17,000 to Belgium’s $1.06 million, which is still considerably lower than Washington’s proposed threshold of $250 million.

In some ways, foreign wealth taxes are a completely different animal from what is proposed in America. Foreign proposals tend to tax everyday wealth, while proposals from the United States aim to tax extreme wealth held by the richest individuals, with wealth between tens and hundreds of millions of dollars.

Some states opt to expand existing tax structures rather than build a policy from the ground up

One of the main aims of this study was to understand how other legislatures have approached structuring state-level taxes on high-wealth individuals.

Upon reviewing other domestic policies, the Department of Revenue found that some states chose to modify or expand existing policies rather than build a new policy from scratch. For example, Connecticut and Maryland added surcharges to existing capital gains or income taxes, while Minnesota opted to close income tax loopholes that favor the very wealthy.

Other state proposals are more similar to Washington’s, like Illinois and New York, whose legislatures proposed “mark-to-market” taxes on financial assets, a tax wherein only the amount of value gained on taxable assets in a year is taxed.

Hawaii’s proposal was to tax the net worth of individuals with more than $20 million in assets located in the state while California’s proposal would provide a tax on those with a net-worth of $50 million or more, with a surcharge for billionaires.

More updates from partner states

California

California lawmakers proposed using California’s False Claims Act to help support the collection of wealth tax revenues. This would have allowed private citizens to initiate lawsuits alleging that someone has attempted to defraud the state of California by not properly paying their taxes, and if the lawsuit prevails, the plaintiffs can share in a portion of recovered tax revenue.

Illinois

The Illinois proposal includes provisions that state the Illinois Department of Revenue can request the filing of mark-to-market tax forms by any individual expected to have net assets in excess of $1 billion (the threshold for taxation).

Connecticut

Connecticut proposed wealth tax legislation in the last session which included a tax gap and incidence study; while the tax didn’t pass, the study did and that report will be out in 2024, which may fuel further conversations (and perhaps galvanize bill passage) around the way that the tax system is rigged in favor of the very wealthy and works against middle-and low-income people.

Next steps

The Department of Revenue is continuing its study, building upon this initial body of research. Some of the questions they will examine are: How do people file the wealth tax, and what is the Department’s initial touch point with taxpayers? They will also take a deeper look into compliance, investigating what measures can be taken to ensure all tax revenue due to the state comes in the door.

According to the Department, in Washington, there is currently 97% voluntary compliance. However, managing compliance becomes more difficult when taxing a billionaire’s wealth versus a regular working person’s transactions at the store. The individuals in our state who would pay the wealth tax pay are in the upper echelon of world-wide wealth, with financial assets that often involve complicated arrangements and baroque financial instruments, requiring more complex systems to track and account for compliance.

This initial status report provides a landscape of wealth tax proposals and enacted taxes that show there is a growing movement of state lawmakers working to make the public revenue system more fair. These state-level wealth taxes ask those with the very most to contribute a little bit more of what they owe to the system so that it functions better for all of us.

We look forward to the final report from the Washington wealth tax study and how this will further policy discussions around the state wealth tax in the 2025 legislative session.