As 2021 draws to a close, and the COVID-19 pandemic heads into its third year, nationally and here in Washington state, we face a choice: should we choose to invest in people and infrastructure in order to build more resilient communities and a more equitable economy? Or should we ratchet back public spending and emerge from this pandemic with millions of people worse off than when it began?
Working people are struggling more and more to make ends meet while the wealthy continue to benefit enormously from the pandemic economy. New state and federal taxes on concentrated wealth together with ample public investments are needed to forge a path toward recovery.
The pandemic has shone a bright light on existing inequalities and exacerbated economic disparity across race, class, and gender lines. Around half of Washington households were rent-burdened before the pandemic in 2017, and the U.S. Census Bureau Pulse survey shows that now nearly a third face housing insecurity from the threat of eviction or foreclosure. Washington’s eviction moratorium expired on October 31, 2021. Food insecurity has also increased: 27% of Washingtonians surveyed in 2021 were experiencing food insecurity, up from 10% before the pandemic. Additionally, medical care is increasingly out of reach. In a 2021 Kaiser Family Foundation survey, nearly one-third of people reported not taking medication prescribed by their doctor due to the high cost.
The adverse effects of the pandemic are magnified within Black, Indigenous, people-of-color, immigrant, and poor households. According to a study from the Harvard School of Public Health, half of Latinos, Black people, and Native Americans and 29% of White people are experiencing serious financial problems such as difficulty paying rent or affording medical treatment. The same study showed 19% of U.S. households report losing all of their savings during the pandemic.
The racial wealth gap and levels of wealth inequality were stark before the pandemic. Now, the Federal Reserve shows that for the first time since it started tracking household wealth in 1989, the top 1% of households hold more wealth than the entire middle 60% of American households. Billionaires increased their wealth by $1.3 trillion (a 45% increase) from March 2020 to March 2021.
This picture of growing inequality and economic insecurity stands in contrast to the view of the economy often presented by and to lawmakers as they consider budgets and public policy. For instance, by some measures, Washington state’s revenue collection is experiencing a “surplus” this year, with tax revenue collections higher than predicted. However, this view of the economy ignores critical context: namely, this so-called surplus exists within a system that is both unfair and deeply inadequate. For decades, both our state and federal governments have cut back on public services, leaving our communities highly vulnerable and starving funding for physical infrastructure, public health, mental health, higher education, child care, and other public services. As the pandemic took hold in early 2020, the state cut public services and thousands of public sector jobs. Through 2020 and 2021, federal aid to individuals and state and local governments kept the economy afloat and allowed the state to balance its 2021 budget.
By some measures, Washington state’s revenue collection is experiencing a “surplus” this year, with tax revenue collections higher than predicted. However, this view of the economy ignores critical context: namely, this so-called surplus exists within a system that is both unfair and deeply inadequate.
Relative to the size of the state’s economy, Washington’s spending on public programs, from K-12 education to parks and recreation, has been on the decline over the past several decades. One of the drivers of this under-investment is how our state raises revenue: half of state revenue comes from the sales tax, a regressive tax on a tax base that has been decreasing relative to our state’s economy for decades. In 2012, the Washington Supreme Court ruled in the McCleary decision that our state was not meeting its constitutional duty to amply fund and provide for basic education. Despite action by the legislature to raise revenue by adjusting property taxes, state spending on K-12 education has still not reached its relative levels from the early 1990s. Even before the pandemic, college, housing, and health care were unaffordable to many, and our state’s child care, public health, and mental health systems were in crisis. All of these systems need increased investment now to meet the needs of our state.
Washington lawmakers must consider how to sustain the investments we need to build resilience and opportunity for Washingtonians
Currently, neither state nor federal governments tax the wealth of the ultra-rich, who derive their wealth largely from financial intangible property: stocks, bonds, mutual funds, and the like. Households with a net worth of $50 million and above typically hold half or more of their wealth in capital gains, mostly on financial property. A capital gain is the accrued value on an asset: the difference between the market value when it was bought and if it were sold today. A recent slate of ProPublica articles revealed the important distinction between income and wealth and the key role that accrued or “unrealized” capital gains play in the wealth-building of the ultra-wealthy. Rather than selling (i.e. “realizing”) assets to receive income from capital gains, the ultra-wealthy leverage their financial assets to obtain personal loans which are not subject to income tax and provide cash flow to fuel their lifestyles. In addition, unlike real property, financial intangible property is not taxed unless it is sold during an individual’s lifetime. As a result, some billionaires enjoy effective tax rates below those of the minimum wage workers their corporations employ.
One step our state legislature can make to bring greater fairness to our tax code and raise revenue to invest in Washingtonians is to tax the wealth of the ultra-rich. A proposal introduced in the 2021 legislative session by Representative Frame and Senator Hunt would do just that. HB 1406/SB 5426 proposes a property tax of 1% on financial intangible property, exempting the first $1 billion of financial assets. The Washington Department of Revenue (DOR) estimates fewer than 100 individuals would be subject to this tax, which would raise around $2.5 billion a year. For point of reference, the state’s existing property tax is also around 1% (when state and local levies are combined), affects millions of taxpayers in Washington, and raises around $3.6 billion a year.
New investments funded by a tax on the ultra-wealthy would provide a tremendous boost to the whole economy and particularly benefit the low-income, people of color, rural, and other communities that have been left behind by unequal growth and further harmed during the pandemic. Extensive research shows the positive multiplying economic effects of amply-funded public education, public health, childcare, and family economic security. Recent research from Western Washington University for the bipartisan Tax Structure Work Group shows a positive connection between increasing public investments, reducing poverty, and improving Washington’s economic competitiveness.
This moment of growing inequality and increasing economic insecurity calls for significant new investments in Washington’s people and public goods. A simple 1% tax on the wealth of the ultra-wealthy will raise revenues from those who have seen their wealth increase dramatically during the pandemic and for many years before that. With this new progressive revenue, lawmakers could fuel a more equitable recovery and a more hopeful future for us all.
You can learn more about the wealth tax in our HB 1406/SB 5426 fact sheet.
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