Unearned Income Tax in Washington: Building Resources for the Greater Good

Washington’s current state tax system is inadequate to support the public services necessary to a vital economy. According to a national report on state taxation, “CEOs in Washington worry about whether the state is willing to provide the services they need.” Well-funded public education, health care, and other public services are essential if the state’s residents and businesses are to thrive.

Washington is one of only seven states with no broad-based personal income tax. Existing taxes fall disproportionately on the state’s lower-income residents.  Reforming the state’s tax system could bring in desperately needed additional revenue and could make the state’s tax system more equitable.

One possibility is the adoption of a tax on unearned dividend and interest income. A tax on unearned income would be paid almost exclusively by the state’s highest income residents and could produce revenues that grow with the state’s economy and need for services. The additional revenue could total between $100 million and $500 million a biennium depending on the tax rate and exemption level.

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