In a bold move at the end of his time in office, Governor Jay Inslee proposed balancing our tax code and bringing in much-needed funds for popular and critical programs by passing a modest wealth tax on the extremely wealthy.

The wealth tax would treat the Wall Street wealth of multi-millionaires and -billionaires, currently tax exempt except when sold, more like how our homes are treated in the tax code. It would work as an annual 1% tax on the value of stocks, bonds, mutual funds and other types of financial intangible assets. But unlike everyday people’s homes, a wealth tax includes a big exemption (the amount of wealth exempted varies by proposal). With an exemption of $50 million for instance, the first fifty million dollars in assets remains untaxed. In contrast, our homes are taxed at about 1% each year on the entirety of their assessed value, whether or not we’ve sold the home or made more money that year to help pay the tax when home values increase. The wealth tax would bring in about $4 billion each year from some of the wealthiest Washingtonians and help fund affordable housing, tax credits for working families, public education, and more. A wealth tax bill in line with Governor Inslee’s proposal was introduced on January 15 in the House (HB 1319). It is likely that additional wealth tax proposals will be introduced this session in both the House and Senate.

To try and answer questions about how most effectively a wealth tax could be implemented in Washington state, the legislature funded a study of the tax to be conducted in 2023-24. They directed the Washington Department of Revenue (DOR), the agency responsible for administering and collecting the tax, to study the policy and report its findings to the legislature in November 2024.

DOR published its preliminary report in May 2024, and we analyzed the first report from the wealth tax study. Our findings then boiled down to 1) the individuals in our state who would pay the wealth tax are in the upper echelon of worldwide wealth, with financial assets that often involve complicated arrangements and baroque financial instruments, requiring more complex systems to track and account for compliance and 2) state-level wealth taxes ask those with the very most to contribute a little bit more of what they owe so programs and services function better for all of us. DOR’s final report was published on November 1, 2024, and presented to the House Finance Committee on January 14, 2025.

The reality is that DOR’s wealth tax study was a thorough look at the challenges of implementing a new tax that has not yet been done at the state level. Researchers at DOR would not be doing their job if they had glossed over the technical difficulties of taxing some of the wealthiest people in the world, who often have small teams working diligently to protect their wealth from taxes.

From the conclusion of the study:

Wealth taxes may offer a means to address tax inequality and help fund government programs, but their success hinges on a design that takes into consideration the difficulties and previous issues that jurisdictions with a wealth tax have faced. Overcoming the challenges associated with administering a wealth tax—including asset valuation and identification complexities, unknown voluntary compliance rates, aggressive tax planning strategies, and the other administrative challenges identified in this report—will be daunting. It is also unclear how reliable of a revenue source a wealth tax would be in, at least, its early years. While the costs for administering a wealth tax might be possible to estimate, it is difficult to estimate revenues from a proposed wealth tax due to insufficient data, capital flight risk, and the novel nature of the tax. Despite the challenges faced in administering and estimating the revenue from a wealth tax in Washington, the department believes we could administer the tax if it were to be signed into law.

Washingtonians are ready for progressive revenue. Are lawmakers ready to choose the pragmatic and popular path?

Taxation is often made to be very polarizing. As Washington state lawmakers face a budget shortfall, reactions to progressive revenue options vary. We know that Washingtonians overwhelmingly support a wealth tax. According to a poll released by the Seattle Times, people across the political spectrum (66%) support taxing residents with a net worth greater than $250 million. Taxing the ultra-wealthy has been a rallying cry across social and political movements. Here in Washington state, with the second-most regressive tax code in the country, coalitions have been working to move the needle on balancing our tax code with the passage of a capital gains tax and a working families tax credit. In the 2024 election, voters overwhelmingly rejected right-wing efforts to repeal the capital gains tax. In this coming legislative session, as lawmakers decide how to address funding gaps, looking at evidence-based research to guide policymaking is essential. This, however, doesn’t come without its challenges.

While wealth continues to rise overall in Washington, the public revenue flowing in doesn’t keep up with the needs of working people in our state. The culprit is our out-of-date, unfair, and inadequate tax code. Washington, next to Florida, has the most unfair tax code in the country due to its reliance on sales tax — about half of the public dollars come from the state sales tax on purchases. Relying on revenue from our state’s sales tax and other regressive taxes is a recipe for austerity. Over the last several decades, revenue from sales tax has not kept up with the growth of our state’s economy and population. So, despite the rising levels of wealth in the Pacific Northwest, state lawmakers don’t have sufficient funds to maintain appropriate levels of funding for basic areas of state government, let alone address new concerns and implement new programs like climate change mitigation or school meals for all public-school students.

Legislators’ choices are clear: increase regressive taxes, cut beloved and critical programs and services, or raise taxes on the wealthy and large, profitable corporations. Given how popular and pragmatic this last option is (and how unpopular and dysfunctional the first two choices are), we hope that lawmakers take the path of progressive revenue. It’s not a theoretical discussion. For the many Washingtonians who rely on public services, sometimes for maintaining a basic quality of life, and for all of the public employees who keep programs functioning, the stakes are very high.

If passed, the wealth tax would bring equity to the state’s notoriously rigged tax code while generating billions for programs and services, a win-win for all Washingtonians. However, it is a new policy idea, and such a tax has not been implemented at this scale at the state level in the United States.

Background and Framework

The Wealth Tax is a Property Tax

The report establishes that the wealth tax is a type of property tax. This is the framework DOR uses to understand the legal and administrative considerations explored in the study. Specifically, the wealth tax is a property tax on financial intangible property, which includes publicly traded stocks and bonds, private business equity, and other forms of financial wealth. DOR has previously stated that 90% of the taxable wealth, as defined in previously introduced legislation, is in the form of publicly traded corporate stocks and bonds (i.e., assets traded on Wall Street).

Property taxes are limited by the state constitution. Property taxes must be uniform, meaning property of the same type or “class” must be taxed at the same rate. There is a limit on the rate of property taxation of 1% of the “true and fair value” of the property. The legislature is given authority by the state constitution to exempt property from taxation through Amendment 14, which states “such property as the legislature may by general laws provide shall be exempt from taxation.”

The report goes into detail on the history of Washington state’s taxation of intangible property. As way of background to this history, middle- and low-income Americans hold their wealth almost entirely in their homes. Real estate is regarded as “real” or “tangible” property. In contrast, the wealthy and ultra-wealthy hold more of their wealth in intangible property. Intangible property is anything with value that one can’t physically hold, such as patents, intellectual property, stocks, bonds, reputation, and brand assets. Intangible property may have a physical manifestation that serves to symbolize or represent it, but its value is not held in the physical manifestation. The asset class taxed under the Washington wealth tax, financial intangible property, is a subset of intangible property.

Prior to 1998 and the tech boom that has reshaped our state and worldwide economies, a broad array of intangible assets was subject to property taxes. However, the passage of Engrossed Substitute Senate Bill (ESSB) 5286 in 1997 significantly expanded the exemptions for intangible assets. Notably, stocks and bonds were exempt from property taxation prior to ESSB 5286; this bill added assets like patents and brand names to the list of exempted property.

The stated goal of ESSB 5286 was to simplify the tax code. Determining the value of intangible assets like reputation or brand names is difficult before such assets have been sold. One of the learnings of this period of change was that “Washington should avoid attempting to site an intangible asset based on the characteristics of the asset and instead rely on the well-established principle of siting intangible assets based on the location of their owner whenever possible.” This has been the approach taken in wealth tax legislation.

Wealth Taxes Proposals: An Idea Gaining Steam in the US and a Reality in Europe

Another key component of DOR’s study was surveying other tax authorities that administer similar types of taxes, mainly in Europe, as well as researching other proposals for both federal and state-level wealth taxes in the United States.

In the US, there have been several federal proposals with varying policy designs. The federal proposals are less relevant to policy design and implementation and were less of a focus of this study. In contrast, state and local legislative proposals provide different templates for how to approach taxing wealth held in financial assets, though, of course, each state has different constitutional and statutory constraints on and structures for taxation. At the state level, lawmakers in California, Hawaii, Illinois, New York, Vermont, Washington, and the city of Philadelphia have introduced some form of a wealth tax in the last five years, with varying policy designs. Legislators in California and Hawaii have introduced net-worth wealth taxes, which allow for deduction of debt obligation from the calculation of wealth. In New York and Illinois, lawmakers introduced “mark-to-market” style taxes that build off of their existing personal income tax law. Notably, the city of Philadelphia introduced a wealth tax more similar to Washington’s in that it was structured as a property tax on intangible property; however, Philadelphia’s proposal includes both financial assets as well as assets like intellectual property.

DOR sent a survey to tax authorities in other countries that currently administer or have recently administered wealth taxes, such as Argentina, Belgium, Colombia, Italy, France, Norway, Netherlands, Spain, and Switzerland. They received in-depth responses from Argentina, France, Spain, and two Swiss cantons (Appenzell and Nidwalden), all of which currently have wealth taxes on the books except France, which repealed its wealth tax in 2018.
Across the survey results, DOR heard that the most significant administrative challenge is determining the value of assets, particularly non-marketable assets. A non-marketable asset was defined in the report as an asset that is not traded on major secondary markets such as the New York Stock Exchange or NASDAQ. This would include financial assets such as shares of or equity in businesses that are not publicly traded on Wall Street.

Best Practices: Simplicity and Education are Key

DOR synthesized academic research and the survey results and then held up these ideas to the current structure of tax administration in Washington to determine what might be the best practices for a state wealth tax here.

Valuations

In order to tax financial intangible property on its true and fair value, its value must be assessed. Real property values are assessed by county assessors. For a wealth tax, different approaches are possible. The conclusion of the study is that valuations should be based on a methodology that is “relatively easy to perform, simple to verify, and achieves consistent results.”
The study concludes that for both legal and administrative reasons, using the fair market value is the most reasonable valuation method for a wealth tax in Washington. Other valuation methods include an open market value or formulaic approaches, such as book value.

Publicly traded assets (such as stocks, bonds, annuities, mutual funds, index funds, and other financial intangible assets traded on Wall Street) are relatively straightforward in determining fair market value. For these assets, being very clear about valuation timing is key as the asset values can fluctuate by the minute.

In contrast, financial assets that aren’t publicly traded, defined here as “non-marketable assets,” are more difficult for which to determine fair market value. For these types of assets (such as shares of a business that is not publicly traded), the study notes that Swiss tax authorities have developed different formulaic methods. If formulaic approaches were used in Washington’s wealth tax, DOR would require substantial additional resources to hire experts to understand and audit valuations. DOR recommends that third-party appraisers are brought in to determine the fair market value for non-marketable assets. Overall, the study suggests that the valuation of non-marketable assets will be a challenge, whether there are explicit formulaic approaches outlined for these assets or whether third-party appraisers are used by taxpayers, as is the case for estate tax liability.

Enforcement

A common question that advocates and lawmakers have for the wealth tax is, how will taxpayers know that they are liable to pay the tax? According to this study, DOR relies on “education on the front end and reasonable enforcement on the back end” to enforce Washington’s tax system and has achieved a rate of 97% voluntary compliance.

Of course, managing compliance is more difficult when taxing a billionaire’s worldwide wealth than, say, a regular working person’s transaction at a store. The individuals in our state who would pay the wealth tax are in the upper echelon of worldwide wealth, with large, complex portfolios of financial assets that involve complicated ownership arrangements and baroque financial instruments.

According to the study, auditing wealth tax returns would be a primary enforcement tool. Auditing is the main enforcement mechanism used by tax authorities surveyed, such as Spain and France. However, for this to be a fair and effective enforcement mechanism, DOR would need to develop greater expertise and may have to rely on “nontraditional channels to generate leads such as datamining third-party databases, news articles, and other publicly available information.”

Currently, DOR gets certain taxpayer information from the IRS and from existing reporting systems used to facilitate state tax collection. Unlike the estate tax and the capital gains tax, there is no federal wealth tax system to piggyback off of in the case of a state wealth tax.

Conclusion

Taxing wealth through an annual property tax on financial assets above a certain threshold of value is a policy idea that has been studied by the Department of Revenue through a thorough process of surveying other tax authorities who administer similar types of taxes, academic research, summarizing Washington’s legal history on the matter, and assessing current administrative capacity and expertise to implement such a tax. Any new type of tax will require learning and administrative fixes along the way to ensure that the tax is fair, effective, and reasonable to implement and collect. This study supports the notion that a wealth tax on financial property can be reasonably and effectively implemented in Washington state. It also provides useful information to lawmakers considering wealth tax legislation in coming sessions and to advocates who want to empower themselves with greater knowledge of an important policy on the horizon.