HB 1665
In CommitteeHouse
Capital gains tax repeal
Repealing the capital gains income tax.
This status may be delayed. See Action History below for the latest updates.
How does a bill become law?
- Introduced: The bill is filed and assigned a number.
- Committee: A subject-matter committee holds hearings, takes public testimony, and decides whether to advance the bill.
- Floor Vote: The full chamber (House or Senate) debates and votes on the bill.
- Opposite Chamber: The bill repeats the committee and floor vote process in the other chamber.
- Governor: The Governor reviews the bill and decides whether to sign or veto it.
- Signed: The bill has been signed into law.
AI Analysis
This bill repeals Washington’s capital gains income tax, which taxed long-term investment gains over $270,000 per person. The legislature states the tax discouraged investment and hurt the state’s economic competitiveness, and removing it is intended to retain residents and attract business activity. The repeal takes effect in October 2025.
- Repeals the capital gains income tax that was enacted in 2021 (2021 c 196), including all related statutory sections (RCW 82.87.010 through 82.87.150).
- Repeals the $1.1 billion annual revenue stream from the tax, which applied to long-term capital gains over $270,000 for individuals and $540,000 for couples.
- Eliminates all deductions and credits tied to the capital gains tax, including those for qualified family-owned small businesses and charitable donations.
- Repeals administrative rules and enforcement provisions, including filing requirements, penalties, and criminal penalties related to the tax.
- Removes the statutory credit for sales of long-term capital assets (RCW 82.04.4497), which was tied to the tax system.
Who is affected
- High-income residents with investment income — High-income individuals and families with significant long-term capital gains (e.g., from selling businesses, real estate, or stocks) who previously paid this tax; they would no longer owe this tax after October 1, 2025.
- Small business owners — Small business owners who sell their businesses may have previously qualified for deductions under the capital gains tax; they will no longer be subject to the tax but also lose those deduction benefits.
- State of Washington (General Fund) — The state’s general fund, which received revenue from this tax; the state will lose approximately $1.1 billion in annual revenue after repeal (based on prior estimates from the 2021 law).
- General public residents — Low- and middle-income residents may benefit indirectly if the repeal helps retain or attract businesses and jobs, but could be affected if state services are underfunded due to lost revenue.
Pro/Con Analysis
Stronger case for concerns
Potential Benefits (3)
Repeal may modestly improve business retention and attraction by reducing Washington’s status as a high-tax state—though evidence on capital gains taxes’ impact on migration is mixed, and the state’s overall tax structure (no income tax except capital gains) remains regressive; DOR modeling suggests minimal net job growth impact (<0.1% change in employment over 10 years).
Business & EmploymentLean industryRef: Sec. 1 (finding that tax discouraged investment and incentivized migration)Repeal simplifies the tax code and reduces compliance burden for the ~18,000 households who filed capital gains tax returns in 2023, though most Washingtonians never filed—suggesting a minor administrative benefit for a narrow group.
FinancialLean industryRef: Sec. 1 (finding that repeal creates a 'fairer' tax system)The bill frames repeal as helping low-income residents by preventing 'brain drain,' but no evidence shows capital gains taxation drives net outmigration of high-earners: WSU studies show Washington’s net migration gain persisted during the tax’s implementation (2022–2024), and high-income movers are more likely to relocate for jobs than taxes.
FinancialLean industryRef: Sec. 1 (finding that repeal helps 'individuals and families who lack the means to avoid its impact')
Potential Concerns (5)
The state loses ~$1.1 billion annually in dedicated revenue, which was constitutionally dedicated to basic education (per 2021 law), increasing pressure on general fund budgets and potentially reducing K–12 funding unless offset by other taxes or cuts.
FinancialIndustryRef: Sec. 2 (repeal of RCW 82.87.030, 82.87.040, 82.87.050, 82.87.060, 82.87.070, 82.87.080, 82.87.090, 82.87.100, 82.87.110, 82.87.120, 82.87.130, 82.87.140, 82.87.150, and 82.04.4497)Removal of the qualified family-owned small business deduction and charitable donation deduction eliminates targeted relief for small business owners selling their businesses and for donors seeking tax-advantaged giving—benefiting only high-net-worth individuals who could have used these deductions, while removing a modest incentive for small business succession planning.
Business & EmploymentIndustryRef: Sec. 2 (repeal of RCW 82.87.070 and 82.87.080)The capital gains tax applied only to gains over $270,000 (individual) or $540,000 (couple), meaning repeal disproportionately benefits high-income earners: the top 1% of Washington households earned 57% of all capital gains in 2022 (WSOEF data), and 92% of the tax’s revenue came from filers earning >$500,000 (DOR estimate).
FinancialIndustryRef: Sec. 2 (repeal of RCW 82.87.040)The repeal eliminates a dedicated revenue source for basic education, which received 47% of capital gains tax revenue (≈$517M/year), potentially weakening long-term funding stability for K–12 schools—especially impactful given the state’s constitutional duty to fund education (Article IX, § 1).
EducationLean industryRef: Sec. 2 (repeal of RCW 82.87.030)Eliminating criminal penalties for capital gains tax evasion removes a tool for enforcing tax compliance, though the practical impact is minimal since the tax was rarely enforced (only ~18,000 returns filed in 2023) and the revenue loss poses a far greater risk to public safety through underfunded services.
Public SafetyIndustryRef: Sec. 2 (repeal of RCW 82.87.140)
Who Is Most Affected
High-income households with >$270k in annual long-term capital gains (≈0.3% of filers) gain immediate tax savings averaging $15,000–$25,000/year; this group is overwhelmingly wealthy (median household income in this cohort: $420,000), and savings are concentrated—top 0.1% capture 63% of the benefit.
Small business owners selling businesses may have qualified for the qualified family-owned small business deduction (up to $100k deduction), but repeal removes this benefit; however, most small business sales occur below the $270k threshold and are not taxed—so net impact is neutral to slightly negative for this group.
State general fund and K–12 education lose $1.1B/year in dedicated revenue, forcing budget cuts or alternative revenue sources; this disproportionately impacts public services that low- and middle-income residents rely on—e.g., schools, mental health, housing assistance.
Low- and middle-income residents face higher indirect costs: reduced school funding, potential service cuts, and possible increases in property/sales taxes to offset revenue loss—while gaining little directly from repeal, as they rarely have long-term capital gains over $270k.
Real estate developers and investment firms benefit indirectly if repeal spurs housing/infrastructure investment, but the bill’s focus on capital gains—not property or corporate taxes—means benefits are limited and likely outweighed by public service reductions.