ESSB 5813
SignedSenate
Tax rates/cap. gains, estate
Increasing funding to the education legacy trust account by creating a more progressive rate structure for the capital gains tax and estate tax.
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 increases taxes on high-income individuals with large capital gains and large estates, and dedicates the new revenue to fund public education, early learning, child care, and higher education. It makes the capital gains and estate taxes more progressive and raises the estate tax exemption to $3 million.
- Imposes an additional 2.90% tax on Washington capital gains exceeding $1,000,000 for individuals, effective for gains recognized in 2025 and later (collected in 2026).
- Increases the top estate tax rate to 35% for estates over $9 million and adjusts all tax brackets to be more progressive, effective for deaths on or after January 1, 2025.
- Raises the estate tax exclusion amount to $3,000,000 (from $2.19 million in 2024), meaning fewer estates will owe tax.
- Dedicates all new revenue to the Education Legacy Trust Account to support public K-12 education, early learning, child care, and higher education.
- Maintains the existing 7% capital gains tax on the first $1 million of annual gains, making the total tax up to 9.9% on gains over $1 million.
Who is affected
- High-income individuals (capital gains > $1M) — High-income individuals with over $1 million in annual Washington capital gains will pay an additional 2.9% tax on the amount exceeding $1 million.
- Large estates (valued over $3 million) — Estates valued above $3 million will pay higher estate taxes, with the top rate increasing to 35% and the exclusion threshold rising to $3 million.
- Students, families, and public education institutions — Families and students benefit from increased funding for K-12 education, early learning, child care, and higher education through dedicated revenue.
- Small business owners and farm operators — Small businesses and farms structured as pass-through entities (e.g., LLCs, S corporations) may be affected if their owners have capital gains over $1 million.
Pro/Con Analysis
Stronger case for benefits
Potential Benefits (5)
The dedicated revenue stream from the additional capital gains tax is projected to significantly increase funding for K–12 education, early learning, and child care — directly benefiting students, families, and public schools by improving resources, teacher retention, and access to quality early learning programs.
EducationPeopleRef: Sec. 101(2); Sec. 301; Sec. 101(1)(b)The estate tax reform increases the exemption to $3M and adjusts brackets progressively, meaning fewer estates overall will owe tax — while still raising substantial revenue — helping preserve family farms and small businesses from forced liquidation due to tax liability, as only the largest estates (>3M) are affected.
FinancialPeopleRef: Sec. 202(a)(ii); Sec. 201(1)(a)(viii)By dedicating new revenue to education and early learning, the bill supports long-term reductions in social harms (e.g., crime, substance use, unemployment) that are strongly correlated with underinvestment in early childhood and K–12 education — particularly benefiting historically underserved communities.
Public SafetyPeopleRef: Sec. 101(1)(b); Sec. 101(2); Sec. 301Increased funding for early learning and child care helps working families afford housing near quality care, and may reduce housing cost burden by expanding access to subsidized early education — especially helpful for low- and moderate-income families in high-cost urban areas like Seattle and Spokane.
HousingPeopleRef: Sec. 101(1)(b); Sec. 101(2); Sec. 301Investments in early learning and child care have well-documented positive effects on long-term health outcomes — including reduced rates of obesity, mental health disorders, and chronic disease — particularly for children from disadvantaged backgrounds, yielding public health ROI over time.
HealthcarePeopleRef: Sec. 101(1)(b); Sec. 101(2); Sec. 301
Potential Concerns (5)
The additional 2.90% capital gains tax on gains exceeding $1 million may discourage investment in high-value assets and could reduce liquidity for business reinvestment, especially for small business owners and farm operators who report capital gains as pass-through income — though only those with >$1M in annual gains are affected, which is a small minority of small businesses.
Business & EmploymentIndustryRef: Sec. 101(1)(b); Sec. 101(4)(a)(i)The estate tax increase — especially the top rate of 35% on estates over $9M — imposes a significant new compliance and administrative burden on high-net-worth individuals and their families, including potential costs for legal, accounting, and estate planning services to mitigate liability.
FinancialIndustryRef: Sec. 202(a)(ii), Table for estates >$9MWhile the estate exemption rises to $3M (up from $2.19M), the progressive rate structure means many estates between $3M–$9M face steeper marginal rates than under prior law — potentially increasing tax liability for upper-middle-class families with substantial home equity, retirement accounts, or small business interests, even if not ultra-wealthy.
FinancialIndustryRef: Sec. 201(1)(a)(viii) & (ix); Sec. 202(a)(ii)The bill’s revenue-generating provisions may reduce state flexibility in future budgets by dedicating new revenue exclusively to education, limiting the legislature’s ability to respond to emerging fiscal needs in other areas (e.g., infrastructure, behavioral health, or climate resilience).
FinancialRef: Sec. 101(1)(a) & (b); Sec. 202(a)(ii)The rule disallowing loss carrybacks and limiting loss carryforwards to those directly attributable to Washington-sourced losses may disproportionately harm high-income taxpayers who experience large, non-Washington losses (e.g., from out-of-state real estate or business), reducing their ability to offset gains and increasing effective tax liability.
FinancialLean industryRef: Sec. 101(3); Sec. 101(4)(a)(ii)
Who Is Most Affected
High-income individuals with >$1M in annual capital gains will face a new 2.9% tax on gains above $1M, increasing their tax liability significantly — though only ~1% of Washington households meet this threshold. This group is expected to absorb the majority of the tax burden.
Estates valued above $3M will pay more in estate tax, but the higher exemption ($3M vs. $2.19M) means fewer estates overall will owe tax. Families with closely held businesses or farms valued above $3M may face liquidity challenges, but the progressive structure still spares most middle-class estates.
Families and students benefit from increased funding for K–12, early learning, and higher education — including expanded access to preschool, reduced class sizes, and tuition support. These benefits are broadly distributed and particularly valuable for low-income and rural communities.
Small business owners and farm operators structured as pass-through entities will only be affected if their owners’ annual capital gains exceed $1M — a small subset. Most will see no direct tax impact, but may benefit indirectly from improved public education and child care infrastructure.
State and local governments benefit from increased dedicated revenue for education, reducing future budget pressures and potentially lowering reliance on regressive taxes. However, the dedicated-funding mechanism reduces future legislative flexibility.