The Washington Supreme Court ruled on March 25, 2023, that the state’s new capital gains tax is constitutional. The 7-2 decision upholds a law that imposes a 7 percent tax on profits of more than $250,000 that result from the sale of stocks and bonds, excluding revenue from real estate and retirement accounts, among other exceptions. The tax is the first of its kind in state history and is expected to raise hundreds of millions of dollars for crucial early childhood programs through 2021’s Fair Start for Kids Act (FSK).
The original legislation enhanced families’ access to high-quality early learning programs—including child care and Washington’s pre-k program—through three main components: workforce support and expansion, increasing affordability for families, and adding infant and toddler care support. With its passage, Washington joined several other states (including New Mexico, Oregon, and Louisiana) that have recently passed new funding streams for early childhood programs.
The case against the tax was brought by a group of plaintiffs who argued it is unconstitutional because it violates the state’s uniformity clause, which requires that all taxes be levied at the same rate on the same class of property. The plaintiffs also argued that the tax was an income tax, which the state constitution prohibits. The Supreme Court rejected both of these arguments.
The court’s decision is a major victory for the state in creating a more progressive tax system. The funding for FSK will increase access to affordable child care, expand early learning opportunities, and provide support for families in need.
Many of the concepts that became law with the passage of FSK were germinated within the Early Learning Action Alliance (ELAA), a coalition that is led by Alliance Washington ally Children’s Alliance.
During the 2021 legislative session, the coalition prepared parents and providers from across the state to give testimony about the needs in their communities. They provided analysis on the bill and lobbied reluctant legislators, sharing how it would improve conditions in their districts. Children’s Alliance also played a significant role in the case resulting from the lawsuit. When the state Supreme Court took up the matter, the organization filed an amicus brief and highlighted how the tax helps to bring balance to the tax code.
“We have much to celebrate,” says Children’s Alliance Executive Director Stephan Blanford. “Children’s Alliance activated every available tool of advocacy we had to help secure this victory—partnering with ELAA to develop the key elements of FSK, mobilizing parents and providers, researching and analyzing the legislation, communicating with the broader public and lobbying legislators. We were powered by our 6,000 members across the state and laser-focused on what is best for kids.”
The decision is likely to be appealed to the U.S. Supreme Court. However, the high court is unlikely to overturn the decision, as it has upheld similar taxes in other states.
The tax is also expected to help reduce the state’s opportunity gap. Studies have shown that children who attend quality early learning and child care programs are more likely to succeed in school and in life. The tax will help to ensure that all children have access to these essential services. In addition, the tax is expected to create jobs in the early learning and child care sector. These jobs will help to support the state’s economy and create a more skilled workforce.
“This is tremendous news for young children across our state,” Blanford says, “as well as parents struggling to find and afford child care, and child care providers working hard to keep their businesses open.”
