Money manager Brian Heywood said he fled California for the Seattle area more than a decade ago partly to escape taxes. Now, he fears his current income-tax-free home is headed in California’s direction after introducing levies on capital gains.
“The capital gains tax to me is the camel’s nose under the tent,” said Heywood, the founder of Taiyo Pacific Partners, which oversees $2.4 billion of assets mostly in Japan and India. He worries the levy is “the gateway to get an income tax.”
Heywood has already spent nearly $7 million of his own money to get six ballot initiatives in front of Washington State voters this November, half of them tied directly to taxes. One seeks to repeal the two-year-old capital gains levy, another would ban public officials from ever pursuing an income tax and a third would eliminate the state’s carbon tax.
The crucial question for Heywood and his allies is whether Washington will preserve its business-friendly climate, or pursue progressive policies that opponents say could drive wealthy residents to join their peers from New York, Illinois and California heading south for sunnier and more tax-friendly climes. Relocating has become a lot easier since the start of the pandemic, and Heywood points to Ken Fisher’s decision to move Fisher Investments to Texas last year as a harbinger of what’s to come.
Like those other blue states, Washington is dominated by the Democratic Party. It hasn’t elected a Republican governor in more than four decades. Heywood has tried to revive local conservative efforts, donating nearly $500,000 to the state GOP since 2022, according to Federal Election Commission data compiled by Open Secrets.
To be clear, Washington isn’t California when it comes to taxation. Top earners in the Golden State pay roughly 13% in income and capital gains taxes, on top of their federal obligations. Washington has zero state income tax but since 2022 has charged a 7% levy on capital gains over $250,000, raising $900 million its first year.
Before then, Washington had been in rare company as one of a handful of states — including Florida and Texas — that didn’t tax capital gains at all.
Washington lost its richest resident to Florida last year when Amazon.com Inc. founder Jeff Bezos said he was departing. He didn’t mention taxes at the time, saying he wanted to be closer to family.
Supporters of the capital gains tax — including many rich residents of the Seattle area — brush off the idea that increasing levies will bring about a mass exodus of wealth from millionaires and billionaires like Bill Gates, Steve Ballmer and Howard Schultz.
Still, tax advocates are clear that they plan to pursue new initiatives with the goal of shifting the burden of Washington’s tax code toward its richest residents. A recent study from the Institute on Taxation and Economic Policy found that the lowest quintile of Washington earners pay 13.8% of their income in taxes, compared to 4.1% for the top 1% of earners, putting the state second only to Florida for the most regressive tax code in the US.