Schmudget Blog


State and Federal Proposals to Cut Funding for Women’s Health Would Decrease Family Economic Security

By Misha Werschkul, executive director
 
Building economic security for Washington's women is an essential component of creating a thriving economy in our state. Nearly 500,000 women and more than 20 percent of Black, Hispanic, and Native American women live in poverty in Washington. Many factors contribute to high poverty rates among women, and especially among women of color – including the gender wage gap, a disproportionately high percentage of women working low-wage jobs, and the lack of universal paid leave programs and child care supports. Access to health care– including high-quality pre- and post-natal care – and the ability to choose when and under what circumstances to start a family are also critical ingredients of family economic security.
 

Investments in the wellbeing of women are critical to any serious strategy to address inequality or reduce poverty. And investing in the full spectrum of women’s health services in particular is an important step toward strengthening the economic security of women and families.

The good news is Washington state has made significant progress in expanding health care access for women and in reducing unintended pregnancies. Under the Affordable Care Act, the number of uninsured women in Washington state has dropped to historic lows. And as the KIDS COUNT Data Center shows, Washington’s teen birth rate has fallen from 25 teen births per thousand in 2011 to 18 teen births per thousand in 2015. King County has the second lowest teen pregnancy rate in the country. Expanding health care and reducing unintended pregnancies is good for women and families, and it’s also cost effective for states.

However, this progress is being threatened. Recent federal and state proposals would pay for tax cuts for the wealthy at the expense of investments that support women and communities. In the next few weeks, we anticipate the release of the 2018 federal budget and a compromise 2017-2019 state budget, not to mention the U.S. Senate’s health care bill. Elected leaders must ensure legislation invests in programs that help promote economic security for women and families. 

Federal Threats

Washington’s women face a multitude of threats from federal proposals, ranging from the repeal the Affordable Care Act to President Trump’s 2018 budget proposal to the possibility of new regulations affecting birth control from his administration. Especially when combined with deep cuts to federal programs that disproportionately serve women and children – like housing and energy assistance, job training, and hunger relief – these cuts to women’s heath are a recipe for increased economic insecurity. Federal proposals include:

  • Cutting Medicaid – Federal proposals to eliminate the Affordable Care Act’s Medicaid expansion and make deep cuts to Medicaid would jeopardize health care for nearly one million women in Washington state (see graph below). In fact, women make up a majority of Medicaid beneficiaries and therefore face a disproportionate burden of proposed cuts to the program. Medicaid is a key support for women on multiple fronts: Working women who don’t have employer-sponsored coverage are able to get health insurance coverage through the Medicaid expansion; women of reproductive age rely on Medicaid for family-planning and maternity care services (importantly, Medicaid provides health care for nearly half of all pregnant women nationwide); and older women and women with disabilities are the primary users of Medicaid long-term services and supports. In addition, Medicaid serves women of all races and ethnicities in Washington. 

[Click on graphic to enlarge.]

Women girls medicaid enrollment

 

  • Defunding Planned Parenthood – Congressional Republicans have put forward multiple proposals to ban Planned Parenthood from receiving federal and state funds through the Medicaid program and to allow states to exclude them from the Title X family-planning program. These funds are currently used to provide family-planning and a wide range of critical health care services like cancer screenings to more than 98,000 low-income women and men at 32 health care centers in Washington state. Several of Washington’s Planned Parenthood clinics are the only clinic in their county that offers the full range of contraceptive health services, including longer-acting methods like intrauterine devices that are the most effective at preventing pregnancy. Defunding Planned Parenthood would jeopardize health care for thousands of low-income women in Washington state and increase economic insecurity as a result of unplanned pregnancies. 
  • Reducing coverage for newborn and maternity care and birth control – The Affordable Care Act repeal legislation from House Republicans removes the requirement for publicly funded health insurance to cover the full range of health care services, including newborn and maternity care. In addition, the Trump administration is considering rule-making that would remove the requirement for insurers to provide copay-free birth control. Both of these changes would mean that women who have health insurance coverage would have to pay more money out of pocket to get their health care needs met.

State Threats

Washington state legislators are continuing to negotiate the 2017-2019 biennial state budget in order to avoid a state government shutdown on July 1, 2017. This year, budget writers have an opportunity to clean up the tax code to make historic investments in ensuring every child in Washington has access to quality public education. However, the Senate Republicans’ approach is largely to protect tax breaks for wealthy special interests and fund investments in schools at the expense of other important priorities like child care and job training for low-income parents. 

The State Senate's proposals would also reduce state family-planning funding. On top of cuts being proposed at the federal level, state Senate Republicans propose a 10 percent reduction to state funds that provide family-planning services, which would result in reduced access to women’s health services.

Especially with federal threats looming, Washington state leaders should be doing everything possible to protect women and build on the progress that has been made in our state. 

Economic security and women’s health are fundamentally intertwined. If we want to have an economy that works for everyone, we simply can’t ignore women’s health. As federal and state policymakers develop new budget proposals, they must focus on advancing economic security by investing in the full spectrum of women’s health services. 

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New Report: Supplemental Nutrition Assistance Program Critical to the Wellbeing of Many Washingtonians with Disabilities

Posted by Julie Watts at Jun 14, 2017 06:25 PM |
According to a new report by the Center on Budget and Policy Priorities, the Supplemental Nutrition Assistance Program (SNAP) – which provides basic food support to people with lower incomes – helps 126,000 Washingtonians with disabilities secure a better quality of life and protect their basic health. The report underscores the key role SNAP plays in lifting people with disabilities out of poverty, helping them put food on the table, and contributing to a wide range of positive long-term health and economic outcomes.

 

What is a Disability

Far too many Washingtonians with disabilities are just one accident or mishap from financial catastrophe. SNAP plays a vital role in providing them with added financial security. Further, by ensuring they have the resources for adequate nutrition, SNAP offers them a key foundation of good health. Policymakers must protect this important program against funding cuts being proposed by Congress and President Trump.

Two out of five non-elderly individuals with disabilities in Washington state participate in SNAP. For them, it is an especially important resource because having a disability can make life more expensive and can make it harder to earn enough money to buy food and other necessities.

People with disabilities are more likely to live in poverty than those who don’t. In fact, as seen in the chart below, 33 percent of children with disabilities live below the federal poverty line in Washington state, compared to 21 percent of non-disabled children. And among 18 to 64 year olds, people with disabilities are twice as likely to live in poverty than non-disabled people. Given that this is the time of life when most people are in the workforce, earning income, and saving money, this data underscores how much harder it can be for people with disabilities to make ends meet without basic supports like SNAP.

[Click on graphic to enlarge.]

People with Disabilities are More Likely to Live in Poverty in WA

Despite the fact that SNAP provides important nutrition benefits to millions of low-income people with disabilities nationwide, President Trump has proposed shifting 25 percent of the federal cost of the program to states, which would cost Washington state an additional $363 million a year. Congressional House Republicans are also in the process of negotiating a 2018 budget resolution that will likely propose sweeping changes to SNAP, including cuts to overall spending and shifting costs to states. Among the other things the president and Congressional Republicans have proposed are:

  • The elimination of a small SNAP benefit (called the “minimum SNAP benefit”) that seniors and people with disabilities can qualify for in connection with other public supports. This modest amount of additional assistance is critical for people living in poverty.
  • Limits on the length of time people living in communities with high unemployment can receive SNAP. This is yet another challenge for people with disabilities who already have a difficult time finding work.
  • New fees imposed on grocers who accept SNAP benefits, which will result in many grocers opting out of the program. This will obviously make it harder for SNAP participants to find stores where they can use their food assistance benefits.

Not only will none of these proposals help people move out of poverty; they will actually increase hardship for working families and millions of Americans with disabilities.

SNAP plays a vital role in ensuring that many Washingtonians with disabilities can put food on the table and have an opportunity to move out of poverty. As Congressional budget writers in Washington D.C. sit down to figure out how they will allocate public resources, Washington state’s elected officials should ensure that all residents – especially those with disabilities – have access to basic supports like SNAP.

To find out more about how SNAP is a critical resource for many people with disabilities, read the Center on Budget and Policy Priorities’ report, “SNAP Provides Needed Food Assistance to Millions of People with Disabilities.”

 

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KIDS COUNT Report: Washington Continues to See Historic Progress in Kids’ Health Care Access

Posted by Jennifer Tran at Jun 13, 2017 09:25 AM |

The number of Washington state children with health insurance has risen to historic highs, with 39 of every 40 kids in the state now covered by health insurance. Further, disparities in access to health care have been reduced across nearly all racial and ethnic groups. This according to the 2017 KIDS COUNT Data Book released by the Annie E. Casey Foundation and the KIDS COUNT Data Center. Given this monumental progress toward strengthening the long-term health and well-being of Washington’s kids, our representatives in Washington, D.C. must reject harmful federal policy proposals that would send kids’ health backward.

WA_KCDB_2017_Health_Insurance_Soundbite

Washington state's Cover All Kids law, passed in 2007, combined with the 2014 implementation of the Affordable Care Act (ACA) have helped reduce the number of uninsured Washington children by more than half, to 3 percent today from 6 percent in 2011. This improvement underscores how smart federal investments to expand Washington state’s Apple Health for Kids has significantly enabled more kids to see a doctor or get necessary medicines when they’re sick.

As the chart below shows, these policies have also advanced health equity by connecting more Black, Latino, and Asian and Pacific Islander (API) children with the coverage they need to thrive. Today, only 2 percent of Black and API and 3 percent of Latino children are without health insurance. With the exception of American Indian children, coverage gaps among children of different races and ethnicities have narrowed since 2011. Ten percent of American Indian kids remain uninsured in Washington state.

[Click on image to enlarge.]

Uninsurance rates by race/ethnicity updated 12June2017

Unfortunately, this progress toward covering more kids is threatened by federal policy proposals that would make huge cuts to health care for people with low incomes. The proposal to “repeal and replace” the ACA with the American Health Care Act passed the U.S. House of Representatives and is now being negotiated by the U.S. Senate. It would effectively end the Medicaid expansion that led so many more children from families with low incomes to get health insurance through Apple Health for Kids in Washington. Furthermore, the president’s proposed budget would also slash Medicaid funding to the state nearly in half by 2027.

We all have a responsibility to ensure all of Washington’s kids have the opportunity to have a healthy start in life. At a time when far too many Washington families are just one personal crisis away from a financial catastrophe, it is vital that families can afford basic preventative health care for their children and can take them to a doctor when they need to. State and federal lawmakers must protect the health and economic security of kids and families against harmful budget proposals. They must safeguard the great progress our state has made in covering more children and closing racial and ethnic gaps in health coverage.

To read more about how Washington’s kids rank nationally in economic well-being, education, health, and family and community, read the full 2017 KIDS COUNT Data Book, the one-page KIDS COUNT Washington state 2017 profile, and our KIDS COUNT in Washington press release.

Guest Post: Kansas Experiment Yields Valuable Lessons in Why State Investments Are Essential

Posted by Melinda Young-Flynn at Jun 08, 2017 11:05 AM |
This week, the Kansas legislature rolled back significant parts of the state’s massive 2012 tax cuts. A two-thirds bipartisan majority voted to reject the “tax-cut your way to prosperity” approach. This was a major repudiation of bad fiscal policies that Congressional Republicans and President Trump are touting as solutions to create economic growth. Heidi Holliday, executive director of the Kansas Center for Economic Growth, wrote this guest post:

You’re welcome, America. 

Heidi Holliday

Our state, Kansas, just wrapped up a 5-year long experiment in governance from which the other 49 states can now glean some important lessons. The Kansas Legislature has voted to roll back much of the 2012 package of tax cuts that sent the state into a downward spiral of financial instability and weakened the Kansas’ public schools, universities, Medicaid program, and virtually everything else that the state funds.

With the state facing yet another budget shortfall of $900 million, government leaders decided that enough was enough. Governor Brownback, who heralded the 2012 experiment, was proposing yet more temporary band-aid approaches and more cuts to deal with the shortfalls. The Legislature chose a different path and instead sent the Governor a bill that would raise more than $1.2 billion in new revenue over two years by, among other things, repealing a costly tax break for pass-through income, rebalancing individual income tax rates by reinstating a third tax bracket, and reversing course on the governor’s plan to eliminate our state income tax. Brownback vetoed the legislation but, with bipartisan support, the House and Senate quickly overrode the veto.

Our state has begun the path to fiscal stability and is closer to becoming a model of good policy choices as much as it is a cautionary tale. The damage done to Kansas from this reckless experiment will not be undone overnight, but other states need not wait to act upon the lessons learned. 

Put simply, revenue matters. You can’t get something for nothing. We all want and deserve thriving communities with great schools, parks, and modern roads and bridges; and we chip in to pay for that. That’s what taxes are for. 

Because of the scope of the 2012 changes, it didn’t take long before Kansans in every corner of the state began connecting the dots between the actions of state lawmakers and the quickly eroding quality of the things that make for a good economic foundation in every community. With every subsequent shortfall, the picture became more clear. Meanwhile, the promised economic boom—and the revenue rebound that would supposedly follow—never happened (as economists predicted). In the last few election cycles, voters have viewed candidates and their promises through a different lens, and the 2017 Legislature had the experience and public backing to chart a new course. 

Most state tax codes, including ours, need further reform, but it’s high time that state tax policy adhere to one basic, proven (and now proven once again) principle—states need revenue to invest in the things that create thriving communities and a prosperous economy. Kansas just learned this lesson again, the hard way, so that your state doesn’t have to. You’re welcome.

Heidi Holliday and her team were instrumental in the legislative victory in Kansas. For more background on the failed Kansas tax-cut experiment and the lessons that can be learned from it:

President’s Budget Would Harm Washingtonians, Leave State on the Hook for Massive Costs

Posted by Julie Watts at May 23, 2017 07:05 PM |
This post was updated on May 24 to add clarifying information about the Medicaid data.
 
Statement by Executive Director Misha Werschkul:
 
The federal budget proposal released by President Trump would give massive tax cuts to the rich by cutting important programs that help lift people out of poverty and help people struggling to make ends meet. On the chopping block are critical services like Medicaid, food assistance, and basic support for people with disabilities. This “Robin Hood in reverse” proposal would hurt the wellbeing of our communities while lining the pockets of the wealthy and special interests. It should be rejected by Congress.
 

Far too many American families are just one accident or personal catastrophe away from financial collapse. The federal government needs to make sure that when people hit hard times they do not go without the basics. However, the president’s budget would cut $2.5 trillion from poverty-reduction programs in the United States over the next decade. That funding would help pay for huge tax breaks for the wealthy and corporations.

In Washington state, the proposed federal budget proposal would leave lawmakers on the hook for finding billions of dollars in additional funding over the next decade to make up for cuts in federal programs for states. For example, it would:

  • Cut Medicaid funding by 20 percent over 10 years, which would cost the state approximately $5 billion in federal funds per biennium by 2027.*
  • Cut the Supplemental Nutrition Assistance Program (SNAP) by 25 percent over 10 years, costing the state up to $1 billion per biennium by 2027.
  • Cut another $1.9 billion in other federal funds to the state over 10 years that provide basic supports to low-income families, prevent homelessness, and help people meet basic needs and train for better jobs.

We all share in the responsibility to ensure that everyone in our communities has food on the table, a roof over their heads, and basic supports. Programs like Medicaid and SNAP are effective at helping provide people with the foundations they need to move out of poverty. They also bolster local economies. 

If President Trump truly wants to help the American people and strengthen the economy, his budget should invest in services that actually help people find work, get education and essential job training, and have access to mental health services. He shouldn’t be focusing on making the rich richer at the expense of the rest of us.

Greenstein quote Trump budget

For more analysis on the federal implications of Trump’s proposed budget, see this statement from the director of the Center on the Budget and Policy Priorities: “Greenstein: Trump Budget Proposes Path to a New Gilded Age.”

 

* This estimate is based on Congressional Budget Office projections and does not take into account the potential passage of the American Health Care Act that has passed the U.S. House of Representatives and is now under consideration in the U.S. Senate, which would dramatically increase these cuts to the state even more. This estimate could be updated on the basis of new information.

Important Gains Have Been Made for a Better Future for Our State, but More Needs to Be Done

Washington’s elected leaders have an opportunity to ensure that all our residents have strong communities and the chance for a bright future. During the 2017 regular legislative session, state policymakers did pass some important bills – some of which are priorities for the Budget & Policy Center – to advance the wellbeing of Washingtonians. They include expanding access to early learning, enhancing educational opportunities for working parents, and supporting policies that would help reduce disparities in K-12 education. Yet they also left some very important policy decisions on the table to be worked out in the final budget.

The following highlights of key victories from the legislative session are great examples of what can be done to advance progress for working families for our state. As state policymakers move into a special session to negotiate the budget, they should build on these efforts to ensure the final budget secures a better future for all our residents.

Giving Washington’s Kids a Better, More Equitable Start


Washington state could be on track to expand the Early Childhood Education and Assistance Program (ECEAP), a key program for ensuring Washington kids have a solid foundation for early learning and care. Although the expansion is not a done deal, both the House and Senate budget proposals included plans to increase the number of 3 and 4 year olds in the program. However, only the House proposal included enough slots to put the state on track to meet its goal of covering the entire population of eligible kids who are not currently being served. If the final budget includes the funding, this would represent a significant step toward making sure all kids in Washington can get a great start in life. A recent research brief by KIDS COUNT in Washington – a collaboration between the Budget & Policy Center and the Children’s Alliance – found that expanding ECEAP could reduce disparities by race in K-12 readiness for kids across the state. The final budget must fund this expansion, and it must also include funding for ECEAP child care centers to build out their classrooms and facilities to accommodate more kids.

Policymakers also took another important step to advance racial equity for kids in schools by passing House Bill 1445, the Dual Language Learning Bill. Research has shown that one of the best ways to increase student achievement for both English-speaking kids and kids who are learning English as a second or third language is through dual language programs, which are programs that offer instruction to kids in two languages. Policymakers on both sides of the aisle took the important step to pass the bill to expand the program, but House and Senate budget proposals would have funded the program at different levels. Lawmakers should follow the urging of OneAmerica, the group that developed the legislation, and invest at least $4.5 million in funding for the program.

These investments are important steps forward for kids in our state. The final budget should also make sure that Washington’s kids and families have access to high-quality, affordable child care. The House has wisely proposed to do this by increasing pay for state-funded child care workers and increasing reimbursement rates for child care centers in the Working Connections Child Care program, a program that helps parents with low incomes pay for child care so they can go to work or train for a job.

The Budget & Policy Center is helping to shape the conversation on reducing disparities in education. For more details on how an ECEAP expansion and dual language learning can reduce disparities, check out our recent Budget Beat webinar, featuring the director of education and integration policy at OneAmerica. 

Providing More Opportunities for Working Families to Get Ahead


Everyone benefits when hardworking families have opportunities to get better-paying jobs and provide for their families. Two important bipartisan bills advanced this session that would create greater opportunities for working families. Policymakers in both parties passed House Bill 1566/Senate Bill 5347 which will allow parents on WorkFirst – Washington’s assistance and job training program for families striving to move out of poverty – to pursue 24 months of post-secondary education and training, rather than the current limit of 12 months. Research has found that people who get at least 54 credit hours of post-secondary education are more likely to be stably employed and earn more money over the long term.

Both Republicans and Democrats also worked to advance House Bill 1482/Senate Bill 5440 to prevent intergenerational poverty – a key Budget & Policy Center legislative priority  – which would create a new goal for the state to reduce the number of people living in poverty by half by 2025 through an intergenerational approach. Both the House and Senate budgets included funding for the bill in their budget proposals and the House bill passed with support from both parties. Now policymakers should include the bill in the final budget.

Our team is on the ground in Olympia! View our testimony on access to post-secondary education for families on WorkFirst before the House Early Learning and Human Services Committee. You can also watch our testimony addressing intergenerational poverty.

Removing Barriers for People to Re-enter their Communities:


Policymakers took important steps to provide educational opportunities for people who are incarcerated by passing Senate Bill 5069, the College in Prisons bill, which would allow people in prison in Washington to get an associate’s degree while serving their sentence. Research indicates that getting a post-secondary degree can reduce the likelihood that a person will be re-incarcerated by half. This is a huge step forward to ensure that people leaving prison have access to meaningful opportunities for a better life.

However, it is important to note that there were two significant missed opportunities with important re-entry bills that did not advance this session. The Fair Chance Act, House Bill 1298/Senate Bill 5312, would have prevented employers from discriminating against people with convictions on job applications. Policymakers also failed to pass House Bill 1783, which would reform the state’s legal financial obligations (LFO) policy. LFOs are fines and fees a person may need to pay connected with their conviction. While in prison – when a person is unable to work to earn an income – interest on unpaid fees can accumulate at an interest rate of 12 percent. The LFO reform bill would have improved this system to make it easier for people to pay of this debt and fulfill their sentence. Moving forward, lawmakers must take steps to remove the systemic barriers that exist for Washingtonians who are trying to re-enter and contribute to their communities.

We are highlighting important conversations at civic events! Read more about the need for LFO reform in this slideshow from a panel at our Budget Matters 2016 Policy Conference.


As the legislature moves into special session to write the budget, lawmakers must make sure the final budget secures a future for Washington that we all want: great schools, strong families, healthy communities. So far, the House budget proposal is a step in that direction that would secure the revenue necessary to make important investments in our communities. The Senate budget proposal, by contrast, would harm children, families and people with disabilities in Washington. Securing a strong future for our state will require leadership from both parties and the willingness to make the right investments on behalf of Washington residents. Now it is time to get to work on that important task.

Hedge Funds vs. Mom-and-Pops: The Truth about Small Businesses and Closing the Capital Gains Tax Break

Posted by Kelli Smith at Apr 27, 2017 04:50 PM |
Filed under: Capital Gains
By Andy Nicholas, associate director of fiscal policy, and Kelli Smith, policy analyst
 
Small businesses thrive when colleges and trade schools, transportation infrastructure, job training, technological research, and other economic pillars are strong. In Washington state, lawmakers can generate more than $700 million per year in new resources for these and other investments that strengthen small businesses by eliminating a massive state tax break on capital gains, which are profits from the sale of corporate stocks, bonds, gold bars, and other high-end financial assets. As we’ve written previously, this tax break overwhelmingly benefits the richest 1 percent of Washington state residents. Closing this tax break, as state Democratic House leaders are smartly proposing, would have little impact on most genuine small businesses, as they very rarely receive capital gains as part of their ordinary business activities.
 

Special interests that are opposed to closing the tax break on capital gains misleadingly claim that the House’s proposal would harm small, individually- or family-owned businesses, such as restaurants, auto repair shops, gas stations, and family farms. In reality, this common and sympathetic perception of small business owners is being exploited to shield ultra-wealthy shareholders and partners in investment hedge funds, shell corporations, and other elite financial arrangements from paying higher taxes.

Many “small businesses” are very wealthy individuals engaged in finance activities

Historically, small business ownership has been a pathway to prosperity among hardworking lower- and middle-income households striving to build better lives for themselves and their families. But since the 1980s, extremely wealthy households have increasingly pooled their wealth by forming partnerships and small, private corporations called “S corporations.” In many cases, financial advisers and attorneys for the wealthy draw up these business entities for their clients so they can take advantage of significant federal tax benefits allowed for these types of business structures.

It’s important to note that many S corporations and partnerships are rightly considered to be small businesses because they carry out important economic activities, such as hospitality services, legal services, manufacturing, and other traditional small business activities. But the bulk of wealth for these kinds of business arrangements comes from a small number of elite investment partnerships, like hedge funds, that cater exclusively to the richest 1 percent. As of 2011, 70 percent of business income generated by partnerships comes from those engaged in finance and holding companies (shell corporations). (1)

The explosive growth in elite partnerships and S corporations involved in finance activities since the late 1980s has led to an extreme concentration of all small business wealth and income among the very richest households in the United States. As the graph below shows, 69 percent of income from partnerships and 66 percent of income from S corporations now accumulate to the richest 1 percent. As of 2011, someone in the richest 1 percent is 50 times more likely to have any positive small business income than someone in the bottom 50 percent of the population. 

Click on graphic to enlarge.

Business_income_by_hh_income

Being linked with genuine small business owners – those who are not engaged in these elite finance activities – has become politically convenient for extremely wealthy people with assets in hedge funds and investment firms. Hedge fund and investment firm partners know they can likely defeat any effort to raise their taxes if the public believes doing so would impact owners of convenience stores, small farms, or auto repair shops.

Most true small businesses don’t receive capital gains as part of their ordinary business activities

Partnerships and S corporations do not directly pay federal taxes on their ordinary business income and capital gains. Instead, ordinary business income and capital gains are “passed through” to the individual partners or shareholders, who in turn pay taxes on them as part of their personal federal income taxes. Under the proposal from House Democrats, wealthy households that live in Washington state who receive pass-through capital gains from exclusive investment partnerships would be taxed on those gains, to the extent they exceed $25,000 ($50,000 for married couples) per year.

But most genuine small businesses don’t receive capital gains as part of their ordinary business activities. Only 3.3 percent of total business income from sole proprietorships comes from finance-related activities, which are the most likely to reap capital gains.(2) And when it comes to partnerships, the overwhelming majority of capital gains (80 percent) accrue to securities brokerages, holding companies, and other high-end financial management firms that cater to the richest households (see graph below). Capital gains are negligible among partnerships involved in farming, retail trade, manufacturing, and other activities not related to finance.

Click on graphic to enlarge.

Capital gains by industry

The current proposal includes numerous exemptions that would benefit small businesses

Finally, groups that advocate for so-called small businesses with investments in hedge funds and other wealth-accumulation vehicles argue that traditional small business owners would pay the proposed capital gains tax when they sell their business. But this claim ignores numerous exemptions that would benefit small businesses in the current proposal – including those on small business equipment, farmland and farm equipment, livestock, timber, and more.

Perhaps even more importantly, by exempting the first $25,000 for individuals ($50,000 for married couples) in all capital gains from taxation, the proposal from House Democrats would prevent capital gains tax increases for many households selling ownership stakes in a partnership or S corporation. That’s because the median gain from the sale of a partnership or S corporation is less than $5,000, well below the proposed exemption threshold, according to 2010 data from the nonpartisan Congressional Budget Office. And 70 percent of capital gains from the sale of a partnership or S corporation in that year went to millionaires and billionaires.

It is undeniable that the bulk of capital gains taxes would be paid by the powerful few, who have manipulated the tax code in their favor to the detriment of traditional small business owners who serve our communities through their businesses. On balance, small business owners will benefit from investments in strengthened public services that reinforce their businesses and their communities – and these improvements would be made possible by eliminating the tax break for capital gains enjoyed by the very wealthiest Washingtonians.

Endnotes

1. Michael Cooper, et al., "Business In the United States: Who Owns It, And How Much Tax Do They Pay?" National Bureau of Economic Research, 2016, http://eml.berkeley.edu/~yagan/BusinessOwnersTaxes.pdf.

2. Washington State Budget & Policy Center Calculations; data from the Internal Revenue Service, Statistics of Income, Sales of Capital Assets, long-term capital gains, 2014.

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