A capital-gains tax bill moving toward a state Senate vote is too flawed and should be abandoned. The Democratic leadership’s rush to create this tax even as the state’s revenue picture is expected to continue improving, coupled with its disingenuous use of the legislature’s emergency power, further signals a need for voter skepticism.
Though toned down from Gov. Jay Inslee’s inflated proposal, Senate Bill 5096 amounts to taxation for taxation’s sake in a half-baked attempt to help the state.
This bill’s deficiencies are numerous. There is no clear justification for raising the money, because there are few specifics available for what it will go toward. It is virtually certain to tie the state up in court litigating whether it’s a constitutionally prohibited income tax. And it perpetuates the Legislature’s troubling misuse of emergency clauses to thwart potential voter challenges.
Sponsored by Sen. June Robinson, D-Everett, the bill would create a 7% tax on capital gains — that is, income or profits from stock sales, business sales and other transactions — of more than $250,000 in a year per tax filer. It exempts real estate transactions, much of the farming sector and retirement accounts. Inslee had proposed 9% tax on gains that would start as low as $25,000 for individuals and $50,000 for joint filers. The governor’s version also included real estate profits.
But even the diminished bill is unacceptable.
The tax would raise $550 million a year, including $350 million for unspecified education funding. Robinson says the money will go to child care and early learning — certainly worthy causes — but that’s not written into the bill. The rest would go into a new “taxpayer relief account.”
Education deserves stout funding — but what exactly would this pay for? What are the deliverables by which to judge effectiveness? These remain unanswered. The “taxpayer relief” portion is also suspect. Committing $200 million a year to offsetting regressive sales, property or gasoline taxes might have merit. But this money seeds a fund the Legislature can easily raid.
It is not “reforming” unfair taxes to burden the comfortable without aiding the afflicted. It is simply taxing more.
True, this editorial board supported a capital-gains tax in 2015 as the Legislature struggled to meet its constitutional requirement to fully fund basic education, under the 2012 Supreme Court McCleary ruling. That crisis is no longer upon lawmakers.
This year’s Legislature is laden with high-priority problems to solve: economic and health repercussions of the pandemic, inadequate transportation infrastructure, policing reforms, a rising population of homeless people and a two-year budget to write, among others. Yet lawmakers are using precious time hustling a new tax into place before meeting the high bar of justifying it.
Senate Bill 5096 presently sits in the Rules Committee, where it can be pulled for Senate approval rapidly by the Democratic majority during this week’s expected floor votes. This should not happen.
The rush is also problematic. Washington’s revenue forecast is due March 20. The Legislature created a bipartisan group in 2019 to study how to make the state’s tax structure more fair and stable. That group is to hold public meetings on its findings and potential reforms after this legislative session. Moving forward when the state is sorting out both cash projections and structural inequities suggests the real driver is political momentum, not stewardship.
The state constitution prohibits income tax. The current Supreme Court may decide a tax on capital gains is acceptable. If this tax passes, the inevitable litigation would delay collection for months, perhaps years. Even without the courts, the revenue would not begin coming in until 2023.
Yet, on its last page, this bill comes with an “emergency” clause saying it is needed “for immediate preservation of the public, peace, health or safety, or support of the state government.” That misapplication of “immediate” is a flat-out abuse of authority. It precludes the right of voters to challenge the tax by referendum.
More than 40 other states tax capital gains. Washington may someday join that list, but this ill-conceived legislation would be a bad way to get there. Voters’ backlash would be well-deserved. Stop SB 5096 now.