Washington Democratic Senate leaders should think twice before voting on a capital-gains tax proposal likely destined for the courtroom. Slow way down. This bill is oddly being rushed to a floor vote ahead of a promising new revenue forecast report.
Senate Bill 5096 offers no specific use for the estimated $550 million money it would raise each year. Its vague promises to steer some money toward education and other funds toward undefined “taxpayer relief” are not clear justifications for levying new taxes. The bill would tax investment profits of $250,000 and up within a year at a 7% rate, taking aim at a plump political target while exempting real estate and retirement account income. But this proposal lacks coherent evidence of how it would make the state better off.
If taxation treats people with lower incomes unfairly, shifting the burden could be a solution. Simply adding to one side of the scale is not.
Answers are on the way. The Legislature, to its credit, has a serious examination of structural fixes for inequities underway. If a capital-gains tax is a potentially useful part, the full picture should be available for consideration. But that prescription isn’t available yet.
In the nearer term, the state is less than two weeks from the March 17 release of updated revenue projections. Deliberations on a new tax stream should not go forward without the full picture.
Confoundingly, the bill disingenuously alleges an “immediate” need and uses an emergency clause to ratchet up the effective date. Clearly, that canard is a legislative ruse to block a potential citizens’ ballot referendum, not to rush tax dollars to the people. The capital-gains tax wouldn’t reap its first dollar until 2023 at best. That wait would almost certainly be longer if an expected court fight drags out. And the Supreme Court may well find that a capital-gains tax violates the state constitution’s ban on taxing income.
Hurrying this tax through the Legislature as an “emergency” would be setting aside these real-world facts to take advantage of political opportunity. The proposal’s sponsor, Sen. June Robinson, D-Everett, states the facts plainly in a pending amendment: The bill exists “to begin to rebalance the tax code.”
The senator’s honesty is illuminating. This proposal would collect hundreds of millions of tax dollars for purposes only vaguely described. SB 5096 itself is only half-baked, but the scheme to rush it into law without a full vetting of these issues is shrewdly calculating. This haste fails to address tax burdens for lower- and middle-income Washingtonians, while negating a competitive advantage for attracting and retaining wealth.
Writing an equitable tax code is hard work. It deserves to be treated with diligence, not hustled through piecemeal with thin justification. The Senate has SB 5096 queued for an imminent vote. It should not pass.