A judge will decide whether the Washington Legislature’s hastily enacted capital-gains tax violates the state constitution, but voters should signal their displeasure by encouraging lawmakers to repeal Advisory Vote No. 37.
Elected Democrats took advantage of one-party rule last spring to shoehorn this massive change into state tax code even as a bipartisan Tax Structure Work Group was studying comprehensive tax reform. They passed Engrossed Substitute Senate Bill 5096 during an unusual remote session on largely party-line votes: 25-24 in the Senate and 52-44 in the House. With some exceptions, the law imposes a 7% tax on residents’ capital-gains income over $250,000 and is expected to raise $5.7 billion in the first 10 years.
If the capital-gains tax survives court challenges, the state Department of Revenue will begin collecting revenues in 2023. The majority of the funding is routed to expand early childhood education, which is a recognized area of need. However, the capital-gains tax was simply slapped on top of government’s existing revenues rather than helping ease burdens on lower and middle class residents. That’s not the “rebalancing the tax code” the law’s text claims to provide.
Advisory votes don’t repeal the law, but they do reveal public opinion about revenue-increasing legislation. They are an artifact of a voter initiative requiring any legislative tax or fee increases to appear on the ballot.
The least state lawmakers deserve for their premature maneuver is a collective thumbs down from the people they’re supposed to represent.
Also on the ballot are two tax increases voters should elect to maintain:
Advisory Vote No. 36: Maintain. Engrossed Second Substitute House Bill 1477 imposes a tax on telephone lines to fund a behavioral health crisis response and suicide prevention network. The tax is expected to generate $432 million over 10 years. Revenues will be used to create call-center hubs connecting people with lifesaving crisis-intervention services. State representatives passed the bill by a 71-25 vote in the House and a 27-22 vote in the Senate.
Advisory Vote No. 38: Maintain. This concerns a 2% tax on captive insurers. The Times editorial board supported this proposal, which closes a tax loophole for large companies that essentially purchase insurance policies from themselves. The tax is estimated to generate $53 million in revenue over the next decade. The final bill, Second Substitute Senate Bill 5315, passed nearly unanimously, 49-0 in the Senate and 96-1 in the House.