Voters in Washington State to Have Their Say on Controversial Capital Gains Tax
Voters in Washington state will have the opportunity to weigh in on Tuesday, at least symbolically, on the controversial new capital gains tax set to take effect on January 1, 2022.
Advisory vote 37 asking whether the tax increase should be maintained or repealed is not binding. It does, however, give Washingtonians the chance to send lawmakers and Democratic Gov. Jay Inslee a message about their feelings about a tax that was approved on the last day of this year’s legislative session without a single Republican vote and includes a provision that removes the right of referendum.
The law imposes a 7% tax on capital gains over $ 250,000 for individuals and joint filers from the sale of assets such as stocks and bonds. Exceptions include the sale of real estate, livestock and small family businesses.
Voters are yet to vote on the matter, but the nascent tax – already the subject of multiple court challenges – appears to be facing an uphill historic battle beyond its last-minute partisan passage by lawmakers ahead of it. be promulgated by Inslee in May. 4.
Inslee called the new tax a question of fairness.
“This is a big step towards more justice in overturning the upside down tax system that has been so unfair to Washingtonians for so many decades,” said Inslee, who first proposed a tax on most people. -values in 2014, during the signing ceremony.
The highest-ranking Republican in the House recommends that citizens vote to repeal the No.37 advisory vote tax.
“They need to send a message to the legislature that is enough,” said parliamentary minority leader JT Wilcox, noting that the state is on record. income and the rate of growth.
He hinted that the capital gains tax was part of a Democrats’ plan to impose a general income tax in Washington.
“No one really believes that a tax on people in a subgroup is going to mean with that subgroup,” Wilcox said. “Everyone knows that taxes are going up.
Nonetheless, proponents of the tax, including Inslee, call the capital gains tax an excise tax in an attempt to circumvent the state’s prohibition of a progressive tax on capital. returned. In general, an excise tax is a tax imposed on the sale of specific goods or services, or on certain uses.
Article VII, Section 1 of the Washington State Constitution states that “All taxes shall be uniform on the same class of property within the territorial limits of the authority which levies the tax and shall be levied and collected only ‘for public purposes. The word “property” as used herein means and includes everything, whether tangible or intangible, subject to property. “
For nearly 90 years, the Washington State Supreme Court ruled that income is a good as defined by the state constitution, effectively prohibiting a progressive income tax. In 1932, Washington voters approved a progressive income tax with a 70% margin to pay for education. The following year, the state Supreme Court struck down the tax in its Culliton vs. Chase decision, noting “that it would certainly defy the ingenuity of the deepest lexicographer to formulate a more comprehensive definition of ‘property’ than that found in the Washington State Constitution.”
Since then, the State Supreme Court has always ruled that income is property. In a one-page decision from 1960, Seattle Apartment Operators Association, Inc. v. Schumacher , the High Court said “the constitution can be amended by popular vote.”
Washington state voters have since rejected six constitutional amendments allowing for a progressive income tax, as well as four income tax initiatives.
Additionally, the Internal Revenue Service and state revenue departments recognize capital gains as income.
Opposition to income tax continues to spread across Washington state as a county and ten cities acted to ban a local income tax, including Longview, Battle Ground, DuPont, Barn, Kennewick, Long-term vision , Moses Lake, Richland, Spokane, Spokane Valley, Union Gap and Yakima County. On Tuesday, voters in Yakima City will consider a charter amendment to ban a local income tax.
Across the ideological spectrum, Washington State’s capital gains tax has received negative scrutiny.
The Washington, DC-based Tax Foundation has criticized the new tax, particularly opposing the idea that an excise tax and an income tax would cease to be different if only politicians stopped labeling them. differently.
“According to legal reasoning, the excise tax argument is weak, because the tax passed by lawmakers in no way functions as an excise tax,” wrote Jared Walczak, vice president of projects at State at the Tax Foundation’s Center for State Tax Policy. , in an October 25 analysis . “Not only are capital gains taxed as income in every state with an income tax, and by the federal government, but the proposition here is not to tax the transaction but rather the net – that is – ie net income. “
He went on to note: “The capital gains transaction tax, or the privilege of buying and selling investment instruments. It relates to net gains and losses over a defined period. It is definitely an income tax – on a narrow category of income, but an income tax nonetheless. Courts across the country have always been concerned with substance over form when it comes to taxation, and substance over name. The mere fact of characterizing a tax on a category of income as an excise tax does not change its fundamental character.
Back in the other Washington, the more liberal Seattle Times called for a “no” vote in a editorial Originally published September 26: “A judge will decide whether the capital gains tax hastily passed by the Washington legislature violates the state constitution, but voters should signal their dissatisfaction by encouraging lawmakers to repeal advisory vote No. 37.
The Seattle Times Editorial Board concluded by saying, “The least state lawmakers deserve for their premature maneuver is a collective nudge from the people they are meant to represent.
Wilcox went further in his advice to voters who voted.
“And then I think they have to send an even stronger message when they vote for their representation,” he said. “This is how you really change the mindset that we must always have more and more government.”