Freedom Foundation
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See You in Court: Inslee Signs Capital Gains Tax into Law

(OLYMPIA, Wash.) — Washington Gov. Jay Inslee on Tuesday made his most audacious assault yet on the state’s taxpayers, signing into a law an income tax disguised as a capital gains tax disguised as an excise tax.

The measure, which taxes certain capital gains income exceeding $250,000 in a year at 7 percent, clearly violates Washington’s constitution, which prohibits taxes on income that treats earners differently. It also flies in the face of a century’s worth of legal precedent, not to mention the will of the voters, who have rejected numerous attempts to levy an income tax over the years.

“Today, Gov. Inslee made it official. Washington state is coming after your income, one way or another,” said Aaron Withe, CEO of the Freedom Foundation, which filed a lawsuit to block the tax even before the governor signed it into law.

“Elected officials are counting on voters assuming the new capital gains income tax will only affect the wealthy,” he said. “But the negative consequences for job creation, entrepreneurship and the economy will be felt across Washington state.”

Inslee and other backers of the legislation make little secret of their desire to impose a true income tax in the state, and most recognize the capital gains tax is simply a test to see whether the Washington State Supreme Court can be persuaded to lower the bar enough to make it possible.

Liberal leaders, with heavy backing from public-sector unions always anxious to increase the size and scope of government, insist the new tax is an excise tax rather than an income tax. But Article VII, Section 1 of the state Constitution stipulates that taxes on property — which Washington courts have long held includes income — must be levied uniformly.

“By any reasonable definition, capital gains are income, and any attempt to tax it is an income tax,” Withe said. “And because this one treats Washingtonians differently based on income, it violates the state Constitution no matter what you call it.”

The new tax comes at a time when the state is generating record revenues and expecting billions more in federal COVID money. And yet the measure passed by the Legislature and signed by Inslee included an emergency provision only to thwart voters from placing an initiative on the next ballot to overturn it.

“People save and invest for decades in order to put themselves in a stable financial position later in life,” Withe said. “Capital gains taxes are confiscatory money-grabs by greedy politicians who think they have an automatic claim on other peoples’ earnings.”

The move is especially odious in light of President Biden’s plan to double federal taxes on income from capital gains. If both Washington state’s new capital gains income tax and Biden’s proposal take effect, the highest capital gains income tax rate in Washington would be over 50 percent, one of the highest rates in the country.

“Washingtonians can’t afford this new tax burden,” Withe said, “which is why the Freedom Foundation didn’t wait for Gov. Inslee’s signature before filing suit against this punitive tax scheme.”