Freedom Foundation

WA legislature kicks off 2021 session with hearing on unconstitutional capital gains income tax

The first bill to receive a hearing before the powerful Washington State Senate Ways and Means Committee during the 2021 legislative session, which began this week, seeks to impose a capital gains income tax on Washington residents.

Introduced by Sen. June Robinson (D-Everett), SB 5096 is the latest in a long-series of attempts to fuel government growth by layering a new income tax on top of the high sales, property, gas and business and operating taxes already paid by Washington residents and business owners.

While proponents typically claim their income tax proposals target only the wealthy, Washington voters — perhaps knowing that new taxes have a tendency to creep in scope and raise costs for everyone — have consistently rejected attempts to impose a state income tax at the ballot box. The last time an income tax measure appeared on the ballot, in 2010, it was defeated by nearly two-thirds of state voters.

Income tax proposals face legal hurdles, as well. Article VII of the Washington State Constitution requires that any taxes on property must be “uniform,” meaning that “the same class of property” cannot be taxed at differing rates. Common sense and Washington State Supreme Court precedent both confirm that a person’s “income” counts as their “property” and, therefore, must be taxed at a “uniform” rate.

Progressive activists, however, have historically been uninterested in equal tax rates, seeking instead to impose punitive taxes requiring that, the more income one has, the larger percentage the state takes.

When the city of Seattle in 2017 passed an income tax targeting only persons with income exceeding $250,000 per year, the Freedom Foundation and others challenged the tax in court on behalf of Seattle residents, and ultimately succeeded in persuading state courts to strike it down as unconstitutional.

Unfortunately, some state policymakers — apparently both unconcerned by the precarious economic situation of many Washingtonians weathering the COVID-19 pandemic and Gov. Jay Inslee’s never-ending lockdowns, and unsatisfied with ballooning state budgets and increasing revenue from existing taxes — have decided this is the year to try to pile on new taxes.

As written, SB 5096 would tax capital gains income derived from the sale of certain types of property at a rate of 9 percent.

Because lawmakers know targeted, unequal income/property taxes are subject to legal challenge, they’ve taken to calling their proposal an “excise tax” instead. And because of past resistance to income tax measures, SB 5096’s sponsor has included an “emergency clause” in the bill so that, if passed, the bill will take effect immediately and could not be placed on the ballot for a public vote via a citizens’ referendum.

While the Freedom Foundation again stands ready to challenge this misguided and unconstitutional new tax in court if passed by the Legislature, it’s always preferable that bad ideas simply never become law.

Washingtonians concerned about the imposition of a new capital gains income tax can:

  • Contact your state representatives. You can send a message to the two representatives and one senator from your district by visiting the state legislature’s webpage for SB 5096 and selecting “Comment on this bill.”
  • Speak out against the bill when it receives a hearing before the Senate Ways and Means Committee on Thursday, Jan. 14, at 4:00 p.m. Because of COVID-19, all legislative hearings are being conducted remotely via Zoom.

To weigh in:

  • Visit https://app.leg.wa.gov/CSIRemote/Senate
  • Under “Committee,” select “Ways & Means.”
  • Under “Meetings,” select “1/14/20201 4:00pm.”
  • Under “Select agenda items,” select “SB 5096 Capital gains tax.”
  • Under “Select type of testimony,” choose either: (1) “I would like to submit written testimony,” which will be received by the members and staff of the committee and entered as part of the bill’s formal record; (2) “I would like to testify live during the hearing”; or (3) “I would like my position noted for the legislative record,” which allows you to formally indicate that your position on the bill is “Pro,” “Con,” or “neutral,” without submitting comments

It is also possible to livestream the hearing without participating by watching on TVW.