Freedom Foundation

Now is the time to stop a state income tax!

Updated March 5, 2021

The Washington State Senate is poised to vote sometime this weekend on legislation imposing a 7% tax on certain income from capital gains. Based on the political dynamics in Olympia, if the tax passes the Senate it will likely be adopted by the House. And Gov. Inslee has already indicated his support for this harmful new tax, which would drive businesses out of Washington, hinder the state’s economic recovery, and open the door for a broader income tax in the future.

With Washington state’s revenue from existing taxes continuing to increase despite the pandemic, and with the state about to receive billions of dollars in additional federal COVID relief funds, a new capital gains tax is entirely unnecessary.

The Freedom Foundation has testified against the bill in the legislature and stands ready to challenge this unconstitutional tax in court if necessary. Ideally, though, this damaging new tax simply never becomes law.

If you oppose creation of a new capital gains income tax, this is the most critical time to contact your state senator to express your opposition. Contact your state lawmakers by visiting the state legislature’s webpage for SB 5096 and selecting “Comment on this bill.”

More information

The Washington State House Finance Committee will hold a hearing tomorrow morning on HB 1496, which seeks to create a statewide capital gains income tax.

The bill is similar to a separate proposal, SB 5096, we wrote about last month. That bill received a hearing before the Senate Ways and Means Committee, which has yet to act on it.

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.

SB 5096 would tax capital gains income derived from the sale of certain types of property at a rate of 7 percent.

Because lawmakers know targeted, unequal income/property taxes are subject to legal challenge, they’ve taken to calling both proposals an “excise tax” instead. And because of past resistance to income tax measures, the bill’s sponsors have included an “emergency clause” 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 any misguided and unconstitutional new tax in court if passed by the Legislature, it’s always preferable that bad ideas simply never become law.