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Freedom Foundation files lawsuit challenging Washington capital gains income tax

(OLYMPIA, Wash.) — The Freedom Foundation, in concert with Seattle law firm Lane Powell, PC, filed suit today in Douglas County Superior Court on behalf of seven Washington residents seeking to overturn the capital gains income tax recently passed by the Washington State Legislature.

Almost from the moment the ink was dry on the November 1889 proclamation designating Washington as the nation’s 42nd state, liberal politicians have sought to impose an income tax on its residents. The sticking points, however, have always been the voters’ steadfast rejection of an income tax, and the state Constitution’s demands that taxes on property—which Washington courts have long held includes income—must be levied uniformly.

Undaunted, Gov. Jay Inslee is straining at the leash to sign into law SB 5096, the latest assault on the Constitution and the will of the people, this time a tax on capital gains income its backers insist will pass muster with state courts because it’s labeled an excise tax.

“How many times do we have to go down this road?” asked Freedom Foundation CEO Aaron Withe. “Capital gains are clearly income. And when you tax them, it’s an income tax — no matter what you choose to call it.”

Even more maddening is lawmakers’ scheme to insulate the new tax from repeal with verbiage that would prevent Washingtonians from invalidating it via a statewide ballot referendum in November.

“If Inslee and his fellow progressives are so convinced this is the right thing to do, why are they so determined to rob voters of the chance to weigh in on the matter?” Withe asked.

Assuming the measure is allowed to take effect, certain capital gains income exceeding $250,000 in a year would be taxed at 7 percent.

“The Washington Constitution is unambiguous,” Withe said. “Taxpayers can’t be treated differently based on the amount of their income.  It’s both punitive and illegal.”

Unfortunately, he explained, liberals insist on using the mechanism of taxes not simply to generate revenue, but also to encourage behavior they like and punish what they don’t.

“Why else would they keep trying this?” Withe asked. “State revenues are already at record levels, and Washington is scheduled to receive billions more in federal dollars to help with the COVID pandemic. If anything, the state should be lowering taxes and thinking up ways to keep money in people’s pockets, not confiscating more and more of what it doesn’t even need.”

In addition to Washington’s Constitution, the Freedom Foundation lawsuit alleges the new tax violates the Commerce Clause of the U.S. Constitution by taxing the sale of capital held out-of-state by Washington residents.

The last time an income tax measure appeared on the state ballot, in 2010, it was defeated by nearly two-thirds of state voters.

And when the city of Seattle attempted to impose a progressive income tax via a 2017 city ordinance, the Freedom Foundation-Lane Powell partnership and others successfully persuaded state courts to strike down the measure as unconstitutional.