Freedom Foundation

Freedom Foundation vows lawsuit if lawmakers pass Inslee’s capital gains income tax

(OLYMPIA, Wash.) — If Washington Gov. Jay Inslee proposed a statewide capital gains income tax hoping to provoke a court fight over the issue, the Freedom Foundation is prepared to oblige him.

The Olympia-based free-market think tank on Tuesday renewed its pledge from previous years to file a lawsuit challenging any capital gains income tax passed by the Democrat-controlled Washington State Legislature during its 2019 legislative session.

Despite record state tax revenues, Inslee last week unveiled a budget proposal that includes $3.7 billion in new taxes, including a 9 percent tax on capital gains income over certain thresholds.

“Graduated taxes on income, including income from capital gains, are clearly forbidden under the Washington State Constitution,” said Freedom Foundation CEO Tom McCabe. “That was true last year; it’s true now; and, unless the constitution is amended, it will be true every time it’s tried.”

Inslee knows the Washington State Supreme Court ruled in 1933 that income — including capital gains — is considered property and, consequently, subject to the same restrictions as other property taxes.

The state constitution requires property be taxed at the same rate for all Washingtonians, which is why the court ruled in 1933 that a graduated-rate income tax is unconstitutional.

A legislative proposal for a capital gains income tax in 2018 sought to impose a flat rate of 7 percent, but the narrow Democratic majorities were unable to muster the support needed to pass it.

“The governor knows his capital gains income tax proposal is unconstitutional,” McCabe said. “But he desperately wants one passed anyway for his own political reasons and hopes the Washington Supreme Court will overturn its 1933 ruling. That way, he can impose a capital gains income tax without bothering with a vote of the people.”

Washington voters consistently reject tax increase proposals at the ballot and have voted down income tax proposals with regularity. But rather than taking the hint and living within their means, lawmakers continue looking for a shortcut that bypasses the public.

Temporarily, at least.

“The governor’s job is to do what’s best for the people of this state, not the special interests that write checks to his campaigns in return for more tax dollars flowing their way,” McCabe said.

“And Washington is already collecting more than enough in taxes to fund its operations. It doesn’t need to take $3.7 billion more from Washingtonians to spend on Jay Inslee’s pet projects — especially when his scheme to seize the money is clearly unconstitutional.”

The Freedom Foundation — a nonpartisan, nonprofit policy organization — followed through on a similar promise by filing a lawsuit last year against the city of Seattle after the city council voted to impose an income tax on the city’s high earners. A King County Superior Court judge struck down the tax as illegal in Nov. 2017, though the city’s appeal is ongoing.


Maxford Nelsen
Director of Labor Policy
(360) 956-3482