Don’t be fooled. WA Dems are using the backdoor to slip us an income tax | Editorial
State Democrats once again are trying to slip an income tax plan through the backdoor and this time they think they have the votes to do it.
What’s even more upsetting is that they have declared Senate Bill 5096 an emergency even though it’s not.
But adding an emergency clause to the bill means it would take effect right away, and citizens wouldn’t be allowed to launch a referendum campaign to overturn it if it’s approved.
This is a clear abuse of power and taxpayers should be outraged.
SB 5096 would impose a 7% tax on the capital gains people receive when they sell assets like stocks and bonds. The bill excludes the sale of homes, farms, retirement accounts and smaller businesses and would only apply to profits of over $250,000 per person each year.
But that’s just for now.
The concern is that once any kind of capital gains tax is allowed in Washington state, the threshold easily could be lowered in the future. In fact, Gov. Jay Inslee’s original proposal this year would have imposed a 9% tax on capital gains above $25,000 for individuals and $50,000 for joint filers.
Legislators have changed the governor’s proposal in order to target the wealthy, thereby making it more palatable.
Don’t be fooled.
This bill is attempting to lay the foundation for a statewide income tax. That is the end-goal.
Democrats insist that a capital gains tax is an excise tax and therefore should not be considered a tax on earned income. The distinction is significant because a graduated income tax is prohibited by the state constitution.
The thing is, the IRS says a capital gains tax is an income tax, and past rulings by the Washington state Supreme Court have affirmed that position.
But Democrats hope that will change.
Jason Mercier, director of government reform for the Washington Policy Center, has been watching this issue for years and through a public records request has received email exchanges from lawmakers indicating their motives.
In one telling email in 2018, Sen. Jaime Pedersen, D-Seattle, wrote: “But the more important benefit of passing a capital gains tax is on the legal side, from my perspective. The other side will challenge it as an unconstitutional property tax. This will give the Supreme Court the opportunity to revisit its bad decisions from 1934 and 1951 that income is property and will make it possible, if we succeed, to enact a progressive income tax with a simple majority vote.”
This issue has come up time and again in the Legislature but in the past it never went anywhere. This year is different. SB 5096 already has been approved by the Senate Ways and Means Committee, so its chances of passage appear solid.
Washington’s revenue forecast doesn’t come out for a few more weeks, but there are indications that the state budget is doing far better than most people would have thought considering the COVID-19 pandemic.
In addition, Republicans in both the House and Senate have crafted budgets that do not require new taxes but still provide money for transportation infrastructure, mental health, education, business and other important programs.
So there is no reason to list a capital gains tax proposal as an emergency. If approved, SB 5096 would raise about $550 million per year beginning in fiscal year 2023. But proponents are betting that someone will file a lawsuit against it before then — which is what Democrats want, thinking a court case will go their way.
Washington is currently one of nine states in the country that does not have a statewide income tax. It’s among our best selling points in attracting and keeping major businesses.
Our sales tax, though, is considered regressive, which means a larger percentage of income is taken from low-income taxpayers than from those with higher incomes. We understand the desire to flip that and create a more fair taxing system in our state.
But it must be done properly and transparently — not through a sly bill like SB 5096.
This story was originally published February 26, 2021 at 1:14 PM.