WA Dems went too far. Their pursuit of another income tax took a wrong turn | Editorial

It’s bad enough Democrats pushed a capital gains tax through at the same time revenue is predicted to soar in Washington state. But what’s especially galling is that they also devised a way to stop voters from repealing the new tax through the referendum process.

The majority party managed this by twisting the intent of the legislative emergency clause that should be used only in true emergencies.

Deep down, Democrats and Gov. Jay Inslee must know their desire to pass a capital gains tax does not meet the definition of a crisis. But those lawmakers who approved it want what they want — and they don’t want to risk losing it through a ballot measure.

So the capital gains tax bill includes a provision designating the tax as “necessary for the support of the state government and its existing public institutions.” The language was added specifically to thwart a referendum attempt this year.

The fact that Democrats felt such protection was needed indicates they know a capital gains tax isn’t popular with Washington state voters, but most went ahead and approved it anyway.

The new measure is framed as a way to ensure the wealthy pay their fair share, and imposes a 7% tax on the sale of stocks, bonds and other assets above $250,000.

But what many Democrats really want is to go to court over the issue. If the final ruling were to be in their favor, it could lay the legal groundwork for a way around the state constitution, which prohibits a graduated income tax.

So far, they have gotten their wish. Already, two lawsuits have been filed against the capital gains tax. One is from the Freedom Foundation. The other is from the Washington State Farm Bureau and several farmers concerned that the sale of farmland is not an exemption in the bill.

Opponents are on solid ground. They claim the capital gains tax is really an income tax — which isn’t allowed under state law — and the IRS and past rulings by the Washington state Supreme Court affirm this position.

But Democrats insist taxing capital gains is really an excise tax that is triggered by the sale of assets, and they hope the court will reverse course and agree with them.

In the meantime, however, citizens still have some recourse — although it will take more time and effort.

The voter initiative process is still an option, but it requires double the signatures of a referendum. Unfortunately, in order for it to appear on the November ballot, those signatures would have to be turned in by July 2 so there’s no way it’s going to happen this year.

However, plans are already underway for 2022 that might send a message to lawmakers.

A group working outside the Washington Policy Center, but with ties to WPC President Dann Mead Smith, is drafting an initiative for next year that would repeal the capital gains tax and prohibit state and local income tax proposals.

Jason Mercier, Washington Policy Center’s director of government reform, said the idea behind the initiative is to close the door — once and for all — on future attempts to go around the state constitution’s prohibition against a graduated income tax.

State lawmakers and many citizens are rightly concerned about the state’s current regressive tax system, which puts more of a burden on low- and middle-income people than the wealthy.

Taxes on sales and small business make a big difference in your budget when you are barely getting by, and we agree the system needs fixing.

But ramming through a capital gains tax that blocks voters from repealing it through the referendum process is not the way to start setting things right.

A bipartisan Tax Structure Work Group has been working in a transparent way to tackle problems with the state’s taxing system, and it continues to gather public input. Lawmakers should give this group a chance before dismissing its efforts.

There is a right way and a wrong way to address taxes, and this year the Legislature definitely went about it in the wrong way. The backlash from an initiative, we predict, will be coming.

This story was originally published June 2, 2021 at 5:12 PM.