New WA tax law could upend retirement plans. The blame is on Dems and Gov. Inslee

Kevin Bouchey of Richland should be relaxing and enjoying his first year of retirement. Instead he is anxious that the state is going to take away money he was counting on.

That’s because Gov. Jay Inslee and the Washington state Legislature — led by a Democratic majority — pushed through a capital gains tax earlier this year that is upending Bouchey’s plans.

For more than 30 years Bouchey owned SKD Farms in the Yakima Valley. He sold the mid-sized farming operation in December 2020 and has moved to the Tri-Cities.

Bouchey told the Herald he owns non-exempt assets that if sold would produce long-term capital gains of more than $250,000 — the threshold for the new tax.

He worked hard on his farm for decades to get to where he is today. Now it’s like he’s being punished by state lawmakers for being successful.

His hope is that lawsuits filed against the capital gains tax will prevail. One was brought on by the Freedom Foundation and the other by the Washington State Farm Bureau.

On Tuesday, the two lawsuits were presented in Douglas County Superior Court, and Judge Bryan Huber decided to consolidate them, as well as postpone arguments on the state’s motion to dismiss them.

The case is to be brought before the judge again within 30 days.

Going to court over the capital gains tax is exactly what many lawmakers want.

The Washington state constitution prohibits a graduated income tax, and efforts to allow some kind of income tax have been shot down by voters 10 times since the 1930’s, with the most recent attempt in 2010.

With that kind of track record by voters, state lawmakers in favor of an income tax have been trying to find a work-around — and it appears the capital gains tax is it.

The state Supreme Court has consistently ruled that income is property and that a graduated income tax is not allowed under the state constitution.

But Democrats are calling the capital gains tax an excise tax, and say it therefore should not be considered a tax on earned-income. They hope the state Supreme Court this time will see it their way and provide them the legal hook they’ve been looking for to eventually impose a statewide income tax without going to the voters.

That is the plan — plain and simple — and people like Bouchey are the potential casualties is this effort.

He is supporting the Washington Opportunity for All Coalition, which is supporting the fight against the new tax. The group doesn’t believe attempts to enact income taxes simply by calling them excise taxes will work.

The capital gains tax approved this year in Olympia imposes a 7% tax on financial gains people receive when they sell assets like stocks and bonds above $250,000.

The IRS says a capital gains tax is an income tax, and other states in the country see it the same way.

But Democrats approved the capital gains tax looking for a legal challenge and now here we are.

What was especially upsetting is that in addition to trying to get around the constitution, the majority party also twisted the intent of the legislative emergency clause that should be used only in true emergencies.

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.” That language was put in place as a way to stop voters from trying to repeal the new tax through the referendum process.

Democrats obviously realize a capital gains tax isn’t going to be popular with Washington state voters, so they set up a way to block their interference.

Their sly approach is maddening and indicates a disdain for the constitution and for Washington state voters.

And for people like Bouchey, unexpectedly taxing his nest egg seems cruel.

If state lawmakers want to impose an income tax, there are more honest ways to do it.

A bipartisan Tax Structure Work Group has been putting in hours of time trying to tackle the state’s taxing system, which admittedly needs adjusting. The sales tax harms the poor and middle-class more than the wealthy and a more fair system is needed.

Democrats shouldn’t undercut those efforts by imposing a capital gains tax that hurts farmers, business owners and others who now find their retirement plans are in jeopardy.