Washington’s experiment in creating a capital gains tax must be weighed on its true merits. Unfortunately, supporters of the tax can’t seem to resist putting a finger on the scales.
The rhetorical fog has consistently obscured the true effect of the tax, which is actually as simple as math. More recently, and disappointingly, Attorney General Bob Ferguson tried to attach favorable language to the tax — a political creation of his Democratic allies — to a ballot initiative to repeal it. On Tuesday, he wisely reflected. This decision should set a new tone for an unbiased public conversation.
Ferguson had followed the lawmakers’ lead in attaching the words “excise tax” to the question like passive-aggressive post-it notes. This stubborn branding does not change reality. Senate Bill 5096adopted in 2021, taxes Income. Any assertion would brazenly distort the debate.
If the tax is implemented, the state will collect 7% of annual personal profits over $250,000 from the sale of investments, such as stocks. The fine print exempts retirement accounts, real estate, and certain farming and small businesses, among other sources. This would directly encourage the wealth generated in Washington to leave. Eight states do not tax capital gains at all.
The state tax is expected to raise $445 million for early learning and child care. But state coffers have run much higher surpluses of late. Revenue projections have increased $1.9 billion in the middle of the 2021 legislative session before SB 5096 passed, and exploded again a year later, by another $1.45 billion. This additional money regularly available for legislative priorities argues strongly against the need for a new tax.
To obscure the problem, backers used the old tricks of blue smoke and mirrors. Section 1 of the bill includes a grandiose claim of “progress toward rebalancing the state’s tax code.” It doesn’t matter that it funds more important services, not relief for low-income families. Never mind the adverse consequences of a new tax on an ill-structured stack.
Capital gains tax has been rightly stopped in court due to the state’s constitutional tax restrictions. Douglas County Superior Court Judge Brian Huber read it as crossing the line in March and clearly saw through the whitewashing of the “excise tax,” an analysis that should resonate when the validity of the tax is inevitably decided by the State Supreme Court.
Ferguson should never have signed the “excise tax” malarkey, which is meant to electrify voters. A court hearing in Thurston County on Thursday is expected to result in clear and unbiased language for a capital gains tax challenge initiative that could pass this fall.
This debate must take place above the board, not with rhetorical games.