In a new blog post, the Washington Policy Center’s Jason Mercier urges lawmakers and the taxpaying public not to forget the full context for Jay Inslee’s proposed state capital gains income tax. Mercier’s piece responds to the rhetoric so often used by the tax’s supporters, that only 9 states don’t have a capital gains income tax.
Presumably, being in the minority is enough to argue that Washington State should adopt the tax. Not so, writes Mercier. The Washington Policy Center,
“It is very true that only 9 states don’t have a capital gains tax but the context for that is those are the 9 states that don’t tax income. This is because capital gains are taxed as part of the income tax code in the 41 other states. So if Washington was to adopt we would be the only non-income tax state to tax that type of income.
Because it is arguably an income tax there is one of two possible scenarios for when the Supreme Court would ultimately rule on it:
- They strike the tax for being unconstitutional thus blowing a big hole in the budget/McCleary plans; or
- They strike 80 years of precedent finding income is property and thus end the state’s prohibition on taxing all forms of income uniformly.
“There is some suspicion that the reason the capital gains tax is being targeted is because there are some that believe the current justices would overturn the prior case law allowing income taxes in Washington without a constitutional amendment and they have been trying to find a test case.”
If state capital gains income tax supporters truly believe “the most volatile form of taxation (capital gains) is a prudent thing to implement,” then they need to do so without a veil of secrecy over their intentions. The reality is that “Washington would be an anomaly for competitive purposes with the other non-income tax states.” The public should be informed for this, not fed the same weak “everyone else is doing it” line. And, as Mercier writes, implementing a state capital gains income tax should be “done via a constitutional amendment unless one wants to run the risk the state Supreme Court would end the current prohibition on graduated, across-the-board income taxes in Washington.”