State House Democrats and Jay Inslee refuse to give up on their tax hike push. For whatever reason—pride over admitting they were wrong, willful ignorance or, more likely, political strategy— the liberals continue to insist that our state requires new taxes in order to meet its obligations, even despite the fact that they have been repeatedly proven wrong since the legislative session began in January.
Last month, state economists released the latest revenue forecast and told lawmakers they could “count on another $400 million without raising taxes a dime”. That means lawmakers have $3.2 billion (a whopping 9.2% increase) more in tax revenue than they had last time they wrote the state budget. The $3.2 billion does not include “things like money that comes in before June 30,” which allow the state to build a larger reserve fund.
Yet, still clinging to a let’s-raise-taxes mantra, the House Democrats revised version of a spending plan does eliminate their tax hike proposal on small businesses (the state business and occupation tax), but it does not eliminate the state capital gains income tax that Jay Inslee and his special interest donors crave.
Democrats—including Inslee—refer to the state capital gains income tax as an “excise tax.” Of course, a capital gain income tax is not an excise tax, since it taxes income—as defined by the federal government.
Late last week, news broke that state House and Senate budget negotiators “reached a tentative agreement on spending levels that could signal an end to the impasse that’s divided the Legislature since the 2015 session convened six months ago.” On the off chance that the agreement includes a state capital gains income tax, the Freedom Foundation is prepared to file a lawsuit on behalf of state residents. The Freedom Foundation explains,
“Proponents have attempted to compare the proposed capital gains tax to Washington’s real estate excise tax, but such a comparison easily breaks down. The real estate excise tax is paid whenever a property is sold, even when that property has declined in value.
“By contrast, the proposed capital gains tax is only triggered if the property has created a “gain” for the seller above a specified exemption level…
“If capital gains are income (as the federal government and other states have defined them), the likelihood of the tax prevailing under a state Supreme Court challenge is low. There are reasons Washington has no income tax, and they include more than just the political climate.
“Though voters have rejected a personal income tax seven times, mostly recently in 2010, we would have had an income tax long ago if the state Supreme Court had not struck it down in 1933.”
The ruling the Freedom Foundation refers to reads,
“All taxes shall be uniform upon the same class of property within the territorial limits of the authority levying the tax and shall be levied and collected for public purposes only. The word ‘property’ as used herein shall mean and include everything, whether tangible or intangible, subject to ownership.”
Under the state Supreme Court’s ruling, property is “subject to uniform taxation (which rules out a progressive tax) and a 1 percent tax limit on the property’s true and fair value (also a constitutional provision).” If capital gains are established as income (and income is property), the ruling spells trouble for Democrats’ state capital gains income tax. The Freedom Foundation,
“Retired Washington State Supreme Court Justice Jim Johnson, senior legal fellow at the Freedom Foundation, believes this is the crux of the proposed tax’s constitutional problems.
“‘Because Washington law has long recognized that capital gains are income,’ he said, ‘that income is property, and that property must be taxed equally, any lack of uniformity in an income tax scheme is unconstitutional.’”
As Shift recently pointed out, perhaps the greatest motivation behind Democrats’ continued insistence on new taxes is their incessant desire to reward their million-dollar special interest campaign donors. When House Democrats released their spending proposal, they followed Inslee’s lead and included pay raises and benefit increases to the tune of nearly one billion dollars for public employee union members—as conceded by Inslee during secret negotiations with top union officials.
Democrats are more than willing to sacrifice the pocketbooks of working families if it means they could reward their million-dollar campaign donors. And, they have signaled their willingness to allow a state government shutdown if it means rewarding special interests with revenue from new taxes. Specifically, a state capital gains income tax. Democrats’ insistence on a capital gains income tax specifically offers another insight into their agenda.
Rewarding special interests is not the only reason Democrats are pushing for a state capital gains income tax. For quite some time, Democrats have listed establishing a state income tax as a guiding principle of their party. Democrats’ determination to establish a state income tax, despite the clear wish of Washingtonians, is not exactly a secret—though mainstream media outlets do not do enough to report on the issue. In the end, the state capital gains income tax is a means to achieve their “guiding principle.”
In the end, establishing a capital gains income tax by calling it an excise tax is Democrats way of underhandedly sneaking in a form of a state income tax.