Preventing new taxes on income

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There continues to be efforts to create new taxes on income in our state – inside and outside of the Legislature.  

The first effort comes from Democrats who want to pass a new capital gains income tax. Here’s some background information:

  • Last legislative session, Democrats passed House Bill 2967 out of the House Finance Committee. The measure would have created a new capital gains income tax. Every Republican voted against the bill in committee and it did not advance to the House floor.   
  • In October, Democratic Superintendent of Public Instruction Chris Reykdal renewed calls for a capital gains income tax.
  • In a media availability on Nov. 28, 2018, Speaker of the House Frank Chopp said to “expect movement” on a capital gains tax this session.   
  • On Dec. 13, 2018, Gov. Jay Inslee proposed a 9 percent capital gains income tax on individuals. This, despite record state tax collections that are forecasted to produce $4 billion more in revenue for the 2019-21 budget cycle compared to the current one (2017-19).
  • On Jan. 11, 2019, two Senate Democrats proposed Senate Bill 5129 – Increasing revenues for the support of state government. The measure was referred to the Senate Ways and Means Committee, where it received a public hearing on Jan. 16, 2019. You can read the full bill here. The House companion measure is House Bill 1343.
  • On Jan. 15, 2019, five House Democrats proposed House Bill 1172 – Assisting Washington families by improving the fairness of the state’s tax system by enacting a capital gains tax and providing property tax relief. The measure was referred to the House Finance Committee. You can read the full bill here. The Senate companion bill is Senate Bill 5314.

IRS: A tax on capital gains is an income tax

Washington State House Republicans say “capital gains income tax” because it is, in fact, an income tax. This research shows that all state revenue departments describe capital gains as income. This op-ed from the Tax Foundation also explains why capital gains taxes are income taxes. The IRS also made this point clear in a letter to U.S. Representative Dan Newhouse last year:

Read the entire IRS letter here.

Our fight to prevent a local income tax

RCW 36.65.030 states: “A county, city, or city-county shall not levy a tax on net income.” However, this hasn’t stopped an effort outside of the Legislature to create a new tax on income.

The city of Seattle is trying to establish an income tax on high-income residents. As this article in The Seattle Times on August 9, 2017 highlights: “The proponents also said the measure would serve as a legal test case for taxing income in Washington, possibly opening the door to a fairer tax system statewide.”

A King County Superior Court Judge ruled on Nov. 22, 2017 that Seattle’s local income tax is illegal. On Jan. 10, 2019, the state Supreme Court denied the city of Seattle’s request for direct review of its effort to create an income tax. However, the issue is still alive in our court system. This op-ed in The Snohomish Times on Jan. 19, 2019 explains what happened with the court ruling and what to expect moving forward.

Our solution: House Bill 1588

In an op-ed in the Puget Sound Business Journal on April 6, 2018, Rep. Brandon Vick wrote: “A state income tax should not be on the table in any form.” Vick and other House Republicans continue to fight for legislation (House Bill 1588) that would prohibit the imposition of a local income tax. You can read the full bill here.

Voters don’t want an income tax

Voters have made it clear they don’t want a state income tax. According to our Secretary of State’s website: “Washington voters have been asked on 11 separate occasions to adopt a state personal income tax or corporate income tax. Only the first vote, in 1932, was successful, and that measure was subsequently thrown out by the state Supreme Court on a 5-4 decision on September 8, 1933.”