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).
  • This legislative session, Democrats have proposed the following bills that would establish some kind of new capital gains income tax – House Bill 1172 | House Bill 2156 | House Bill 1343 | Senate Bill 5129.
  • The House Democrats’ operating budget proposal, which passed on March 29, 2019, assumes a new capital gains income tax.
  • In the House Finance Committee on April 19, Democrats passed $4.5 billion in new tax increases through House Bills 2156, 2157 and 2158. House Bill 2156 would impose a new 9.9 percent capital gains income tax. Every House Republican on the committee voted “no.” Watch some of our comments from this committee here:

Rep. Drew Stokesbary discusses state tax policy, including the problems associated with the new capital gains income tax proposed by Democrats

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.

Rep. Brandon Vick: Capital gains income tax is unconstitutional, unreliable and unnecessary

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.

A Senate Democrat proposed legislation in the 2019 legislative session that would eliminate the prohibition on local net income taxes – Senate Bill 5928.

In January 2020, several Democratic state lawmakers asked the state Supreme Court in a brief to reverse case law and allow a graduated income tax to be enacted. Learn more in this blog.

Our solution: House Bill 2479

House Bill 2479 would reaffirm the prohibition of the imposition of a local income tax. Rep. Drew Stokesbary, prime sponsor of the legislation, said this in a news release: “Thirty-six years ago in a near-unanimous vote, the Legislature clearly and plainly prohibited cities and counties from imposing a local income tax. House Bill 2479 is a carbon copy of the existing statute, but written in such a way as to avoid any constitutional concerns. I hope the Legislature will reaffirm to the courts and to all Washingtonians our continued belief in this policy.”

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.”