Highlights from House income tax floor debate

By JASON MERCIER  | 
Apr 20, 2021
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The House floor debate on SB 5096 (income tax on capital gains) started at 6 p.m. After considering amendments, House adjourned at 10:27 p.m. until tomorrow morning postponing vote on final passage. Some of the highlights: 

  • Rep. Thai says income tax on capital gains no longer necessary to fund working family rebate since it is assumed in base budget process now. She made comment speaking against this amendment to dedicate funds to "Taxpayer Fairness Account" to reduce taxes.
     
  • House rejects this amendment to deal with extreme volatility of income taxes on capital gains: "Requires that 30 percent of the revenues from the tax be deposited into the state budget stabilization account."
     
  • We keep hearing an income tax on capital gains (that will be tied up in the courts for years) is necessary for critical programs for children. Why is funding for those programs not a first buy in a budget growing substantially but instead a last buy funded with a new tax?
     
  • Fun amendment but rejected - "EFFECT: Provides a contingent effective date that is dependent upon the Internal Revenue Service advising the Department of Revenue that the tax imposed under this act is an excise tax."
     
  • Here is what the bill says the capital gains tax is applied to: "'Federal net long-term capital gain' means the net long-term capital gain reportable for federal income tax purposes…"
     
  • House rejects this amendment to clarify that the bill doesn't contain a stealth emergency clause to prohibit the people's right of referendum on the proposed income tax.
     
  • House rejects 48-50 this amendment to add referendum clause to income tax on capital gains. As a reminder, new income tax doesn't take effect until Jan 1, 2022 (owed April 2023 with federal income tax return). Referendum vote would be in Nov 2021.
     
  • Usually wouldn't say this about members but the floor debate on the stealth emergency clause is bordering on intentional dishonesty. The language specifically mirrors the constitutional language to exempt referendums.

This sentence from the bill acts as a stealth emergency clause: “The tax levied in subsection (1) of this section is necessary for the support of the state government and its existing public institutions.”

From the state constitution:  

"Referendum. The second power reserved by the people is the referendum, and it may be ordered on any act, bill, law, or any part thereof passed by the legislature, except such laws as may be necessary for the immediate preservation of the public peace, health or safety, support of the state government and its existing public institutions, either by petition signed by the required percentage of the legal voters, or by the legislature as other bills are enacted: Provided, That the legislature may not order a referendum on any initiative measure enacted by the legislature under the foregoing subsection (a). The number of valid signatures of registered voters required on a petition for referendum of an act of the legislature or any part thereof, shall be equal to or exceeding four percent of the votes cast for the office of governor at the last gubernatorial election preceding the filing of the text of the referendum measure with the secretary of state."

It's not a traditional emergency clause (not in title or end of bill) but the language has the same effect. The only reason to include it is to prohibit a referendum.

  • Amendment to remove stealth emergency clause fails 47-51. 
     
  • House rejected this amendment 44-54: "Provides a credit against taxes due on any capital gains for charitable contributions made and claimed by an individual on the individual's federal tax return."
     
  • House actually adopted this amendment 92-0 to not allow DOR to go on income tax fishing expeditions: "Removes the authorization for the Department of Revenue to require the filing of informational returns."
     
  • Isn't that special? House ruled this amendment out of order to prohibit efforts to use the tax to open the door to a graduated income tax. Why is this a concern?

(Updated 4/21 at 4 p.m.)

House adopts income tax on capital gains 52-46. Now we wait to see if Senate concurs with changes prohibiting the people's right of referendum.

Additional Information
Back-door emergency clause on income tax bill proposed by House Finance amendment
Income tax on capital gains passes Senate in 25-24 Saturday vote
Editorial coverage of capital gains income tax proposals
WA Capital Gains Income Tax Proposal: What You Need to Know!
A Capital Gains Tax IS an Income Tax: Irrefutable Proof in About Two Minutes (short video)
BAD POLICY: An Income Tax on Capital Gains for Washington (short video)