House Democrats propose state income tax on capital gains

About the Author
Jason Mercier
Director, Center for Government Reform

Despite record revenue growth, House Democrats want to impose even higher taxes on Washingtonians, starting with a state income tax on capital gains. This income tax plan follows the poor example of Seattle by willfully setting up a lawsuit in hopes the courts will reverse course and allow an income tax. This is not a debate – a capital gains tax IS an income tax.

The only place an “excise tax” on capital gains exists is in the minds of those trying to circumvent the state constitution and voters’ consistent opposition to imposing income taxes.

Here are the undisputed facts about income taxes on capital gains:

Lawmakers can’t claim ignorance of these facts. I shared all of these details with the House Finance Committee during a January 24, 2019 work session on the state’s tax structure. I also provided every lawmaker with a copy of the IRS letter that defines a tax on capital gains as an income tax.

This is not the first time this year some lawmakers have hoped the courts would bypass the people and impose an income tax. Earlier this year several Democratic lawmakers filed an amicus brief in the Seattle income tax case asking the court to overturn nearly a century of case law prohibiting a graduated income tax without a constitutional amendment.

The courts should not be used to circumvent the people on income taxes. As state Supreme Court Justices told lawmakers in an unanimous 1960 ruling, they needed to first ask voters to amend the state constitution if they want to impose an income tax.

It is incredibly disappointing to see the House attempt to willfully set up an income tax lawsuit with its budget proposal. Should the Senate follow this unfortunate path, uncertainty will surround the 2019-21 budget while taxpayers are forced to defend their constitutional rights with a lawsuit to invalidate the income tax on capital gains.  

Additional Information
A Capital Gains Tax IS an Income Tax: Irrefutable Proof in About Two Minutes
BAD POLICY: An Income Tax on Capital Gains for Washington
Washington Capital Gains Proposal Not Helped by Analogy to Real Estate Excise Tax

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