Why Washington’s capital gains income tax is unconstitutional
Key Findings
1. A comparative study finds Washington’s constitution has the broadest definition of property of any state.
2. As a result, for nearly 100 years the state supreme court has ruled that Washingtonians own their income because it is their property.
3. The supreme court has repeatedly ruled a graduated income tax is illegal unless the state constitution is amended first.
4. Voters rejected a constitutional amendment to allow a graduated income tax in 1934, 1936, 1938, 1942, 1970 and 1973, most recently by a 77% “no” vote.
5. Voters rejected income tax ballot initiatives in 1944, 1975, 1982 and 2010, most recently by a 64% “no” vote.
6. Given the legal facts, the state supreme court should reject the latest attempt to circumvent the will of the people as clearly expressed in the constitution and at the ballot box.
Introduction
In April 2021 the Washington legislature voted to impose a state income tax. The tax applies to “high earners” who receive capital gains income. Governor Inslee signed the bill on May 4, 2021.
Previously, Washington was one of only nine states that did not impose a personal income tax on its citizens. Once established, history shows that income taxes are expanded to more taxpayers with higher rates until most middle-income and working families have to pay it. This has been the historical experience of every major tax imposed by the state.
The income tax on capital gains is being challenged in court. Washington’s constitution provides that all taxes shall be applied equally to the same class of property, and that the rate can be no more than one percent. Income tax advocates argue that a person’s income is not his property, and that imposing the tax and its high seven percent rate on high earners should be allowed.
The legal question is: Do you own your income?
At the trial court level the Douglas County Superior Court found the answer is “Yes,” and ruled the capital gains income tax unconstitutional. The case is now on appeal to the state supreme court.
This study presents a comparison of state constitutions, finds Washington has the broadest definition of property of any state, shows how the capital gains income tax is illegal, and lists the several times the people have used democratic means to reject efforts to amend the state constitution and allow a graduated income tax.
Washington has the broadest definition of “property”
Although most state constitutions mention how real, personal, tangible or intangible property should be taxed, the vast majority don’t define those terms. Of those state constitutions that define property, Washington’s constitution has the broadest definition. This is why our state supreme court has repeatedly ruled that in order to impose a graduated income tax, the constitution must be amended. In the past Washington voters have overwhelmingly rejected such an amendment six times.
