A capital gains income tax is not needed and will hurt Washington’s economy

Most Washingtonians don’t know that Gov. Jay Inslee and the state Legislature are quietly betraying the will of the people by creating a state income tax and denying citizens, by labeling it an “emergency,” the opportunity to reject it again. They are doing it right now in Olympia, and a few state senators can make the difference in stopping this misguided policy. There are three key elements of the political myths they are using to do it. But, for each point there is an objective reality you need to know:

∙ Myth: Washington state needs new taxes. The reality is the state’s tax revenues have grown more than $4 billion this term, which is more than 10%. We also have had more than $20 billion dollars of federal spending benefits pouring into our state the past 12 months. In fact, the state’s own forecast for tax collections increased by $593 million in the past three months and is expected to increase again next month. So why are state senators rushing to pass an unnecessary tax? No new tax types are needed in our state.

∙ Myth: Capital gains income is not an income tax. The reality is the federal government and every state that taxes income define capital gains as income. Capital gains is the income you make from buying something like a house, stock or bond and then selling it later for a gain. Property must be taxed uniformly in Washington state or it cannot be taxed at all. The senate bill would create a 7% tax on capital gains initially at levels above $250,000, with some exemptions.

∙ Myth: Washingtonians support an income tax. The reality is Washingtonians have rejected state income taxes 10 times — most recently, Initiative 1098 in 2010 was defeated 64% to 36%. Every county but one defeated that tax. Since then, our state tax revenues per budget cycle have grown more than $20 billion from $28.6 billion to $51 billion. A Crosscut/Elway poll this year reconfirmed that Washingtonians oppose a capital gains income tax by 54% to 41%. The Legislature has labeled this new income tax bill an “emergency” tax only to deny the people the opportunity to reject it if they pass it.

There are other important reasons why this nonuniform, capital gains income tax is a bad idea. First, it is unconstitutional. That fact was reinforced as recently as two years ago when the city of Seattle income tax was defeated in the state courts. And Article VII, Section 1 of the Washington state Constitution is very clear:

“All taxes shall be uniform upon the same class of property within the territorial limits of the authority levying the tax and shall be levied and collected for public purposes only. The word ‘property’ as used herein shall mean and include everything, whether tangible or intangible, subject to ownership.”

Second, the income tax is proposed during one of the great migrations of people from high income tax states like California, Illinois and Connecticut to no income tax states like Texas, Florida and Washington. Many people can work from anywhere in a “digital first” world, and they are choosing to do so. Our governor and Legislature are trying to eliminate a critical state competitive advantage for attracting and retaining people, companies and the jobs they create. As was proved after the defeat of I-1098 in 2010 (just after the last economic downturn), the best strategy to ensure long-term, economic growth is pro job creation, pro investment and a pro-opportunity approach that attracts and inspires people to live and work in Washington state.

Finally, we all understand that a “high earners” income tax is a foot in the door for taxing every Washingtonian. In fact, I believe it is a self-fulfilling prophecy because the income tax will hurt our economic growth and decrease our tax revenues. If true, what will the Legislature do in a few years? They will use that otherwise avoidable revenue downturn to justify expanding the capital gains income tax to the middle class and working families. That leads to one last myth — the myth of a regressive tax system.

Does Inslee and the Legislature want to be known as the group who ran countless jobs, opportunities and business owners out of Washington state? Will they be remembered at the ballot box in 2022 as the politicians who didn’t even give the citizens a chance to reject their misguided policies? And, worst of all, will they be known a decade from now as state leaders who ceded our massive opportunity in growth and innovation to no-income tax states like Texas and Florida, and faced the sad path of economic stagnation experienced by Connecticut — the last state to create a new “high earners” income tax back in 1991?

The time is now for all our state legislators and governor to hear from you before they create a law that will permanently hurt the future for all Washingtonians.