Wow! That had to be the craziest last four days of session I’ve ever experienced. It is going to take time to unpack and analyze everything that happened including a new stealth tax increase using a Title Only bill, public process gone to hell, breaking the McCleary K-12 funding property tax deal and legislative backstabbing live on TVW. For now, there is at least one thing to celebrate — lawmakers avoided setting up a lawsuit to overturn the state’s graduated income tax ban by not imposing an income tax on capital gains.
With the amount of games being played in the final hours of session, I wasn’t willing to declare victory until the final gavel fell, but the capital gains income tax proposal was not voted on. As reported in Crosscut:
“Both the House and Senate — each with healthy Democratic majorities — floated versions of a capital-gains tax this year. But the tax, which opponents have decried as an unconstitutional tax on income, failed to make it into the final budget deal.
Senate Democrats had originally suggested using capital-gains tax revenue to reduce taxes elsewhere, separately from their main budget. But with the clock ticking on Sunday, Senate Majority Leader Andy Billig, D-Spokane, said there wasn’t enough support for that type of tax-relief plan.”
Now we can turn our attention to the June 6 Court of Appeals hearing on Seattle’s illegal income tax. We know now thanks to a public records lawsuit settlement that the Seattle City Council was told by its own attorneys in 2014 that a local income tax was illegal under state law and the state Constitution. Despite this the Seattle Council unanimously approved a local income tax in 2017 in hopes of setting up a lawsuit. That illegal tax was immediately invalidated by King County Superior Court.
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 a graduated income tax.
At least for now, it is good to see state lawmakers realize this. That said, there is still an income tax study in the new budget. Section 137 (2)(c) of the budget provides the Department of Revenue $2 million for a tax structure study that is tasked with looking at the possibility of a corporate income tax among other things.
We must remain vigilant to keep Washington income tax free and maintain what the state Department of Commerce calls the state’s “competitive advantage.”
Jason Mercier is the Director of the Center for Government Reform at Washington Policy Center and is based in the Tri-Cities.