Proposals for an income tax — even in the form of a narrowly based tax on capital gains income — are prompting dismay among those who recognize Washington’s unique economy is built around its unique tax structure. Consequences could be dramatic.
Matt McIlwain, Madrona Venture Capital, in Seattle Times, March 15, 2017: More taxation threatens to dampen state’s robust economy
“…We should be thankful for the choices Washingtonians have made in the past around defeating an income tax. With our state’s balanced tax system, state revenues have increased almost every year. History shows that our smart growth and consumption-orientated tax system, when combined with intelligent prioritization by legislators, keep Washington at the forefront of bold business initiatives, technical innovation and job creation. The result is not only rising revenues for the state, public schools and local governments, but the fostering of new ideas and opportunities that make the world a better place for everyone.”
The (Longview) Daily News, editorial, April 26, 2017: Income tax again?
“Even after citizens voted nine times against an income tax, some politicians just won’t let it go. The state will get an estimated $3 billion more in revenue from existing tax for the upcoming biennium — isn’t it time they lived within those means?”
Washington Policy Center, March 2017: Legislative Memo: HB 1730 and SB 5111 would impose a capital gains income tax in Washington state
Memo notes the extreme volatility problems associated with a capital gains income tax, and points out that California voters recently adopted a constitutional amendment requiring the state to bank much of its capital gains revenue, to prevent future shortfalls from becoming worse. It continues, “If enacted, the capital gains income tax would certainly face legal challenges for being an unconstitutional tax on income. The bill proposes a rate of 7.9%, far above the uniform 1% limit required by the constitution. It is noteworthy that none of the states without an income tax have a capital gains tax. This is likely due to the fact capital gains are considered to be income. There is also the risk that adoption of a capital gains income tax could be used in attempt to create a test case to get today’s state Supreme Court to overturn the state’s well-established 84-year-old income tax ban.”
Washington Research Council, March 31, 2017: Special report — Proposals for a state capital gains tax
Briefing paper provides an extensive summary of Democratic proposals in the House and Senate for a capital gains income tax. It observes that in some cases, the Democratic proposals would force the most onerous capital gains taxes in the country. And it notes their effort to describe this income tax as an “excise tax” raises the danger that a Washington tax would not be deductible on federal income tax returns. “By describing the taxes as excise taxes, the two proposals are trying to dance a narrow line drawn in two 1933 cases by the Washington Supreme Court. …If the IRS holds the Washington capital gains tax to be an excise tax on the transfer of property rather than an income tax, it will not be deductible.”
Jason Mercier, Washington Policy Center, in Seattle Times, Sept. 16, 2016: State should make state income-tax ban crystal clear
Guest column urges support for a constitutional amendment banning an income tax. The proposal was defeated on the Senate floor March 7 due to opposition from members of the Senate Democratic Caucus.
Jason Mercier, Washington Policy Center, in Seattle Times, Nov. 19, 2015: Lawmakers aren’t listening to voters on tax increases
Guest column notes that Washington voters have repeatedly voted for rules requiring a two-thirds vote of the Legislature before taxes can be increased.
Washington Policy Center, March 2017: History of income tax votes in Washington
Income tax bills in the Washington Legislature, 1985-2017
Members of Senate Democratic Caucus who have sponsored or cosponsored income-tax legislation