All About the Income Tax

Income tax now a matter of state law – courts and people will decide its fate

Overwhelming majority of Washington voters say no for 11th straight time, but November vote doesn’t count

Under Democratic leadership, Legislature ignores public – Republicans fight for the people

 

The income tax bill, SB 5096, was passed in the Senate April 25, 2021, during a legislative session in which the people were barred from the Washington State Capitol due to COVID restrictions, public seating galleries remained empty, and public participation was limited. KIRO-TV reporter Essex Porter summed up the session: “Democrats locked in their agenda by locking the public out.”

Washington voters spoke loud and clear on Nov. 2, 2021, when they said no to an income tax for the 11th straight time. Unfortunately, the people’s vote didn’t count.

That’s the saddest thing of all about the new income tax approved in 2021 by Washington’s Democratic lawmakers and signed into law by Gov. Jay Inslee — over the dead-set opposition of the people they represent.

The people’s opinion doesn’t matter to those who wish to force this new tax on Washington state. Sixty-one percent of Washington voters voted for repeal of this new income tax when the question appeared on the general election ballot in November 2021. Unfortunately, your vote meant nothing. The income tax bill was written specifically to prevent a public referendum that would carry the force of law.

The November 2021 vote was merely “advisory.” An advisory vote is required under state law whenever the Legislature votes to raise taxes without the approval of the people. This is the result of an initiative approved by voters in 2007 – a pesky reminder that the people have a voice, even if many lawmakers choose not to listen.

Make no mistake – this wasn’t our doing. Every Republican in the Washington Legislature voted against the income tax, as did a handful of thoughtful Democrats. Unfortunately, advocates of higher taxes and spending had more votes than we did. They were unwilling to accept the answer the people have given them, time and again. The people have said no to an income tax every time the question has appeared on a Washington ballot since 1934.

On this information page, you will see the arguments Republicans offered when the income tax bill, Senate Bill 5096, was debated on the Senate floor March 6 and April 25, 2021. We recognize the devastating effect the income tax will have on the hardworking people of the state of Washington, as well as on specific sectors of our economy – particularly the tech industry, the dynamic force that drives Washington’s current prosperity.

Here’s what you need to know about Washington’s new income tax:

  • Watch it grow. The income tax bill passed by the Legislature is narrowly focused, on capital gains income, with exemptions including real estate and the first $250,000 of income. As the law now stands, taxes will be due and payable for the first time in 2023. Nothing will prevent a future Legislature from expanding its reach to every resident of Washington state. Many income-tax advocates have stated they consider this outcome desirable.
  • Supreme Court could give thumbs-up. The Washington Supreme Court ruled in 1933 that a graduated income tax violates the state constitution, meaning that Washington voters must approve a constitutional amendment before such a tax can be imposed. The 2021 income tax legislation is designed to present a “test case” before Washington’s current liberal activist Supreme Court. Income tax advocates believe the court will overturn its ruling.
  • ‘Fairness’ arguments are false. Advocates of higher taxes and spending maintain an income tax would make our tax system ‘more fair.’ Yet our current system is fair to all economic classes. It has allowed business to prosper, generating vast tax collections. The single study cited by income tax advocates is fatally flawed. The new law will not reduce a single tax already on the books, and already tax collections generated by the new income tax are earmarked for an expansion of state spending.
  • Democrats blocked a public referendum. Supporters of an income tax adopted a last-minute amendment to SB 5096, declaring the need for an income tax to be an “emergency.” This prevented the public from filing a referendum to overturn the law. The public still has the option of filing an initiative, but to appear on the ballot, double the number of petition signatures will be required, a much more difficult hurdle.

In the months since the Legislature passed the income tax, the case for an income tax has become even weaker. Our state’s very-healthy and not-at-all broken tax system has been generating ever-greater tax collections, mainly due to taxes on business as our economy recovers from our COVID shutdown. State economists have increased their projections of state tax collections nearly $8 billion since the Legislature adjourned its 2021 session. About $2 billion comes from the yet-to-be collected income tax, but we are hardly in a financial emergency.

Meanwhile, the inevitable legal challenge has been filed, and as of December 2021, the case is making its way to the Supreme Court. If the court reverses 88 years of precedent and permits the income tax to stand, an initiative to repeal the tax remains a possibility. Should the public choose to file an initiative, legislative rules prevent us from using state resources to take a position for or against a specific ballot proposition.

To inform public understanding about the new Washington state income tax legislation, here are links to the public briefing papers we posted prior to the 2021 debate. These briefing papers, originally posted Jan. 10, 2021, have been updated with current information as of December 17, 2021.

 

What’s the problem with an income tax?

Washington is one of nine states without an income tax. We should be glad of that.

Tax advocates created a phony crisis

Voters keep saying no, so a new strategy aims to cut them out of the loop.

It’s not about fairness — it’s about more-ness

This isn’t about redistributing the tax burden. It’s about making it bigger.

A capital gains income tax would eventually hit all of us

It wouldn’t stop with the wealthy. Taxes on high earners would plummet in the next recession. Where do you think the Legislature would find the money?

A capital gains income tax is an income tax — and why it matters

Semantic games allow the Legislature to avoid an open and honest debate.

You can’t trust what tax advocates say

This issue has a long history, and actions speak louder than words.

Download entire package here

Just to make everything clear —

Seven Big Myths about the Income Tax

  1. The income tax on capital gains is not an income tax.

This curious belief is held only by a handful of people, and oddly enough, every single one of them appears to be a member of the Washington Legislature. Under definitions used by every other state, the IRS, even the courts of the state of Washington – yes, it’s an income tax.

  1. It would make our tax system “more fair.”

Our system isn’t unfair – it does a pretty good job of spreading the burden. It gets a bad rap because of high excise taxes on gasoline, beer, wine, liquor and marijuana. Nobody is talking about cutting those. Meanwhile, legislative Democrats advocate measures that would slam the poor with higher gas and electricity prices. This is hard to square with a “fairness” argument.

  1. It would only hurt the rich.

Tax advocates say a capital gains income tax would only hurt the rich. That’s not true. Farmers and small business also would be hit. But it’s the next move that ought to worry us. Tax collections would plummet in the next recession. The next move would be to expand the income tax to the middle class. You can ask every state that tried to “soak the rich.”

  1. It would cause other taxes to be reduced.

The 2021 income tax legislation does not reduce other taxes. They all remain on the books. In the future, when the Legislature expands this income tax to the middle class, it could offer to reduce other taxes – which might make it sound more attractive. But nothing would prevent it from raising taxes again.

  1. The state needs the money.

The state never has enough money to do everything everybody wants. That’s politics for you. But tax collections skyrocketed $20 billion between 2013 and 2020, enough to cover every need. We saw a temporary pause during the COVID shutdown – then our economy boomed again. Since the 2021 session ended, projections of future tax collections have increased more than $7 billion, not counting this new income tax. Surely that’s enough to cover every need.

  1. It wouldn’t drive businesses out of state.

This argument requires us to suspend belief in basic economic principles and ignore the fact that Amazon already has one foot out the door. The state Department of Commerce understood the importance of a favorable tax code. No income tax used to be a big point in its business-recruitment ads — until the Legislature began debating the income tax bill in early 2021 and the state agency quietly dropped the claim from its advertising.

  1. Only Republicans are talking about an income tax.

Of all the claims in this debate, this one was the silliest. Democrats preferred to refer to their income tax as a “capital gains tax.” Everyone was talking about an income tax. Republicans were just being honest about it. We still are.