As a capital gains tax appears to have legislative momentum, The Seattle Times carries an editorial and op-ed commentary urging lawmakers to change course.
The ST editorial board writes,
A capital-gains tax bill moving toward a state Senate vote is too flawed and should be abandoned. The Democratic leadership’s rush to create this tax even as the state’s revenue picture is expected to continue improving, coupled with its disingenuous use of the legislature’s emergency power, further signals a need for voter skepticism.
Though toned down from Gov. Jay Inslee’s inflated proposal, Senate Bill 5096 amounts to taxation for taxation’s sake in a half-baked attempt to help the state.
The editorial says the bill’s “deficiencies are numerous,” then goes on to describe them. We encourage you to read the well-reasoned and compelling piece. It concludes.
More than 40 other states tax capital gains. Washington may someday join that list, but this ill-conceived legislation would be a bad way to get there. Voters’ backlash would be well-deserved. Stop SB 5096 now.
A recent Opportunity Washington poll identified significant opposition to the capital gains tax. So did an earlier Crosscut/Elway Poll.
The ST also carried an op-ed by Matt McIlwain, managing director, Madrona Venture Group, citing the damage a capital gains tax would do to the state economy.
He begins by identifying three “myths” used to support the tax: the state needs new taxes, the capital gains tax is not an income tax, and that Washington voters support a capital gains tax.
He effectively debunks the myths: there’s no budget shortfall; the federal government and every state with a capital gains tax recognizes that it is an income tax; and, Washington voters have consistently rejected income taxes.
Then he continues,
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…
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.
Again, read the whole piece.
Washington voters do not need to be persuaded that the capital gains tax is a bad idea. They overwhelming oppose new taxes during the COVID recession, particularly when the state budget is not experiencing a shortfall. Given all that, it’s hard to understand why the tax has any legislative support this year.