The pairing makes sense. The state’s new capital gains tax and belatedly-funded tax break for low-income families were frequently mentioned together, often as a modest package to introduce more progressivity to Washington’s tax structure. Only the capital gains tax was controversial during the session. Republicans supported the working families tax exemption, which passed with significant bipartisan support; they did not believe, however, that funding it required new revenues. More detail on the tax exemption from the Washington Research Council.
The Seattle Times report on the bill signing shows the governor’s enthusiasm for the two measures.
During a bill-signing ceremony at the Tukwila Community Center, Inslee hailed the measures passed by the Legislature as a first step toward tax fairness in the state.
“We refuse to live [in] and accept a society of massive poverty amongst massive wealth,” Inslee said as he signed the bills amid applause from a few dozen invited supporters, many of whom had pushed for the policies for more than a decade.
With one lawsuit already filed challenging the tax and another waiting in the wings, the future of the tax remains under a legal cloud. In addition, an initiative campaign may yet be filed to repeal the tax in 2022. As the ST reports, some supporters of the tax look forward to the legal challenges as a way to sweep away the constitutional prohibition on a progressive income tax.
Some backers of the new tax have said they hope the lawsuits against it will lead the Supreme Court to revisit decisions dating back to the 1930s that have invalidated a progressive state income tax by ruling that income is property, which must be taxed at a uniform rate under the state constitution.
“From my perspective, the most important thing about the capital gains tax is the ability to use the inevitable challenge to it as a vehicle for the state Supreme Court to reconsider what I think are bad outdated rulings,” said state Sen. Jamie Pedersen, D-Seattle, in an interview last week.
The Lens reports on likely next steps for challenges to the capital gains tax.
One of the first questions to be settled by the court is whether a provision in the bill constitutes an emergency clause prohibiting a voter referendum – a claim that the majority party denied repeatedly during floor debates over bill amendments regarding the bill language in question. The clause states the tax “is necessary for the support of the state government and its existing public institutions,” yet is not found where emergency clauses are typically located in bills. Emergency clauses also state that the bill takes effect immediately, while SB 5096 doesn’t take effect 2022.
If the provision is declared an emergency clause, then voters would have to wait until next year for an initiative to repeal the law. However, by then proponents of the tax may have already achieved a more important victory – the State Supreme Court overturning eight decades of rulings declaring income to be property under the state Constitution’s definition. In Washington, property must be taxed uniformly according to its class, which prohibits a progressive income tax.
Opportunity for All Coalition (OFAC) President Collin Hathaway released the following statement on Governor Jay Inslee’s signing of the illegal capital gains income tax (SB 5096):
“With a stroke of the pen, the Governor has removed Washington from the list of states without an income tax. What the governor signed into law today is an unconstitutional and illegal income tax that we believe will be struck down in court. The Washington state constitution clearly prohibits a graduated income tax and voters have rejected similar measures ten times. This action will hurt job creation and put our state at a competitive disadvantage. We are confident the courts will uphold the constitution and ensure this tax is never implemented.”
The Puget Sound Business Journal has a short explainer on the new tax.
Much more to come.