After Olympia voters decisively rejected a proposed tax in November, there is a renewed push to permit a progressive income tax in Washington through a reinterpretation of the Washington State Constitution’s definition of property. Transit Riders Union is now calling for Seattle to implement a personal income tax from capital gains for households that make $250,000 or more annually, with the intent of triggering a court challenge.
Severing Legal Path To State Income Tax
On the other side, lawmakers behind SJR 8204 want to cut off this legal route by amending the state constitution to ban state or local taxes on individual incomes, including incomes from capital gains. The bill was passed out of the Senate Ways and Means Committee February 22 and is now in Rules.
The bill’s primary sponsor is State Sen. Phil Fortunato (R-31). Cosponsors include State Sens. Vice Chair Dino Rossi (R-45), Chair John Braun (R-20), Tim Sheldon (D-35), and Senate Majority Leader Mark Schoesler (R-9). Its companion bill in the state House is HJR 4207, sponsored by State Rep. Matt Manweller (R-13). It has yet to receive a public hearing in House Finance.
History of Statewide Tax Opposition
Washington voters have been historically averse to statewide taxes and taxing authority. Since 1993, they have approved five initiatives requiring a two-thirds or supermajority vote in the legislature to approve any new taxes. However, all of them have been overturned by the legislature or through high court rulings.
In 2010, voters overwhelming rejected Initiative 1098, which would have created an individual income tax on individuals with an annual income of $200,000 or more and $400,000 for couples filing jointly. It was the ninth time Washingtonians have voted down an income tax.
Fortunato told Lens that it’s time for the state Constitution to reflect the will of the voters on the issue.
“How many times do they have to vote against this, sort of like the two-thirds vote?” he said. “The people of the state of Washington need to know somebody is on their side. Who in the heck down here (in Olympia) is actually representing the taxpayer?”
Washington State Supreme Court rulings in the 1930s defined income as property under the state constitution. That means the legislature can pass an income tax without voter approval, but it must have a flat statewide rate and would be subject to the state’s one percent property tax cap.
Instigating A Court Challenge: Round Two
Olympia Measure 1 sought to challenge the court’s 80-year-old rulings by instituting a local progressive income tax to fund a college program. However, the measure was defeated 55 percent to 45 percent.
Now, the “Trump Proof Seattle” movement headed by Transit Riders Union wants to institute an income tax to cover the possible loss of $85 million in federal funding due to Seattle’s sanctuary city policy, something President Donald Trump has threatened to do. However, the website FAQ section for the proposed tax describes an alternative purpose.
“Washington State desperately needs a statewide progressive income tax, and we see passing a measure in Seattle as a strong step in that direction,” it reads. “We expect that today’s progressive State Supreme Court will reverse those rulings, based on legal developments in Washington and other states since the 1930s. But in order for them to do this, first a measure needs to be passed and challenged!”
Settling Income Tax Debate With Constitutional Amendment
Indirect attempts to legalize progressive income tax such as this will continue as long as it is prohibited by the court and not the state constitution, says Jason Mercier. He is the director of Government Reform for the Washington Policy Center.
“They’re not going to take no for an answer,” he added. “They’ll keep doing it unless the option is taken away from them.”
Fortunato said, “They’re following a political strategy. And you got hand it to them, they are tenacious. We’re also following a political strategy: make them vote.”
SJR 8204 would not only explicitly prohibit a progressive income, but also any tax on income from “wages, investments, the sale of goods or services, or any other source. according to the bill’s text. If passed, the bill would remove any ambiguity over whether or not a capital gains tax is an income tax.
During a 2016 gubernatorial race debate, Governor Jay Inslee said he opposed an income tax. However, his proposed 2017-19 operating budget includes an income tax on capital gains. The proposed legislation are HB 1730 and SB 5111. HB 1730 is in the House Finance Committee has not received a public hearing yet. SB 5111 was referred from Ways and Means to Rules without recommendation or a public hearing.
According to the Tax Foundation, all 41 states with capital gains taxes treat them as income taxes.
Under state law, cities and counties are prohibited from taxing net incomes. Transit Riders Union describes their proposal as a tax on “unearned” incomes.
This fiscal nuance is shared by lawmakers such as Senate Democratic Leader Sharon Nelson (D-34). During a January 19 interview with TVW’s Austin Jenkins, she argued in favor of a capital gains tax on wealthy residents to pay for basic education, but said her caucus is opposed to an income tax.
“The voters defeated that several years ago,” she said. “We heard that loud and clear.”
Fortunato: Make Opposition To State Income Tax Official
Fortunato says legislators opposed to an income tax should have no trouble sending a constitutional amendment to voters to make it official. The Tennessee state legislature did just that in 2014; the amendment received 66 percent of the vote. However, he said he doesn’t expect it to come up for a vote on the House floor.
That a constitutional amendment hasn’t been approved by the legislature yet is one more reason why voters should be concerned about local income tax proposals such as those in Olympia and Seattle, said Mercier.
“Refusing to hold a vote on this is the same as saying ‘I want an income tax, maybe not today, but tomorrow.’” he added.