Six times in the state’s history, Washington voters have rejected the amendment to the state constitution to allow for a tiered income tax. Barely a bastion of conservative fiscal thought (McCleary Education Decision and all of its expenses), the state’s Supreme Court rejected efforts by the Seattle city council to challenge previous income tax rulings in the past year or so.
What does this have to do with a capital gains tax? The Washington Policy Center (WPC) published a well-researched article back on December 18 that shows how a capital gains tax requested by Governor Inslee is actually an income tax. Inslee wants a 9% tax to fund efforts to support low-income families and other socially-oriented programs. He claims it will affect “only” 2% of the “Washin Tonians”.
This is actually nothing new. Such discussions were held in 2011, even before Inslee.
For starters, the WPC reached out to the IRS and learned:
“You ask whether the capital gains tax is considered an excise tax or an income tax? It’s an income tax. In particular, capital gains are treated as income under tax legislation and taxed as such. “
They also show that capital gains taxes are among the most volatile and unreliable according to other states that have them. This is because taxpayers can “move” them off the tax cycle into different cycles, making them unpredictable. Numerous reports from other states and the federal government show that it is not the kind of tax that can be relied on for a stable and reliable source of income.
So what’s the real reason for the push? According to the WPC, Inslee and the state are hoping for a lawsuit backed up by emails they received from state lawmakers and others. Let’s say lawmakers give Inslee its capital gains tax. Then the GOP would likely sue on the grounds that it is unconstitutional (see previous IRS designation). Then hopefully the Supreme Court would rule Inslee and the Democrats in their favor.
This would allow them to introduce a tiered income tax without changing the constitution (which voters rejected six times). To learn more about this story, click the button below.
Even the IRS says capital gains are an income tax