Already technically in effect as of July 25, the capital gains tax needs to be quickly struck down as it has been wrongly painted as a legal excise tax. It will unconstitutionally be implementing a 7% tax on the sale of stocks, bonds and other investments if the profits are more than $250,000 annually.
The supporters of this legislation continue to insist that a capital gains tax is not an income tax. They are fooling no one, but themselves.
The U.S. Internal Revenue Service considers money gained through the sale of a capital asset — such as stocks and bonds — as taxable income.
How is the capital gains tax any different?
It isn’t. Although the Democrats who control the Senate (as well as the House and governor’s mansion) eagerly point to analysis that shows this tax would only affect the top 2% of earners in the state — only the super rich will be paying — that, however, does not change the fact that this is an income tax, which is prohibited by the state Constitution.
Our biggest concern is that this capital gains tax could morph into a full-blown income tax in the future that many, if not most, Washingtonians would have to pay. From where we stand, this newly approved legislation sets a precedent for just that to happen.
Now, a cash infusion might well be needed to fill the huge hole in the state budget — the pandemic has reduced sales tax collections substantially. Revenue projections (tax collections) are $2.4 billion below pre-pandemic estimates.
Still, that’s not a legitimate reason to impose an income tax.
If the Democratic majority truly believes an income tax (including taxing capital gains specifically) is necessary and would be embraced by the people, then have an honest debate on taxing income and attempt to change the state Constitution.
The threshold to change this document is, as it should be, significantly higher than approving a law. It requires a two-thirds majority of both houses of the Legislature as well as approval by a vote of the people. Speaking of the people: This isn’t the first time this would be put to state residents. Washington voters have so far rejected the concept 10 times.
Take a wild guess at what the result of an 11th attempt would be?
At present, the Spokesman-Review reports, “the law is caught up in the courts, with two lawsuits claiming the tax is unconstitutional. The suits were consolidated into one case earlier this month.”
We are confident the courts will strike it down as unconstitutional, and not a moment too soon.