Washington's experiment in creating a capital-gains tax ought to be weighed on its true merits. Unfortunately, the tax's advocates cannot seem to resist putting a pinkie on the scale.
Rhetorical fog has consistently clouded the tax's true effect, which actually is as straightforward as math. Most recently, and disappointingly, Attorney General Bob Ferguson tried attaching language favorable to the tax — a policy creation of his Democratic allies — to a ballot initiative to repeal it. Tuesday, he wisely reconsidered. That decision ought to set a new tone going forward for an evenhanded public conversation.
Ferguson had followed lawmakers' example in attaching the words "excise tax" to the issue like passive-aggressive Post-its. This stubborn branding doesn't change reality. Senate Bill 5096, passed in 2021, taxes income. Any contention otherwise brazenly skews the debate.
If the tax is implemented, the state would collect 7% of annual personal profits above $250,000 from investment sales, such as stocks. Fine print exempts retirement accounts, real estate, and some agricultural and small-businesses concerns, among other sources. This would directly encourage wealth generated in Washington to depart. Eight states don't tax capital gains at all.
The state tax is projected to collect $445 million for early learning and child care. But state coffers have raked in far higher surpluses lately. Revenue projections increased by $1.9 billion in the middle of the 2021 legislative session before SB 5096 passed, and shot up again a year later, by another $1.45 billion. That extra money steadily available for legislative priorities argues loudly against the need for a new tax.
To cloud the issue, backers carted out the old blue-smoke-and-mirrors tricks. Section 1 of the bill includes a grandiose claim of "progress toward rebalancing the state's tax code." Never mind that it funds bigger services, not relief for lower-income families. Never mind adverse consequences from slopping a new tax onto a poorly-structured pile.
The capital-gains tax has rightly been stopped in court because of state Constitutional restrictions on taxes. Douglas County Superior Court Judge Brian Huber read it as over the line in March and saw clearly through the "excise tax" whitewash, an analysis that ought to resonate when the tax's validity is inevitably decided by the state Supreme Court.
Ferguson ought never to have signed onto the "excise tax" malarkey, which is aimed to gaslight voters. A court hearing in Thurston County Thursday needs to result in clear, unbiased language for an initiative challenging the capital-gains tax that could go to the ballot this fall.
This debate needs to play out above board, not with rhetorical games.
