State Senate approves capital gains income by a single vote

The Senate on March 6 voted 25-24 to pass Senate Bill 5096, a proposal that seeks to create a state income tax on capital gains. The Senate’s passage of a state income tax is beyond disappointing, although not entirely unexpected. This proposal has been a concern of mine for the past few years, and it finally advanced. In the past, the Senate has been a helpful backstop against new tax proposals. In recent years, either Republican senators or a few conservative Democrats helped block the income tax. I’m afraid that the 25 to 24 vote shows that the once-strong Senate firewall sadly no longer exists to protect Washington citizens from awful taxation. It’s really disheartening.

The new tax does not “reform” anything

Washington state does have a very “regressive” tax system, meaning that the lower-income portion of our population pays a disproportionally higher amount in taxes. This is due largely to the state’s reliance on the sales tax as its main source of revenue along with the business and occupation tax and other smaller sources of revenue. Many supporters of a state income tax believe it to be a much-needed change to help our state reform its “upside down” tax code. However, Senate Bill 5096 does nothing to reduce the regressive taxes in our state, but it does add a new, additional tax to grow government. If the idea were to propose an income tax – and cap it – while also correspondingly reducing the state sales and business taxes, that would have been a much different conversation. Unfortunately, that isn’t what was proposed or what passed.

Senate’s income tax bill now before the House of Representatives

Senate Bill 5096 has already been scheduled for a hearing in the House and I anticipate that it will continue to advance and ultimately reach the governor’s desk. If that happens and the governor signs it into law, we can expect immediate court challenges regarding the constitutionality of the tax. My hope at this point would be a statewide referendum to reject this because voters have rejected income tax proposals before. As for the judicial process, the state Supreme Court has long held that income is “property” and property must be taxed uniformly, not at graduated rates. Unfortunately, I no longer trust the current state Supreme Court to interpret this issue similarly to our state’s prior high courts.

New capital gains income tax likely headed to Supreme Court

With the state Supreme Court’s recent McCleary decision on education, Hirst decision on water use, Sakuma decision on agricultural wages, Blake case on drug possession, as well as most other recent tax reduction and wage issues, the current court has shown a real interest in co-opting legislative branch responsibilities to authorize policies and increase state revenues. I have growing doubts that this particular court will strike down any state income tax law as unconstitutional, if one comes before it.

Tax advocates see “window of time” to pass the new tax

My sense is that Governor Inslee and the Legislature’s Democratic leadership understand that they have a “window of time” now, not only to pass the bill when they control the Legislature but also to do so when the makeup of the state Supreme Court is very favorable to taxes. March 6 was a day that I have been anticipating for a while, but it is still difficult to absorb. And make no mistake, while the bill currently may not impact middle-class families across Washington state, once it is approved and if the court upholds it, the exemptions will eventually be whittled away over time to the point where we are all impacted regardless of our income.

Thank you for the opportunity to serve as your 12th District state senator.

Sen. Brad Hawkins serves the 12th District, which covers much of North Central Washington.