Last April, I wrote about a Washington state Supreme Court decision, by a lopsided majority of seven to two, to ignore the plain meaning of the state’s Constitution and let an income tax stand.
The good news is that opponents of that income tax have achieved the requisite number of signatures to put repeal on the November ballot.
Some quick history here. In 2021, Washington’s legislature passed a bill to impose a special 7-percent tax on capital gains. This is in direct violation of the state’s Constitution, which states, “All taxes shall be uniform upon the same class of property within the territorial limits of the authority levying the tax.” Income in Washington has been defined as property. So the state government could tax capital gains, but it would have to do so uniformly. But the capital gains tax applies only to the part of the gain in excess of $250,000. There goes uniformity.
Another part of the Constitution limits the property tax rate to 1 percent. News flash: seven is more than one.
How did the seven justices get around these two pesky provisions of Washington state’s Constitution? By claiming the tax is not on income but, instead, is an excise tax. Even Joe Biden understands that capital gains are income.
Because of all the exemptions for various types of capital assets, only about 5,000 people, according to Kelley R. Taylor of Kiplinger, will pay the tax. This is out of a total state population of about 7.8 million.
What if, say, 10 percent of these 5,000 people decide to move to avoid the stiff tax? Then the government won’t collect as much as it thought it would. Moreover, those people who move will no longer pay sales taxes.
What this means is that repeal, if it passes in November, will not only return Washington state to the rule of law, but will also cost the government less than many people think.
March 20, 2024