The state parliament has come one step closer to passing a capital gains tax. The House Finance Committee voted on the further development of the ESSB 5096 on April 16, but not before the revision of the version that the Senate just passed.
These changes include a “stealth” emergency clause that prevents a referendum on the measure. The provision states that the tax “is necessary to support the state government and its existing public institutions”, even if the state not only has a record income, but also recorded the highest growth rate in the state's income in the past year. The Strike Change will also divert tax revenue from the Working Family Tax Credit Account to the Educational Trust Fund.
Finance Committee Chairman Noel Frame (D-36) described the tax as an instrument to drive “progressive tax reform” in Washington State, with the goal of “tax legislation where the richest of us … pay their fair share” .
The Republican Committee members tried unsuccessfully to add additional amendments, including one to exempt investments made before the law was passed. Rep. Ed Orcutt (R-20) said this would ensure fairness to people who have invested in Washington due to the lack of an income tax.
"Now we're changing the rules for them. It wasn't on the books. Profits you've made from investments so far shouldn't be taxed. It's really important that we do this and offer fairness to these taxpayers as well."
Orcutt also advocated an amendment that would have removed the stealth emergency clause and replaced it with the language of the referendum. “We heard from the main House (Companion) Bill sponsor that she was elected to support a capital gains tax, but there are many counties in this state. She represents one of 49. "
Former House Speaker Frank Chopp (D-43), however, was opposed to the change by a majority, arguing that education urgently needed funding. "It is key to our economic recovery that we not only reject this amendment but that we pass this legislation."
Still others, such as the initiative sponsor Tim Eyman, have spoken out against the idea of a referendum and stated that an initiative to lift the tax would have priority due to its structure.
The proposed change to the urgency clause addressed one of several questions raised by opponents: A capital gains tax is unpopular with voters in Washington who have rejected a statewide income tax ten times. The last vote took place in 2010 on Initiative 1098, which was decidedly rejected by 63 percent.
Another argument against the law is that it is actually an income tax – and thus violates many aspects of the state's constitution regarding property. While billing language and some proponents refer to it as excise tax, critics and even proponents such as Emily Parzybok, executive director of Balance Our Tax Code, said in a statement that "a tax on extraordinary gains on capital gains will soon become state law".
Other aspects of the legislation make it difficult to uphold this claim. The tax only applies when there is a profit from a sale and not when there is a loss. The tax is also based on an individual's income tax form.
A provision also gives the Treasury the power to require individuals to submit federal income tax returns “for any period of time”.
Rep. Jeremie Dufault (R-15) tried to remove this provision by amending it, calling it a "fishing expedition" aimed at state taxpayers, and made the bill "look very much like an income tax." I think we have to be really consistent. "
Frame rejected the amendment, but "with an obligation to come back and ask a few questions".
ESSB 5096 has not yet been referred to any other committee in the House.