Lawmakers discuss capital features tax on the town corridor | Information

The renewed threat of a capital gains tax coming to Washington state has local lawmakers leery of what it could mean for residents should a governor-backed plan come to fruition this time around.

During a virtual town hall March 15, lawmakers in Washington’s 17th Legislative District talked about the tax proposal among a number of topics raised by questions from constituents. Apart from talking about attempts to rein in Gov. Jay Inslee’s emergency powers, the state’s reopening plan, and potential election fraud, questions on taxation were first and foremost among those asked during the town hall, specifically with regard to Senate Bill 5096.

If approved, SB 5096 would create a tax “equal to 7 percent of an individual’s capital gain on long-term capital assets” above $250,000, according to a Senate bill report. Exemptions on the tax include all real estate, retirement assets, and livestock for individuals who make half their gross income on farming or ranching, among others, with taxing on stock and bond trading among the most-cited ways the bill would raise revenues.

Washington state Sen. Lynda Wilson, alongside state Reps. Vicki Kraft and Paul Harris, all Republicans from Vancouver, opposed the tax proposal. Wilson said it was disappointing to see SB 5096 pass 25-24 in the Senate March 6, adding there was reason to believe the legislation would “create a structure (for a) full-blown income tax.”

“The issue with the capital gains tax is it’s unconstitutional, because it is an income tax, and because it is unequal,” Wilson said. 

Kraft said that legislative Democrats have been framing HB 5096’s capital gains tax as an excise tax, but during a hearing in the House Committee on Finance earlier that day “it was very quick and clear that this (bill) was an income tax.” She said time and again Washington residents have shown their opposition to imposing any sort of income tax

According to a Senate bill report, starting 2024 the Washington State Department of Revenue must adjust the current $250,000 standard deduction, “the worldwide gross revenues of a qualifying family owned business,” as well as where revenues from the tax goes to on an annual basis based on the prevailing consumer price index for the Seattle area. Kraft said this was akin to adjusting “guardrails” on the tax’s scope.

“Obviously, they’re going to expand the guardrails, and ultimately it will become a state income tax,” Kraft remarked.

Harris said that Democrats “have been a little more honest now” in their dialogue about what they seek with the legislation, moving from saying that the funding was necessary, to saying they wanted more of an examination of the state’s tax structure.  

“Let’s have the dialogue, let’s literally talk about our tax structure in our state,” Harris said, but that trying to push through “probably the most volatile tax that there is” — one on capital gains — would be a bad idea. He said that the tax would have an adverse effect on those who would be subject to the tax, such as stock traders, and would not bring in what was anticipated.

“If you think they’re going to stay in our state and continue to trade stocks the way they have, they will not,” Harris said. 

“We never talk about getting rid of taxes, we just talk about adding taxes,” Harris remarked. Wilson later added that the federal American Rescue Plan Act would prevent tax cuts until December 2024. 

Wilson said that federal funding from the act would mean some $15 billion headed to Washington state, $4.25 billion of which could be used on COVID-19-related issues. She noted a state revenue forecast to be released later in the week, which after its release her office pointed out in a statement that there was “a surprisingly large increase of $3.3 billion for the current two-year budget cycle and $5.2 billion over the next four years.”

Despite the relatively rosy financial picture, Wilson said she was “overwhelmed” with what kinds of bills were being introduced this session, saying there were 21 bills regarding taxation alone. Those bills included an increase of estate tax to 40 percent for some, a “wealth tax” of 1 percent on household wealth after $1 billion, as well as payroll, beverage and carbon taxes, among others, Wilson said.

“The fact is, we don’t need them,” Wilson said about the tax proposals. Her colleagues agreed.

“The need for new taxes, which has been quite the theme this year in Olympia, is something that is definitely not needed right now,” Kraft said.  

Wilson said there is a tax structure work group that has been meeting for more than a year with the goal of examining Washington’s tax code. The group comprises members of the legislature from both parties, as well as representatives of city and county lobbying groups, the governor’s office and the Department of Revenue.

In spite of the group’s existence, there were still almost two dozen tax proposals introduced this legislative session, Wilson remarked. 

Wilson said that with the removal of an emergency clause in the bill language there was the possibility for SB 5096 to go to a voter referendum. She said the bill, if made into law, was estimated to bring in $550 million in the first year, though the funding would not be usable until April 2023.

Kraft pointed out that the bill was exempt from a review by the Joint Legislative Audit and Review Committee (JLARC) which she said would be able to assess the performance of the tax.

“(Bill proponents) don’t care how it’s going to perform or not perform, they just want the tax, and they want the income tax,” Kraft remarked.