Virtual Conversation | Recapping the 2021 Session: Legislative Republicans, May 18, 2021 Register

Capital gains tax passes House, heads to Senate for concurrence 

After several hours of debate, the House passed the Senate’s capital gains tax bill Wednesday in a 52-46 vote, bringing Democrats one step closer to rebalancing Washington’s tax code. The bill now heads back to the Senate for final concurrence.

The bill imposes a seven percent tax on capital gains in excess of $250,000, realized from the sale of long-term assets. Final passage of the bill would be a watershed moment for legislative Democrats, who have long been attempting to adjust Washington’s tax structure – found to be the most regressive in the nation.

Today we are going to take another gigantic step towards justice for the working people of Washington State by finally asking the wealthiest among us to pay their fair share. And we will do that with the passage of this capital gains excise tax on the extraordinary profits from stocks, bonds, and other capital assets,” said Rep. Noel Frame (D – Seattle). “Washington State has the most upside down and regressive tax code in the nation. It’s a tax code that asks the lowest income Washingtonians to pay six times more in taxes as a share of their income when compared to our highest earning households.

Republicans and opponents of the legislation say the bill is built on a false premise, and will open the door to a broader restructuring of Washington’s tax code. They argue a capital gains tax is an income tax, and therefore illegal under state law.

The US Supreme Court, the IRS, and every state with a capital gains tax considers it to be an income tax … It moves us dangerously close to becoming a rainier version of California – a state businesses and people are leaving in such high numbers, that for the first time since it joined the union in 1850 it is expected to lose a congressional seat this year. Please stop our great state’s decline,” said Rep. Jeremie Dufault (R – Selah).

Washington voters approved a graduated income tax by initiative in 1932. While the initiative passed in a landslide, the state Supreme Court ruled that it violated the state constitution’s mandate of a uniform taxation on property. Supporters of the bill argue that since it imposes a tax on the sale of an asset, rather than a stationary asset, it is an excise tax.

In a four hour debate which stretched passed 10 pm Tuesday night, Democrats rejected 18 of 19 Republican amendments. During the final vote Wednesday, Republicans were unified in their opposition to the bill and five Democrats broke with their caucus to vote no. Republican Rep. Bruce Chandler mistakenly voted yes the first go around, which caused a re-vote.

While an emergency clause was not added back in, the question now is whether moderate Democrats will sign off on language calling the tax “necessary” for the support of the state government and its existing public institutions. Opponents say the language would preclude voters from calling a referendum on the bill.

As the tax aims to balance Washington’s tax code and address deficiencies in the child care system, Rep. Tana Senn said the language is not an emergency clause, but rather a “necessity clause” emphasizing important government priorities: “Why would we deny funding for early learning and child care?” asked Senn.

Republicans say Democrats could have funded these priorities separate from any new taxes, as they hold the majority and write the budget.

At a press conference Wednesday, Senate Minority Leader John Braun said an initiative, an alternative to a referendum, would probably not make it on the ballot this year, but he left open the possibility of putting the question to voters in the 2022 cycle.  

The removal of an emergency clause from the original bill made the bill more amendable to some moderate Democrats. The bill ended up passing in the Senate by the narrowest of margins (25-24). As it heads back to the chamber for final passage, local Democratic and progressive organizations have begun applying pressure.

When reached for comment following the House vote, Bruce Cowan, Chair of the 24th Legislative District Democrats, said the following:

Our Democratic platform supports a state capital gains tax because it would make our taxes fairer and fund necessary programs. As Chair of the 24th LD Democrats, I urge the members of our delegation to support this bill.

The 24th LD is represented by Sen. Kevin Van De Wege (D – Sequim), who voted for the bill after the emergency clause was removed.

Washington’s tax structure is the most unfair in the country by far, putting a very high burden on low-income people, making income inequality so much worse,” Cowan continued. “Republican legislators seem to be just fine with the status quo. Voters want a fair system. Even Idaho has a better tax structure than we do. This excise tax on capital gains of the very rich would be a step toward making our tax structure more equitable. In blocking this bill, Republicans are saying that they do not think the very rich should have to pay their fair share.

Three Senate Democrats – Sens. Steve Hobbs (Everett) Annette Cleveland (Vancouver) and Mark Mullet (Issaquah) voted no before it was sent to the House.

Mary Williams, Chair of the 5th LD Democrats, had this to say about whether she believes voters in Mullet’s district support the tax:

I can’t speak to the views of every voter in the district, but I believe many people would agree that our current tax system in Washington state is unfair, regressive and needs reform. Our state Democratic Party platform calls for a fair and just tax system for all and for asking the rich to pay their fair share, and our local party supports that platform.”

Senate Majority Leader Andy Billig (Spokane), did not say definitely whether he believes the original 25 votes are still there, but he said a solution would be reached in conference.


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