Washington is far from a homogeneous state. We are united in our divisions — east and west of the Cascades, blue and red political leanings, techies and aggies, Huskies and Cougars — but there is one abiding commonality, one tie with binds that can never be frayed.
We loathe the very idea of an income tax.
No less than 11 times since 1932 have Washingtonians soundly rejected at the ballot box various forms of proposed income taxes. And none of the votes even has come close to passing. Income taxes, thus, remain verboten under the state constitution.
You’d think, then, that the matter would be settled. But last week, the issue sprung to life once more, like some hydra-headed monster, when Gov. Jay Inslee made a capital gains tax one of the centerpieces of his proposed 2019-2021 budget.
Here’s the thing: Many learned people in the state, as well as such federal arbiters of fiscal matters as the Internal Revenue Service, have stated that a capital gains tax, no matter how it’s configured, counts as an income tax. As such, that would make the governor’s proposal to generate a billion dollars a year with this method to help fund a $54.5 billion state operating budget unconstitutional.
Nevertheless, the governor is bullish on the plan — part of $3.7 billion he wants to raise in new taxes (also included is an increase in the business-and-occupation tax on services and changes to the real estate excise tax). In a recent conversation with the Yakima Herald-Republic editorial board, a pugnacious Inslee seemed prepared to battle for his 9 percent tax on capital-gains earnings for the top 1.5 percent of state earners. Exemptions include retirement accounts, homes, farms and forest transactions.
Told that several legislators, including state Rep. Bruce Chandler (R-Granger), and public policy think tanks have insisted that capital gains equals income, Inslee bristled.
“Well,” he told us, “they are wrong. This tax has never been found by any court in the state of Washington to be unconstitutional. I believe it is constitutional. I believe the court will find it constitutional.”
Perhaps one reason a capital gains tax has never been ruled unconstitutional in the state is because there’s yet to be a court challenge; heretofore, it’s remained an exercise in semantics among budget nerds. And, is it really in the state’s best interests to enter into a lengthy and conceivably messy court case to make that determination?
We think not, mostly because we believe new taxes are not needed during what is widely perceived as a flush time for the state’s finances.
Certainly, there are challenges ahead that will need immediate state funding — tweaking the troublesome, persistent educational inequalities still around even after the McCleary decision for one; solving the mental health crisis for another — but the state is expected to pull in a record $50 billion in revenue in the next biennium.
Spent prudently by politicos, that should be enough to tide us over and fund programs that help all citizens.
But Inslee says funding his ambitious agenda that includes scores of environmental, public health and educational programs must come from those of means. He says Washington has a regressive tax system — which we, too, believe — and that it’s “grossly unfair” and “puts a vastly disproportionate burden of the shoulders of working people.”
It’s hard to see, however, how the governor’s proposals would lessen that burden, though Inslee points to his proposal for a capital gains tax, which he maintains has worked well in 42 other states. But many of those states already have income taxes, something Washingtonians have no stomach for. Chandler last week criticized the capital gains and business-and-occupation taxes, saying it would “be a significant blow to our economy” and “reduce state revenue collections at a time the governor is promising more to more people.”
Inslee, in speaking with us, threw down the gauntlet to Chandler and other legislators who may balk at tax increases.
“They’ll have a rude awakening in January,” the governor said. “The fiscal math requires this. Either that, or Rep. Chandler will have to renege on his commitment to finish the McCleary decision or have to renege on his commitment to finance mental health. ... He’s going to have to help us figure out the fairest, most rational revenue ideas.”
Actually, one job for legislators in the coming session will be to rein in Inslee’s big spending plans. They did just that during the last biennium, when he proposed a 20 percent spending increase and saw it whittled away by a compromise legislative budget.
Much like, on the federal level, how the president’s budget is seen, at best, a general road map and, at worst, merely a wish list, Inslee’s budget request has been viewed as aspirational more than reality-based. Then again, the Democrats have bolstered their majority in both houses, so his wide-ranging agenda may have a shot.
But a capital-gains tax?
Uh-uh. Not in this state.
Members of the Yakima Herald-Republic editorial board are Bob Crider and Sam McManis.