Rep. Mary Dye: Billions of incoming state revenues prove Washington doesn’t need a capital gains income tax

We've seen a lengthy list of very contentious and unnecessary bills this session that would make it more expensive to work, live and raise a family in Washington state. The one that rises to the surface of most concerning bills is a measure that would impose a capital gains income tax in Washington state.

Washington is one of nine states that has no income tax. In fact, Washington voters have rejected various forms of an income tax 10 times at the ballot, including six constitutional amendments. For years, the state Department of Commerce has highlighted the fact that Washington not having an income tax has been a competitive advantage for employers.

An income tax is unpopular in Washington state. Yet, proponents in the Democratic majority continue to push for passage of a capital gains income tax.

The latest measure, Senate Bill 5096, recently passed the Senate 25-24, and a hearing was held Monday, March 15 in the House Finance Committee.

Proponents have tied this tax to expanding child care programs. Why impose a massive new capital gains tax to fund such a small portion of the state budget? It's a straw man justification for a new income tax.

It's also likely unconstitutional. Democrats are calling the capital gains tax an “excise tax,” which is allowed under the state constitution. However, the IRS has classified the capital gains tax as an income tax.

Proponents want to challenge this argument. Many believe if this bill is passed and signed into law, it would be immediately challenged in the courts. Supporters hope if it reaches the state Supreme Court (the same court that just ruled state law against drug possession is unconstitutional), sympathetic justices will invalidate state law preventing an income tax. What that would do is open the door to a statewide income tax. If that happens, everyone will pay, not just the rich.

Majority Democrats assert a state income tax would be a much more equitable tax system, saying the current system is regressive and hurts lower income residents. Yet, it's a false argument. If they were truly sincere about addressing a regressive tax system, why aren't we seeing proposals that would reduce the tax burden on lower-income residents, rather than increase taxes on others? It begs the question, which regressive taxes have they proposed to eliminate?

Also, a capital gains tax would be the death knell to farmers who wish to transfer their lands to other generations in their families. It would make succession planning impossible. It's another threat to family farms.

A capital gains tax is not only unpopular and likely unconstitutional, it's unnecessary. The strongest argument against a new tax came Wednesday, March 17, with the release of the state's revenue forecast.

Washington is expected to take in $3.29 billion more than expected over the next four years. That's an increase of $1.34 billion for the current 2019-21 budget cycle that ends in June, and another $1.95 billion for the 2021-23 budget cycle.

This does not include the nearly $12 billion Washington's state and local governments are projected to receive from the American Rescue Plan Act of 2021 (federal stimulus dollars). If projections remain reliable, state and local governments will have received more than $24 billion in federal stimulus funds over the past year.

In other words, the state is awash in revenue. We have plenty of revenue to pay for vital services in our state for the next four years. Another new tax is not needed. It is simply unnecessary.

It's time to take this tax off the table. Especially now when Washington families and businesses are struggling to recover from the pandemic. We do not need additional taxes, especially an unpopular, unnecessary, and likely unconstitutional income tax in Washington state.

EDITOR'S NOTE: Rep. Mary Dye, R-Pomeroy, serves on the House Appropriations Committee and represents the 9th Legislative District.

State Representative Mary Dye, 9th Legislative District
432 John L. O'Brien Building | P.O. Box 40600 | Olympia, WA 98504-0600
(564) 888-2380 | Toll-free: (800) 562-6000