The Washington State Capitol in Olympia
Photo:
Ted S. Warren/Associated Press
Washington state has been one of only nine states without a personal income tax, and progressives finally think they’ve found a way to leap over voters and impose one. Their gambit heads to the state Supreme Court on Thursday, and it should die there unless the judges misread the state constitution.
Washington has dodged an income tax thanks to a 1930 constitutional provision that bans taxes on property and broadly defines property to include money. The constitution specifies that “the word ‘property’ as used herein shall mean and include everything, whether tangible or intangible, subject to ownership.”
The provision has withstood previous attempts to end run it. The Supreme Court overturned a Depression-era ballot measure to impose an income tax. Six times in recent years the Legislature passed constitutional amendments to allow an income tax and asked voters to approve it on the ballot. Six times voters said no. They’ve also rejected four citizen-initiated ballot measures on the question.
But the taxers are like Terminators and never quit, and in April 2021 Democrats in the Legislature passed a 7% capital-gains tax. The hope is that a tax on gains from the sale of assets will somehow win the Supreme Court’s approval. In a 2018 email, Washington Sen.
Jamie Pedersen
wrote that the capital-gains tax would be challenged in court and give the Justices a chance to overturn their tax precedents.
“The other side will challenge it as an unconstitutional property tax,” Mr. Pedersen wrote. “This will give the Supreme Court the opportunity to revisit its bad decisions . . . and will make it possible, if we succeed, to enact a progressive income tax with a simple majority vote.” Washington Democrats are waiting to strike with proposals for broad-based taxes on income and property, including a 1% wealth tax.
State lawmakers say the capital-gains levy is an “excise tax” and thus constitutional. But an excise tax is levied on various goods and services, such as fuel or alcohol. According to the Washington Policy Center, every state that taxes capital gains (and there are many) counts it as part of the income tax. Ditto for the federal government. In response to a query by Washington state Rep.
Dan Newhouse,
the Internal Revenue Service wrote that “capital gains are treated as income under the tax code and taxed as such.”
In March 2022, Douglas County Superior Court Judge
Brian Huber
rejected the “excise tax,” declaring it “unconstitutional and invalid.” Judge Huber was appointed by Democratic Gov.
Jay Inslee.
The state Supreme Court issued a stay of that decision, and the Department of Revenue is collecting the tax as it awaits the court’s decision.
The stakes for Washington’s economy and fisc are high. The constitutional bar is the only obstacle to Washington’s Democrats going the route of Oregon, California and other progressive states in soaking its citizens to redistribute income to public unions and left-wing interest groups. Let’s hope the Justices don’t overrule the voters or their own precedents.
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