by Dan Newhouse
June 16, 2021
I’ve said it before, and I’ll say it again: An income tax in Washington state is unconstitutional.
Democrats in our state legislature recently passed Engrossed Senate Substitute Bill (ESSB) 5096, a bill that would impose a new 7% tax on capital gains in Washington state.
However, according to the Washington State Constitution, property cannot be taxed at a rate greater than one percent, and taxes must be uniformly applied to all residents. The Washington State Supreme Court has repeatedly ruled that a person’s “income” is considered property, and any taxes on income must conform to the uniform 1% limit.
In fact, in 2018, I sent a letter to the Internal Revenue Service (IRS) asking whether capital gains were considered an excise tax – as Governor Inslee and other Democrats in Olympia have dubiously claimed – or an income tax – as every other federal, state, and local jurisdiction in the country has rationally recognized. Their answer was clear and concise: “It is an income tax. More specifically, capital gains are treated as income under the tax code and taxed as such.”
Put simply, a capital gains tax is an income tax, and it is unconstitutional in Washington state.
As a representative of our great state in Congress, I know that Washington offers businesses – both large and small – several competitive advantages, including our lack of an income tax. This attracts entrepreneurs and small business owners from across the country and has enabled Washington to become a hotbed for innovation, empowering our citizens to make significant advancements in industries from healthcare and technology to energy and agriculture.
I testified before the Washington State House Finance Committee in opposition to ESSB 5096, and it is baffling to me that these legislators would take this action to stifle our state’s economic growth.
To make matters worse, this is clearly a ploy intended to cut voters out of the decision-making process. The state has attempted to pass an income tax 10 times and has failed at the ballot box and with the courts every single time. So now, Democrat lawmakers in our state legislature are attempting to circumnavigate the voters by claiming that this is an “emergency tax” – in a year when the state budget is expected to have a net surplus of $3 billion.