Inslee signs capital gains tax as state gears up for court battle
(The Center Square) – Washington Gov. Jay Inslee signed a capital gains tax into law on the heels of its first constitutional challenge in court.
Washington Democrats passed the tax last month after years of backing by Inslee, who opposed enacting new taxes in 2012. Signed on Tuesday, the 7% tax on sales of stocks, bonds, and other assets in excess of $250,000. It is projected to bring in $415 million by 2023. That money will go into an education account and pay for public school construction.
Inslee’s signature comes about a week after the tax faced its first lawsuit by the conservative Freedom Foundation less than 72 hours after its passage. The think tank claims the tax violates several clauses in the state and U.S. constitution. Those offenses, its seven plaintiffs argue, include violating the state-level ban on income taxes, which capital gains are classified as by the IRS at the federal level.
Washington Democrats have sold their capital gains tax as an excise tax on the sale of assets, hailing it as a way of bringing more equity to the state tax system and bolstering education funding.
“We are asking the wealthiest Washingtonians to share in the responsibility of funding the needs of our communities and putting money back in the pockets of low-income families,” said state Rep. Noel Frame, D-Seattle, who chairs the House Finance Committee. “Not only that, but the investments made in child care and education will bolster economic recovery and support the success of Washington’s children.”
Tax equity has been a fundamental issue for Washington Democrats this past session. On Tuesday, Inslee also signed into law the Working Families Tax Exemption the state legislature passed with overwhelming bipartisan support. The tax credit was first passed in 2008 and remained unfunded until this week.
Critics of the capital gains tax contend it will cause an exodus of big business and jobs from Washington even if it survives a court challenge. Moreover, they speculate state lawmakers will extend the tax to lower income brackets in the future.
“Elected officials are counting on voters assuming the new capital gains income tax will only affect the wealthy,” said Freedom Foundation CEO Aaron Withe in a statement. “But the negative consequences for job creation, entrepreneurship and the economy will be felt across Washington state.”
Another group, Opportunity for All Coalition, also intends to file a lawsuit against the capital gains tax.
The Freedom Foundation’s lawsuit now awaits action in Douglas County Superior Court.
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