After nine long years of effort and a long debate Saturday afternoon, the Washington state Senate narrowly passed a proposal to tax capital gains on a 25-24 vote.
Democrats who joined Republicans in voting against the measure predictably included Sens. Mark Mullet, Steve Hobbs, Annette Cleveland, and Tim Sheldon.
The bill will now head back to the House for approval, which it will likely receive given that chamber's support for the tax in the past. Governor Jay Inslee included a version of capital gains tax legislation in his budget proposal this year and in previous years, so he won't be a roadblock either.
While the legislative fight may more or less be over for now, two major hurdles to implementation still remain: an inevitable legal challenge and a statewide referendum.
Sen. Steve Hobbs smoothed the path for a referendum campaign last night, when he introduced an amendment to remove an emergency clause from the bill. That clause would have enacted the tax "immediately," and it also would have insulated the tax from a referendum but not an initiative campaign to repeal the law. The Senate adopted Hobbs's amendment early on in the debate, so expect a big ol' expensive referendum campaign backed by big business later on this year.
It's unclear how well the tax would do on the ballot, as statewide polls of the proposal have produced mixed results. A mid-February poll from King 5/SurveyUSA showed 59% support for the idea of "establishing a new capital tax for the state's top 2 percent of investment earners." However, a January poll from Crosscut/Elway found 41% support for "a proposal for a tax on capital gains, which includes profits from selling assets such as stocks and bonds totaling more than $25,000 for an individual or $50,000 per household."
The actual proposal that passed, which was introduced in the Senate this year by Sen. June Robinson, would impose a 7% tax on the transfer of profits from high value assets over $250,000 starting in 2023. (So, for example, if you cash out on $350,000 in stocks two years from now, you'd pay the state $7,000 on your $100,000 in profit over $250,000, which, and I cannot stress this enough, you did nothing to earn.) The Office of Financial Management estimates the tax would hit around 8,000 people in Washington, which boasts a population well over 7.5 million.
Nevertheless, the tax would raise $500 million a year that would, according to the latest version of the bill, funnel into the Education Legacy Trust Account, the general fund, and a new Taxpayer Relief Account. Democrats have said the money from those funds would be used to fund child care and reducing some taxes on low income earners and the middle-class.
As for the legal issues, some believe the proposed capital gains tax is not an excise tax but rather an income tax rendered unconstitutional by the state's uniform property tax clause.
(Republicans made that point ad nauseam on the Senate floor, punishing all Olympia-watchers with tedious, repetitive talking points designed to do nothing but waste time so Democrats can't pass as many bills as they'd like to pass.)
Democrats have offered a range of responses to that charge. Some argue that states only impose income taxes when they tax income from labor, not money gained from the exchange of an asset. Some, including Seattle Senator Jamie Pedersen, have invited the inevitable legal challenge from passing a capital gains tax with the hope that "this will give the Supreme Court the opportunity to revisit its bad decisions from 1934 and 1951 that income is property and will make it possible, if we succeed, to enact an income tax with a simple majority vote."
A number of factors contributed to this victory for those who want to tax the rich to balance the tax code. From a whip count perspective, in the last couple years the Senate has lost Sens Guy Palumbo and Dean Takko, who opposed the tax to varying degrees, and it has gained Sens. T'wina Nobles and Derek Stanford, who voted for the tax on the floor today.
Democratic leadership has also argued that they prioritized the proposal to help address several crises exacerbated by the pandemic and to build the state's recovery on the backs of those who can afford it rather than on the backs of its poorest citizens. Growing and sustained pressure from advocates organized under Invest In Washington Now, who ran ad campaigns and pushed supporters to send "more than 55,000 emails, voicemails and other messages to legislators," they say, also probably didn't hurt.
On the floor, Sen. Ann Rivers summed up the Senate GOP position on taxing the super-wealthy, and, for that matter, on all legislation that improves the lives of working people: "My district is always a deep, dark red of 'no.'"
Seattle Sen. Joe Nguyen highlighted the fact that only the wealthiest people, including the wealthiest people who have ever lived in the history of the world, would end up paying the tax, and that the revenue was needed to combat income inequality and invest in the future of the state.
Republican state Sen. Phil Fortunato said that those very wealthy people sometimes buy $30,000 desks from craftsmen who are not multimillionaires, and if he said anything after that I wouldn't know because my mind boiled inside of my skull shortly after he started talking about the high-end desk market.
"Democratic" state Sen. Mullet said he voted against the bill because he thinks "we have the revenue to meet our needs" already, and because he was reflecting "the will of my constituents." Mullet won his 2020 race against a more progressive challenger by 57 votes.
The passage of a capital gains tax has been a long time coming. House Speaker Laurie Jinkins first introduced a version of the tax during her first year in office back in 2012. Check out Speaker Jinkins discussing the proposal with former House Rep. Zack Hudgins: