After hours of debate Tuesday night and Wednesday afternoon, the Washington state House of Representatives approved the Senate's capital gains bill, which would levy a 7% excise tax on profits from the sale of financial assets over $250,000 per year. The vote went 52 to 46, with Democratic Reps. Dan Bronoske, Mike Chapman, Mary Leavitt, Dave Paul, and Alicia Rule joining Republicans in voting against the measure.
If you're not one of the state's 7,000 wealthiest residents, then chances are you'll never pay this tax. But if you're someone who needs childcare or early learning opportunities, then the state will use the $500 million in estimated annual revenues from this tax toward those ends once the Governor signs this bill, which he will very likely do. However, that money will only start flowing in 2023 pending an inevitable legal challenge and a possible initiative or referendum.
Republicans don't like the bill because they're pawns for the rich, and because they think it's an unconstitutional income tax. Democrats like the bill because it would go some way in funding programs while righting our racist, regressive tax code.
As the bill heads back to the Senate for a final check, the big question now is whether that body will concur or take issue with a little clause that would shield the bill from a voter referendum. The name, function, and purposes of 13 little words in that clause spurred a tedious and extremely boring debate that could determine the bill's fate.
Here's the clause in question, emphasis mine: “The tax levied in subsection (1) of this section is necessary for the support of the state government and its existing public institutions.”
On the House floor, Republicans argued that passage amounted to a "backdoor emergency clause," since its language exactly reflects part of a constitutional article that allows the people to hold referenda on laws “except such laws as may be necessary for the immediate preservation of the public peace, health or safety, support of the state government and its existing public institutions.”
If you'll recall, the capital gains tax only passed the Senate last month after Sen. Steve Hobbs added an amendment removing the emergency clause from the bill, due partly to political concerns. Essentially, Democrats found it difficult to think of a good comeback against Republicans accusing them of supporting a bill that would ~take away the peoples' voice at the ballot box~ by removing their ability to run a referendum campaign against it.
Democratic Rep. Tana Senn argued that the line in the bill wasn't an emergency clause but rather a “necessity clause," which the House inserted into the bill because it was "necessary" to fund education (the state's "paramount duty") and to address the childcare crisis. “We don’t put the future of our kids on the ballot," she said.
If that response sounds like a dodge, that's because it kinda is and it kinda isn't. A "necessity clause" is different from an "emergency clause," in that an emergency clause makes the bill effective immediately after passage. Since the capital gains bill doesn't contain an emergency clause, it wouldn't go into effect until 90 days after passage.
However, the necessity clause would shield the tax from a referendum. In an email, University of Washington law professor Hugh Spitzer said, "Generally speaking, tax legislation and appropriations are not subject to the referendum because they are for the support of state government and its institutions." The state Supreme Court has insulated tax bills from referendum before, such as with the B&O tax back in the 1930s, according to a House spokesperson.
That "necessity clause," though, doesn't appear in 2019's long-term health care bill, which included a substantial payroll tax. Nor does the clause occur in the vape tax. But lawmakers did include the language in a 2019 bill that increased the B&O tax rate for travel agents, though that bill included the entire emergency clause rather than just this "necessity clause" piece.
However, preventing people from running a referendum against the bill doesn't remove "the peoples'" voice. If they wanted to, opponents of the tax could run an initiative campaign. (I put "the people" in quotes because in this case they would only serve as useful idiots for corporate business interests who want to defeat any attempt to tax the rich.) The big differences between a referendum and an initiative? Time and money. An initiative would likely cost more to launch because it requires a higher signature threshold, and it would likely run in November of 2022 rather than this year.
So, what will the Senate do? In a press conference Wednesday, Senate Majority Leader Andy Billig reflected the rhetoric of House members. He didn't commit to approving the bill as is, but said the House did not add an emergency clause but rather "another provision about it being necessary for the operation of state government, which it is." Billig noted that both the Democratic House and Senate budgets assume a capital gains tax, which is a good indication that they plan on passing it.
Sen. Kevin Van de Wege was the critical swing vote for getting the bill through the Senate last March. I asked whether he supported the "necessity clause," but he hasn't gotten back to me yet. I will update this post if he gets back to me.