Capital gains tax inches closer to passage in Washington, but still faces final hurdle
After hours of debate across two days, the Washington state House voted Wednesday to approve a 7% capital gains tax, passing the measure by a narrow 52-46 margin.
Originally sponsored by Democratic Sen. June Robinson, the first iteration of SB 5096 would have levied a 9% tax on gains from the sale of things such as stocks, bonds, and other assets above $25,000 for individuals, and $50,000 for couples. That would have affected about 42,000 taxpayers and brought in about $975 million in the first year, according to the OFM.
When the bill cleared the state Senate’s Ways and Means committee, it was reduced to a 7% tax on gains of $250,000 for individual and joint filers, along with several other changes, such as excluding the sale of all real estate and creating an exclusion for a “qualified family-owned small business.”
Proponents argue that the tax is desperately needed to balance disparity in Washington’s tax code, with Democratic Rep. Marcus Riccelli calling it “an important tool for progressive tax reform.”
On the other side of the aisle, Republicans argue that it’s an income tax in disguise, citing the fact that other income tax proposals have frequently failed at the ballot box and been struck down in state courts as unconstitutional.
“An income tax is well-understood. Capital gains are form of income, so every jurisdiction in the country — state, local, and federal — treats capital gains taxes as income taxes because that’s in fact what they are,” former Republican state Attorney General Rob McKenna told KIRO Radio’s Dave Ross in February.
The bill now heads back to the state Senate for concurrence after the House made changes to the legislation, including the addition of an emergency clause that would prevent it from being repealed in a voter referendum. That could prove to be a sticking point, though, given that Democratic Sen. Steve Hobbs had previously stripped out that very same emergency clause in the state Senate.
The measure passed by a razor-thin 25-24 margin in the state Senate in early March, leaving little room for error as lawmakers approach the end of the legislative session.