Lawyer: WA Supreme Court has ‘convoluted opinion’ over capital gains tax

Mar 24, 2023, 3:23 PM

capital gains tax...

Washington State Supreme Court (KIRO 7)

(KIRO 7)

The Washington State Supreme Court made its ruling Friday to uphold the constitutionality of the state’s capital gains tax despite multiple opponents challenging it, claiming it’s a slippery slope for the state to establish an income tax.

As of the court’s ruling, a 7% tax will be placed on the sale or exchange of capital assets above $250,000.

“They consider it something of an ‘Alice in Wonderland’-like fashion — an excise tax,” former Bothell Mayor Mark Lamb said on The Jason Rantz Show on AM 770 KTTH. “They are analogizing this to our real estate excise tax or estate tax, saying that the income is not defined by income but rather by what it is. That is simply a means of measuring what is the tax on the right to hold stock in the state of Washington and to be a stockholder in the state of Washington.”

Capital gains tax ruled constitutional by WA Supreme Court

Lamb is currently a lawyer with Carney Badley Spellman, P.S.

The law creating the tax, SB 5096, was signed last year by Gov. Jay Inslee and went into effect in Jan. 2022, before it was stopped by lawsuits.

“But as Justice Sheryl Gordon McCloud pointed out in her excellent dissents — words matter, and the idea of what something means is based on what it actually is. I think what they have done is have one of the most tortured and convoluted opinions imaginable to dance around the idea of calling this what it clearly is — a tax on income derived from the sale of a stock or an asset like a capital gain,” Lamb said. “Forty-one other states treat it [this way]. It’s how the federal government treats it. And the Supreme Court in Washington is contorting itself to the point of almost being indecipherable to avoid calling it what it is, which is a tax on income derived from capital gains.”

According to Lamb, the majority opinion stated the wealthiest households in Washington are disproportionately white, while the poorest households are disproportionately BIPOC. As a result, Washington’s upside-down tax system perpetuates systemic racism by placing a disproportionate tax burden on BIPOC residents; a sentiment the Washington State Budget and Policy Center has argued for, believing Washingtonians have been saddled with the most regressive state and local tax code in the nation.

“That sounds exactly like something that a member of the Legislature would say and debate,” Lamb said. “It sounds exactly not like something that a member of the judiciary should be saying in a decision assessing whether or not attacks [are] constitutional under Washington’s constitution.”

The capital gains tax is expected to bring in roughly $500 million annually to fund early learning and childcare programs. The state is also projected to bring in about $681 million more than anticipated for the coming 2023-2025 budget cycle, according to Crosscut.

“And what they have done in this decision is, I believe, to open the door to all forms of taxation now that the Democratic majority in the Legislature and the governor may wish to enact to sort of further their public policy agenda. And again, to further their agenda of enacting economic constraints on the rest of the citizens in the name of advancing racial equity.”

Rantz stated he still has a little hope for Washington’s Supreme Court after witnessing two “very progressive” justices, including McCloud, push back on this tax, but also described it as “an out of control Supreme Court,” a belief that Lamb shares.

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“We need to spend a lot more time focusing on who we elect as judges in Washington state because it has profound and sweeping implications where they’re not subject to a check or balance, like the governor or the Legislature is, “Lamb said. “They are a separate branch of government, and people need to really do their homework.”

Lamb believes the U.S. Supreme Court could potentially get involved.

Listen to the Jason Rantz Show weekday afternoons from 3 – 7 p.m. on KTTH 770 AM (or HD Radio 97.3 FM HD-Channel 3). Subscribe to the podcast here.

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