Washington set to implement a state income tax

Washington set to implement a state income tax

The capital gains income tax is one step away from becoming a reality.

Washingtonians are just one step away from being subjected to a new tax on their income. This state-level capital gains income tax would mean that any Washington citizen, business or property owner who undertakes an activity that is subject to the filing thresholds would now be required to also file their federal income tax return with the State Department of Revenue.

This tax circumvented voters and was passed by a slim majority of legislators alone. Even worse, lawmakers used an emergency clause to deny Washingtonians their constitutional right to a referendum on the tax. It was likely not taken to the people because they have voted down 10 previous income tax ballot measures  (including six constitutional amendments). Just over a year ago, 61% of Washingtonians voted against a capital gains income tax in an advisory vote. Even in the legislature, it only passed by a small margin. In March of 2022, it was
ruled unconstitutional by a Gov. Inslee-appointed judge in Douglas County because it violates the state Constitution by not being applied uniformly – and is above the 1% maximum tax on property. The state tried to frame this as an excise tax (in which case it would be considered illegal under the federal commerce clause), but the IRS and EVERY other state across the country views it as an income tax. The Washington Supreme Court will have the final say sometime after oral arguments on January 26. 

In the meantime, the state has no plan of slowing down. They have said they will begin collecting the taxes this April regardless of it being declared unconstitutional. For now, the tax excludes certain real estate, 401k assets and car dealerships – but we can expect those caveats to disappear over time. 

Washington had a $10 billion state budget surplus in the last cycle, so it is hard to understand why the state is looking for new ways to squeeze revenue out of Washingtonians. The state is already becoming unaffordable for many, and new taxes and other expensive initiatives are only making it worse. As the workplace becomes increasingly flexible, people may choose to leave the state and work remotely rather than lose even more of their paycheck to our state government. 

Quite simply, this is not only an illegal income tax but also an attempt to have the judiciary give the legislature carte blanche to tax at will without the approval of the people. State Sen. Jamie Pedersen (D-Seattle) said as much. “We’ve got to figure out how to have an income tax in our state,” he said, “in getting the state Supreme Court to say, ‘You are free legislature to do an income tax, or a capital gains tax, or wealth tax,’ you know, any of these things, with a simple majority [vote of the court], is what we’ve been working on.” 

Once a tax is put in place, it is virtually impossible to get it taken off the books. And this is about far more than one tax. Washingtonians must stand against it now – before it’s too late.

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