Capital gains tax is going to hurt Washington families and businesses

No one really likes to pay taxes, but they are a necessary part of life. However, when state lawmakers continue pushing and creating new or increased taxes year after year after year, one can’t help but ask, when is enough, enough?

Overall, this has been a positive legislative session. We’ve worked across the aisle and passed many good pieces of policy. But unfortunately, a previously passed tax law is about to have a big impact on Washington, after a recent ruling by the state Supreme Court.

In 2021, Democrat lawmakers approved Senate Bill 5096, which created a 7% tax on the sale of stocks, bonds, businesses, and other investments, if their profits exceed $250,000 annually. The new tax is estimated to bring in about $500 million to be spent on child care and early learning.

While the intent is good, this income tax on capital gains is completely unnecessary. State government has more than enough money to continue running all its essential services and programs. We don’t need to ask the people of Washington for more of their hard-earned money. With record tax collections, there’s no viable reason to create a new tax.

Not only do we believe it’s unconstitutional, but just like the federal government, every other state in the country recognizes capital gains as income. However, our state Supreme Court recently ruled 7-2 that the new capital gains tax is legal, and Washington can tax the sale of stocks and other investments. Democrats praised the decision, claiming it will bring balance to the state’s tax system.

Many Republicans, myself included, believe Democrats will use the ruling to raise taxes further and eventually attempt to implement a statewide income tax. The decision also reverses a Douglas County Superior Court decision last year that struck down the tax because the judge characterized it as an income tax, not an excise tax as argued by state lawmakers.

Throughout Washington’s history, voters have made it very clear how they feel about an income tax, having voted it down 10 previous times already. It’s estimated the tax will affect fewer than one in every thousand residents.

That might not sound like a big deal. After all, the tax affects only certain people that accumulate a certain amount of income through investments. However, if history is any indicator, once tax proponents get started, they don’t stop. It’s likely just a matter of time before everyone is paying a capital gains income tax, and eventually a state income tax.

Raising taxes on individuals, families, and employers when they are already paying more than their fair share is regrettable, especially under our current economic circumstances. A recent decline in expected state revenues combined with rising inflation and an increasingly higher cost of living make this a bad time to increase people’s tax burden.

This law is going to hurt our economy. Many people and employers subject to the tax can simply avoid paying it by not selling their assets. That means the tax won’t raise its projected revenue and it will discourage investment in our state. It will also hurt the state’s child care and early learning programs that are supposed to be funded by the additional revenue.

Furthermore, one major employer in Southwest Washington has already announced it plans to move its headquarters to Texas after the court’s ruling. Others will likely follow.

The bottom line, by endorsing the Legislature’s play on words, the court is paving the way for future tax increases from legislators who now see a path around the state’s constitutional tax limits by simply labeling any new tax as an excise tax.

Instead of playing games with Washingtonian’s income, majority party lawmakers should be looking for ways to give them some relief.

Rep. Mark Klicker, R-Walla Walla represents Washington’s 16th Legislative District.

As printed in the Prosser Record-Bulletin

State Representative Mark Klicker, 16th Legislative District
410 John L. O'Brien Building | P.O. Box 40600 | Olympia, WA 98504-0600
(509) 240-1638 | Toll-free: (800) 562-6000