A new capital gains tax on high-profit stocks, bonds and other assets was approved Sunday by the Washington Legislature and now heads to Gov. Jay Inslee for his signature.
Once signed into law, the measure is certain to face a legal challenge from opponents who say the measure is a tax on income that violates the state constitution.
The measure narrowly passed the Democratic-led Senate on a 25-24 vote Sunday afternoon, following a 52-44 vote Saturday night in the House.
"This is a step towards asking those who can pay a little more in taxes to do that for the sake of all Washingtonians, for the sake of creating a safer and healthier future for our state,” said Democratic Sen. June Robinson.
The measure would impose a 7% tax on the sale of stocks, bonds, and other high-end assets in excess of $250,000 for both individuals and couples.
Original versions of the capital gains tax looked to bring in $500 million a year, but the latest version settled on by House and Senate Democrats is now expected to bring in $415 million in 2023, the first year the state would see money from the tax, which would start in 2022.
Business owners are exempt from the tax if they were regularly involved in running the business for five of the previous 10 years before they sell, own it for at least five years, and gross $10 million or less a year before the sale.
Retirement accounts, real estate, farms and forestry would be exempt from the proposed tax. One new element added to the bill during negotiations was allowing a taxpayer to deduct up to $100,000 a year from their capital gains if they made more than $250,000 in charitable donations in the same tax year.
Language added in the House says the tax is necessary “for the support of state government and its existing public institutions,” which essentially blocks a voter referendum at the ballot. Voters could go the initiative route, but it has a higher signature requirement than referendums.
Republicans argued that Democrats want the state Supreme Court to rule on the issue as it pertains to income taxation before the public can. A graduated income tax was enacted by initiative in 1932, passing with about 70% of the vote. But it was thrown out by the state Supreme Court a year later, which pointed to the state constitution’s call for uniform taxation on property.
“The intent of this bill, in my opinion, is to get it before the Supreme Court so that it can pave the way for a so-called progressive income tax in this state,” said Republican Sen. Keith Wagoner.