NPI's Cascadia Advocate

Offering commentary and analysis from Washington, Oregon, and Idaho, The Cascadia Advocate provides the Northwest Progressive Institute's uplifting perspective on world, national, and local politics.

Wednesday, November 30th, 2022

Washington State Supreme Court rules capital gains tax on wealthy can be collected for now

In a defeat for right wing anti-tax forces who want to keep Wash­ing­ton’s tax code per­ma­nent­ly upside down, the Ever­green State’s high­est court issued a stay today of a low­er court rul­ing that attempt­ed to bar the imple­men­ta­tion of a 2021 law enact­ed by the Leg­is­la­ture levy­ing a cap­i­tal gains tax on the wealthy.

The rul­ing, request­ed by Attor­ney Gen­er­al Bob Fer­gu­son, frees the Depart­ment of Rev­enue (DOR) to pro­ceed with col­lect­ing the new cap­i­tal gains tax, which is a cru­cial new fund­ing source for edu­ca­tion, preschool, and ear­ly learning.

Only Wash­ing­ton’s wealth­i­est fam­i­lies will pay the 7% tax on the sale or exchange of stocks, bonds, and oth­er assets, which ful­ly exempts all real estate and retire­ment accounts. There’s also exemp­tions for fam­i­ly farms and timberlands.

Addi­tion­al­ly, the law pro­vides a stan­dard deduc­tion of $250,000 per year per indi­vid­ual, mar­ried cou­ple, or domes­tic part­ner­ship, and a busi­ness and occu­pa­tion cred­it is avail­able for small businesses.

More infor­ma­tion is avail­able from this page on DOR’s web­site.

The con­sti­tu­tion­al­i­ty of the tax has yet to be decid­ed. The Court will hear oral argu­ments from a group of respon­dents (for­mer­ly plain­tiffs) who con­tend it isn’t con­sti­tu­tion­al and appel­lants (for­mer­ly defen­dants, includ­ing the State of Wash­ing­ton) who assert that it is in late Jan­u­ary 2023. A final rul­ing is like­ly to be hand­ed down by the Court lat­er this year, per­haps in the late spring.

The respon­dents, known as the Quinn plain­tiffs, sought out a sym­pa­thet­ic tri­al court to lodge a chal­lenge against Engrossed Sub­sti­tute Sen­ate Bill 5096, the law that cre­at­ed Wash­ing­ton’s cap­i­tal gains tax on the wealthy. They found one in Bri­an Huber of Dou­glas Coun­ty, a court that rarely hears con­sti­tu­tion­al chal­lenges. Huber grant­ed the Quinn plain­tiffs a rul­ing strik­ing down ESSB 5096, but his deci­sion was prompt­ly appealed to the Wash­ing­ton State Supreme Court.

The Supreme Court grant­ed direct review sev­er­al months ago, which result­ed in the case bypass­ing the Court of Appeals. Because the time is draw­ing near for imple­men­ta­tion and col­lec­tion of the tax, the State asked that the Supreme Court effec­tive­ly dis­card Huber’s rul­ing. The Court’s order today does just that.

NPI applauds this deci­sion. Our team agrees that it’s an encour­ag­ing devel­op­ment ahead of the next phase of the case, which will deter­mine the fate of the lawsuit.

Orga­ni­za­tions we work with are also feel­ing encouraged.

“Allow­ing cap­i­tal gains tax prepa­ra­tions to go for­ward is the right step for Washington’s stu­dents and par­ents,” said Trea­sure Mack­ley of Invest in Wash­ing­ton Now, a non­prof­it that has been work­ing on ESSB 5096’s defense.

“The law­suit chal­leng­ing the cap­i­tal gains tax is just a delay tac­tic by a small group of mil­lion­aires who refuse to pay what they owe. We can­not afford to put the self-inter­ests and for­tunes of the super-rich ahead of our communities.”

Mean­while, rep­re­sen­ta­tives of the right wing forces work­ing for ESSB 5096’s defeat were unhap­py. Jason Merci­er of the Wash­ing­ton Pol­i­cy Cen­ter vent­ed by post­ed a GIF on Twit­ter with the cap­tion: “I am irri­tat­ed right now.”

Merci­er and oth­er oper­a­tives work­ing for the wealth­care of mil­lion­aires and bil­lion­aires have been try­ing unsuc­cess­ful­ly for years to brand the cap­i­tal gains tax on the wealthy as an income tax. But our polling has found that their argu­ments just aren’t res­onat­ing with the pub­lic, which is clear­ly deeply frus­trat­ing for them.

In addi­tion to los­ing in the court of pub­lic opin­ion, they’ve also now just lost in the high­est court in the land, which is not stacked with Fed­er­al­ist Soci­ety alum­ni, unlike the Unit­ed States Supreme Court. The Court’s order today was unan­i­mous, which does­n’t give them even a dis­sent to hang their hats on.

A relat­ed effort to over­turn ESSB 5096 via ini­tia­tive col­lapsed back in the spring after right wing megadonors refused to sign off on plans to fund a bal­lot mea­sure to force a pub­lic vote on ESSB 5096, appar­ent­ly fear­ing that vot­ers would sanc­tion the Leg­is­la­ture’s work to make Wash­ing­ton’s tax code more progressive.

That has left anti-tax forces reliant on the Quinn legal chal­lenge, at least for the time being. Those forces are ide­o­log­i­cal­ly opposed to any and all ideas for reform­ing Wash­ing­ton’s tax code to require the wealthy to pay their fair share in dues to the state. It is essen­tial that they lose if Wash­ing­ton is ever to become a state with a bal­anced, fair, and just tax code.

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