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.
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.