Gov. Inslee’s Capital Gains Tax Is an Illegal Idea Say Experts

In his efforts to close a budget gap of just under $2 billion dollars, Gov. Jay Inslee wants to impose a capital gains tax on what he calls the wealthiest "1%" of Washington's wage earners.  The only problem - he would be in violation of our state's tax laws.

The budget gap between what GOP and moderate Democrats are proposing is the bridge between $37.1 billion and $39 billion. Part of the way Inslee wants to close it is with his controversial Cap-and-Trade taxes, and the capitol gains tax.

However, the noted Washington Policy Center (WPC)  points out this month in an excellent editorial piece, that several pieces of law are standing between Inslee and his goal.

March 18, WPC's Jason Mercier wrote that if the legislature approved such a tax, Washington would be the only state without a state income tax to impose capital gains taxes.

And Inslee appears to be running afoul of the state constitution, according to Mericer:

"...is a 7% tax on capital gains constitutional in our state?

Under the state constitution, property cannot be taxed at a rate greater than 1% and the taxes must be uniform. The state supreme court has repeatedly ruled that “income” is property and that taxes on income must conform to the 1% limit.

Governor Inslee describes his proposal as an “excise tax” for the “privilege of selling or exchanging long-term capital assets” and not an income tax.  Litigation is certain, however, if it is enacted. "

Once again, just like in the first month after he was elected, Inslee is playing with words.  In his attempt to renew dozens of sunset taxes passed by former Gov. Gregoire that were set to expire at the beginning of July,  he justified it by saying they weren't "new" taxes.  In reality, because the state budget had been crafted without those taxes in mind, they WOULD be new taxes.

Now, he's doing the same thing with a capitol gains tax.  However as the WPC points out, litigation and court action would likely drag out such a proposal and likely do away with it - even if it's passed.  But to do so, Inslee would have to get past The Coaltion; the group of GOP Senators and 2 siding Democrats who control the State Senate.  They single-handedly have shot down most of his proposals over the last couple of years.