Sunday, March 26, 2023
March 26, 2023

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In Our View: Capital Gains Tax Flawed

State superintendent’s proposal to fund schools a nest of opposition, lawsuits

The Columbian

Chris Reykdal, Washington’s superintendent of public instruction, deserves credit for taking a visionary approach to address problems he sees coming regarding education funding. Unfortunately, Reykdal has a blind spot regarding a proposal for a capital gains tax in the state.

Reykdal last week announced his budget proposal for the 2019-21 biennium. That proposal now goes to Gov. Jay Inslee, who will weigh it against requests from other department heads before presenting a comprehensive budget for consideration by next year’s Legislature. The most notable item in Reykdal’s request is a capital gains tax that he says would raise about $2 billion over two years. The idea would place an 8 percent tax on profits over a certain threshold from the sale of corporate stocks, bonds, and other financial assets.

The glaring problem with Reykdal’s ambitious proposal is that it might be unconstitutional. Opponents argue that a capital gains tax is essentially an income tax by another name, and a tax on income is forbidden in Washington. Passage of such a proposal would lead to lengthy and costly court battles over the semantics of what constitutes income.

Beyond the legal questions, Washington lawmakers and residents have demonstrated no interest creating new taxes. Voters repeatedly have rejected income tax proposals, and efforts to legislatively impose a capital gains tax have failed to generate much support. Rare is the lawmaker who willingly embraces a new tax, regardless of the need.

Although the details of Reykdal’s proposal are the political equivalent of Sisyphus pushing a boulder up the hill, the sentiments behind it warrant discussion. Washington has a school-funding problem bearing down like a runaway locomotive, and lawmakers must address that during next year’s legislative session. “This state, candidly, has made great progress but is on an unsustainable path,” Reykdal said.

The Legislature last year approved a levy swap and increased funding for teacher salaries that finally met the mandate of the state Supreme Court’s 2012 ruling in McCleary v. Washington. Lawmakers raised the state property tax rate while capping the money districts can raise through local levies in future years. The result is an infusion of cash for school districts this year — in many cases leading to sharp increases in teacher salaries — but questions about funding in future years.

Numerous districts, including several in Southwest Washington, saw contentious negotiations with teachers’ unions this past summer. Now, superintendents throughout the state are asking the Legislature for a lifeline to keep them afloat in future years — a situation that is frustrating for those who warned that large salary increases are unsustainable.

Regardless of one’s opinion about teacher salaries and school funding, it should be clear that tweaks are necessary. Legislation of such scale is never perfect, and lawmakers should be willing to fix the remaining issues. Most prominently, they should heed concerns about a shortage of money for special education.

Reykdal’s proposal would earmark about $1 billion over two years to offset a proposed reduction in the state property tax that was increased by lawmakers, while the other half would go for items such as special education, mentoring and professional learning, and career and technical education.

While discussion about school funding is, indeed, necessary, Reykdal apparently does not have a clear vision of the problems with a proposed capital gains tax.