Unfortunately, Greg Jayne perpetuates a few myths about RCW 82.87, calling it a “capital gains tax.” But it clearly is not, as the Washington Supreme Court has now correctly determined.
It falls under the definition of an “excise tax’’ as a tax imposed on a specific good or activity. A capital gains tax would be a tax on the profits realized when liquidating a long-term investment. But this excise is more comparable to the excise that is levied on the sale of alcohol or tobacco.
This excise has a tax threshold, which helps make it a progressive tax, even though it has a flat rate of 7 percent. One wishes that our sales tax and property tax were made progressive in the same manner. That would go a far way in making the Washington tax system as a whole less regressive.
The fact that Washington does not have an income tax need not disturb us as much as it does Jayne: taxes on income have the regrettable economic effect of discouraging effort, whereas what we really want is to discourage (excessive) consumption, and encourage saving. In that context, nobody forces people to sell their long-term capital assets, if they want to evade this excise.
