Anyway, seeking a way to work around that, lawmakers in 2021 passed a capital gains tax. And on Friday, the Supreme Court ruled that it is an excise tax, not an income tax.
Tuh-may-toe, tuh-mah-toe, etc., they can call it what they want. But declaring that a capital gains tax is not an income tax requires some cognitive gymnastics.
Which brings us to the unintended consequences. As one reader told me a while back: “You bet that if the court upholds this dishonest, unconstitutional soak-the-rich tax we will give very serious consideration to leaving this community for a tax haven elsewhere. What a shame, to kill the geese that lay the golden eggs. And how unnecessary.”
The guess is that is a common sentiment among the people who will have to pay the tax. And the guess is that those people have plenty of employees and donate quite a bit to educational programs and public health and churches and arts societies and animal shelters — you know, things that enrich our community and, therefore, benefit all of us.
Gov. Jay Inslee, who long has supported a capital gains tax, doesn’t seem too worried about that. “For 134 years, Washington state has been waiting for the day when a fairer tax system came about, one where working people were not carrying an inequitable share of the burden,” he said. “Today is that day. Washington’s capital gains tax helps right an upside-down tax structure where low-income Washingtonians ultimately expend a much larger share of their income in taxes than our wealthiest residents.”
The flaw in that thinking is evident. We can argue about what constitutes a “fairer tax system” until the revenue comes home, and it would be a circular argument that lands us back where we started. Defining a “fair” tax system is like trying to explain quantum physics.
And despite all that “unfairness,” Washington has an economy that routinely is ranked by outside observers as one of the best in the nation. That might be in spite of our tax system, or it might be because of it. But for some reason or another, Washington long has been a hub of innovation and entrepreneurship, and tinkering with that seems risky.
Therein lies the problem with a capital gains tax. Will it make a difference for public education, as intended? Will those who pay it leave the state? We won’t truly be able to assess the fallout for several years.
In the meantime, we can hope that lawmakers know what they are doing.