Chris Cargill: In state income tax fight, it feels like Groundhog Day all over again

By Chris Cargill

It’s that time of the year when we look to that groundhog in Pennsylvania for weather forecasts. Here in Washington state, we don’t need a rodent or Bill Murray movie to remind us that we’re stuck in our own time loop.

Lawyers for the state attorney general will be in court in Douglas County Friday to try (again) to impose a state income tax. For hardworking citizens, it’s the same old story.

Despite record amounts of revenue and strong public opposition, Washington state legislators adopted the new tax, starting with capital gains, in the last legislative session.

Supporters try to hide that it is an income tax. Why? Because a graduated income tax is illegal in Washington, according to the state constitution.

The courts have ruled time and again that you own your income – your income is your property – and therefore, it must be taxed uniformly. That is, everyone must pay no more than 1% for any state income tax for it to be legal.

Supporters of an income tax have never liked that idea. They want to sock it to people in the higher income brackets, then extend the tax later to everyone else.

In a bit of verbal gymnastics, supporters call the income tax a “tax on the privilege of living in Washington” or an “excise tax.”

No state in the country calls an income tax an excise tax – not even Washington state. Further, the Internal Revenue Service has confirmed that a capital gains tax is an income tax.

These facts are so damaging to tax boosters that the attorney general’s office will ask the court today to throw out all the IRS evidence and the state-by-state review.

It appears the real plan behind the capital gains tax proposals in the state Legislature was to set up a lawsuit in hopes of imposing a graduated income tax without a constitutional amendment.

Seattle state Sen. Jamie Pederson revealed that “the more important benefit of passing a capital gains tax is on the legal side, from my perspective. This will give the Supreme Court the opportunity to revisit its bad decisions (and … ) enact a progressive income tax with a simple majority vote.”

Washington voters have rejected 10 straight income tax proposals.

The legislative and legal maneuvering is yet another reason why local governments have stepped up to ban local income taxes. So far, 19 local governments have decided to fight back, including Spokane and Spokane Valley. A recent poll shows 72% are opposed to a local income tax.

There’s a reason so many are in opposition to an income tax, whether it be state or local. Capital gains taxes, for example, are volatile and unreliable sources of tax revenue.

Delaware described the tax as “extremely volatile and unpredictable.” Massachusetts said a capital gains tax was “among the most volatile and unpredictable major sources of revenue.” California described its capital gains tax as “among the more significant sources of revenue volatility.” And Virginia described it as “the most volatile tax source that any state has to forecast.”

History tells us this latest round will likely be decided in the interest of Washington taxpayers, but the forecast is no guarantee. Not even Punxsutawney Phil knows what will happen. After all, he’s “a rodent, not a meteorologist.”

Chris Cargill is the Eastern Washington director of Washington Policy Center, an independent research organization with offices in Spokane, Seattle, Tri-Cities and Olympia. Online at washingtonpolicy.org. Members of the Cowles family, owners of The Spokesman-Review, have previously hosted fundraisers for the Washington Policy Center, and sit on the organization’s board.