“The Impact”: Capital Gains and Environmental Bills Cross Finish Line (Video)
After years of failed capital gains tax bills, Democratic majorities in the House and Senate pushed through a 7% tax on capital gains over $250,000. The tax applies to profits from the sale of stocks and bonds, the sale of a business, or the sale of other personal property. There are some exemptions for things like real estate sales or retirement accounts and deductions for the sale of small businesses that meet certain criteria.
Senate Bill 5096, sponsored by State Senator June Robinson (D-Everett), would take effect January 1, 2022 and the first state capital gains taxes would be owed starting in 2023. The bill contains a clause to prevent a referendum challenge this year.
“The framers of our constitution knew that the population generally does not like to pay taxes. That is why there is the initiative process,” said Robinson.
The original version would have taxed the sale of stocks and bonds at 9% with a starting threshold of $25,000 for individuals. Under a later version of the bill following the adoption of an amendment from the bill’s sponsor the first $350 million generated by the tax each year was reserved for the Education Legacy Trust Account and the rest would go into a proposed “Taxpayer Fairness Account.” pg. 14 Line 7 In the final conference committee version of the bill that cleared the legislature the first $500 million per year will be deposited into the Education Legacy Trust Account and any additional funds will go to the Common School Construction Account.
“It’s very fair. It definitely targets the highest income earners by putting the threshold at $250,000 of gains, so of selling assets and that’s, you know you have to have over $250,000 dollars of gains before you pay a tax. Seven percent is relatively modest, but yet significant in terms of the income that it brings in a tax rate for our state so I’m happy, very happy, with where we landed on those two issues,” said Robinson.
The bill also amends the Education Legacy Trust Account to allow funds to be used for child care and early learning programs.
“We need tax reform in our state. This is one step towards that,” said Robinson. “A capital gains tax, as we all know, taxes the wealthiest among us and this will put money into our state budgets in order to be able to make long term investments particularly in early learning and childcare.”
Republicans in both chambers have been very outspoken opponents of the bill.
“The reason I think the tech companies are here is because we didn’t have an income tax over the many years,” said Sen. Lynda Wilson, (R-Vancouver). “It’s going to take away our competitiveness. In fact, the Department of Commerce had that on their website up until just recently, ‘come on into Washington state, we don’t have an income tax,’ which was an advantage.”
The bill language describes the new tax as an excise tax on capital gains.
“All other states in the union call this an income tax,” said Wilson.
Wilson says the capital gains tax bill will open the door to a legal challenge that could ultimately lead to a “full-blown income tax.”
“It is going to lead to that because that is the goal,” said Wilson. “It is a tax on property. The Supreme Court has ruled several times that income is property so that’s what I’m confused about. If they rule any different way, which is what they’re counting on, then they will be an outlier because the IRS even states that it’s an income tax.”
Robinson’s response, “I believe that the capital gains tax is an excise tax. I do expect that it will likely be challenged in the Supreme Court and they will make a final decision on that. I don’t think this is a step towards an income tax. We are all very aware that the voters of Washington state have said many times that they do not want, do not support an income tax. This is an excise tax on the highest income earners, people with the highest amount of assets in the state of Washington.”
Update: a complaint has been filed in Douglas County Superior Court to challenge the legality of ESSB 5096E.
{Note: The revenue distribution graphic in the video reflects an earlier version of the bill. The final version is available here.}
Environmental Legislation
Democratic Governor Jay Inslee and various democratic lawmakers have been trying to pass a low carbon fuel standard for years. This year it happened.
The low carbon fuel standard bill sponsored by Rep. Joe Fitzgibbon (D-Seattle) was approved, along with a carbon emissions cap and trade system, new regulations for hydrofluorocarbons (HFCs) used as refrigerants, and a bill to ban the sale or registration of new gasoline powered vehicles in the state starting in 2030 (provided a 3/4ths majority of vehicles are signed up for a road usage charge or pay-per-mile tax program).
“Definitely the big wins for the environment this year are our twin victories on climate change. One the Climate Commitment Act putting a firm and declining cap on Washington’s greenhouse gas emissions to help us attain those greenhouse gas reduction targets economy wide as well as the passage of a low carbon fuel standard requiring significant reductions in greenhouse gas pollution specific from the transportation sector, which is the most polluting sector our state,” said Fitzgibbon.
Republican State Representative Tom Dent argues forest health legislation is the most significant environmental win for the year. He isn’t convinced that the low carbon fuel standard and Climate Commitment Act are a good deal for everyone.
“I think it’s going to increase the cost of living and probably decrease the standard of living the way that the current bills are structured,” said Rep. Tom Dent, (R-Moses Lake). “Our wildfires contribute about a fifth of the carbon that goes into the air every year in the state of Washington.”
“Our neighbors in Oregon, California and British Columbia have found it to be an effective policy. They have found it to be a strong enough policy that all three of those jurisdictions have reupped their targets and moved beyond the reductions that were originally promised when they adopted those programs. Our neighbors to the south in Oregon have had this program for five years. It’s reduced over a million tons per year of CO2 pollution at the impact of about two to two-and-a-half cents on a gallon of gasoline. I think that Washingtonians agree that that’s a priority,” said Fitzgibbon. “One of the most regressive impacts possible is the regressive impact of air pollution is the disproportionate impact on communities that are least able to afford it and that’s particularly low-income communities, communities of color and communities that tend to live near highways where the pollution burden is the highest.”
“We have watched our forest health, due to insect infestations, diseases and such, bring our forest health just down. We’re killing trees out there. They’re dying. Forest health is going to pieces. We’ve stopped the logging of issues that would keep our forests clean,” said Dent. “So we’ve let our forests get very, very, unhealthy and we have excessive fuel. You get excessive fuel, get an ignition source, and then we get a catastrophic wildfire that puts all of the carbon into the air so that’s what we really need to deal with.”
“The Impact”: Capital Gains and Environmental Bills Cross Finish Line (Video) Guests: Sen. June Robinson (D-Everett), Sen. Lynda Wilson (R-Vancouver), Rep. Joe Fitzgibbon (D-Seattle), Rep. Tom Dent (R-Moses Lake). {Note: The capital gains tax revenue distribution graphic in the video reflects an earlier version of the bill. The final version is available here.}