Opinion: Early response to Washington’s capital gains excise tax (AKA income tax) court ruling

Jason Mercier of the Washington Policy Center offers reactions from around the state on the state Supreme Court decision on the capital gains income tax.

Jason Mercier of the Washington Policy Center offers reactions from around the state on the state Supreme Court decision on the capital gains income tax

Jason Mercier
Washington Policy Center

When an earthquake strikes it can take days, weeks, or even years to understand the full scope of what happened. This is also true of a court ruling that changes the entire tax landscape of a state. With that in mind, here is some of the early response to last week’s shocking 7-2 state Supreme Court decision ruling that a capital gains tax is an excise tax even though the rest of the world says that it is an income tax:

Jason Mercier
Jason Mercier
  • Tacoma News Tribune: “Legal arguments are fun and all. But if you’re clinging to dusty precedents and semantics in defense of a system that benefits the wealthy at the clear expense of everyone else, that’s not constitutional righteousness — it’s just deluded indifference. Or maybe something worse.”
  • KUOW: “A wealth-management company says it’s pulling its headquarters out of Washington state in the wake of the state’s Supreme Court decision around capital gains taxes. In a seemingly sarcastic statement, Fisher Investments says: ‘In honor of the Washington State Supreme Court’s wisdom and knowledge of the law, and in recognition of whatever it may do next, Fisher Investments is immediately moving its headquarters from Washington state to Texas.’ The move is expected to be completed by June 30 . . . Fisher is now part of a wave of companies relocating to Texas. That state has fewer business regulations, no income taxes, and lower costs of living.”
  • Forbes op-ed: “Ryan Ellis, an IRS-enrolled agent and president of the Center for a Free Economy, says the majority opinion is ‘absurd.’ ‘An excise tax is a government tax on the sale of a thing, usually a Pigouvian thing. Booze, beer, tobacco, etc.,’ adds Ellis. ‘No serious tax expert would call the realization of a capital gain an occasion for an excise tax. It’s clearly in the income tax bucket.’”
  • Tax Foundation: “Words matter — at least they’re supposed to, notwithstanding the court’s conclusion that a tax on income is not an income tax — so it is necessary to delve into the somewhat strange verbiage of Washington’s constitution, along with the linguistic gymnastics the court performed to endorse a tax on capital gains income . . . If the state’s capital gains income tax were a tax on a transaction or on the exercise of a privilege, it would apply to every sale of a capital asset. Instead, it is based on the aggregate net capital gains income from all transactions, with an income exclusion to ensure that the tax only applies to high earners. Reportable net capital gains income is pulled directly from taxpayers’ federal income tax returns. Clearly, the tax is on income, not transactions . . . In the not-too-distant future, an income tax is coming for them, and it will wipe out the one major tax advantage Washington has over its competitors.”
  • Wall Street Journal: “The majority’s logic contradicts common sense, nearly a century of state law, and the view of the U.S. Internal Revenue Service, which defines capital gains as a form of income. The majority opinion boasts that ‘forty-one other states and the District of Columbia tax capital gains.’ Yes, and every one considers capital gains to be income . . . Washington State now has a capital-gains tax imposed by judges, and watch Democrats seek to build on the judicial ruling by trying to redefine other income taxes as excise taxes. The new tax bills start arriving in April. Enjoy.”

Here is the video update I provided for Washington Policy Center members yesterday on the court ruling (starts at 14:07 mark).

I’ll update this post as more editorials are published on the court’s capital gains tax decision.

Jason Mercier is the director of the Center for Government Reform at the Washington Policy Center.

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