September 19, 2021

Yakima latest Washington city to ban local capital gains taxes

3 min read

More Washington cities are banning local income taxes by the day with the intent of sending a clear message to their state lawmakers; they don’t want them, and they’re ready to take on the highest court in the state to stop them.

On Monday, Yakima City Council was the latest to join five other municipalities in the state to ban local income taxes. Officials voted ahead of the Washington Supreme Court’s widely anticipated ruling on the 7% capital gains tax that state Democratic lawmakers narrowly passed earlier this year. Scholars and observers presume the capital gains tax, if ruled constitutional, could signal legal precedent for a state income tax.

In Washington, the courts have long interpreted income taxes as unconstitutional based on their consideration of income as property. The latter, which is regulated according to the Washington constitution’s uniformity clause, keeps it from being collected as a graduated tax. Critics say that sounds a lot like an income tax. 

Starting next year, Washingtonians will be taxed on sales of $250,000 in stocks, bonds and other assets to the tune of 7%. Progressive tax advocates have hailed the tax as a counterweight to the state’s high sales taxes, which studies suggest hits lower-income households harder. 

State Rep. Noel Frame, D-Seattle, who chairs the House Finance Committee, has said the capital gains tax is as much a moral imperative as it is a revenue stream for child care and education.

“We are asking the wealthiest Washingtonians to share in the responsibility of funding the needs of our communities and putting money back in the pockets of low-income families,” Frame said. “Not only that, but the investments made in child care and education will bolster economic recovery and support the success of Washington’s children.”

Conservatives have claimed the capital gains tax, which exists in 41 states, is one big waste of paper when the state is swimming in record tax revenue. Moreover, they say the state’s so-called “upside down” would be negligible if more agencies trimmed the fat in their budgets.

As state Rep. Chris Corry, R-Yakima, testified to the city council on Monday, local income taxes deserve democratic input at the grassroots level if necessary at all.

“Citizens want good government that is fiscally responsible,” Corry said. “Putting an income tax ban locally shows a commitment to being fiscally responsible.”

Historically, Washington voters have shot down income tax ballot measures more than half a dozen times in the past 80 years. Democrats are confident the high court will uphold the capital gains tax as an excise tax on the voluntary sale of goods, not income.

Meanwhile, polling among Washington voters is divided on the issue of a capital gains tax. Most testifying on the bill from around the state, including some of its wealthiest residents, voiced support for it this past session. Two lawsuits filed in superior court against the state by plaintiffs who stand to pay the tax await a ruling from the state Supreme Court.

Yakima’s vote follows cities like Battle Ground, Spokane, Granger and Spokane Valley that have all passed laws banning local income taxes.

The Union Gap City Council is set to vote next week on local income taxes, while the Tri-Cities region is also expected to address the issue in the near future.

The Washington state Supreme Court is scheduled to hear more arguments on the capital gains tax bill on August 18.

This article was originally posted on Yakima latest Washington city to ban local capital gains taxes

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