More and more cities in Washington are banning local income taxes on a daily basis with the intent to send a clear message to their state lawmakers; they don’t want it, and they are ready to face the highest court in the state to stop it.
As of Monday, Yakima City Council was the last to join five other municipalities in the state to ban local income taxes. Officials were voting ahead of the much-awaited Washington Supreme Court ruling on the 7% capital gains tax, which the state Democratic legislature narrowly passed earlier this year. Scholars and observers suggest that if constitutionally regulated, capital gains tax could set a precedent for a state income tax.
In Washington, the courts have long ruled income taxes unconstitutional based on their income as assets. The latter, which is regulated in the uniformity clause of the Washington Constitution, prevents it from being levied as a graduated tax. Critics say it sounds a lot like an income tax.
Starting next year, Washingtonians will be taxed 7% on sales of $ 250,000 in stocks, bonds, and other assets. Progressive tax advocates have hailed the tax as a counterbalance to the high state sales taxes, which studies have shown hit lower-income households harder.
State Representative Noel Frame, D-Seattle, chairman of the House of Representatives Finance Committee, said the capital gains tax was both a moral imperative and a source of income for childcare and education.
“We ask the wealthiest Washingtoners to share the responsibility of funding the needs of our communities and putting money back into the pockets of low-income families,” said Frame. “Not only that, investments in childcare and education will support the economic recovery and success of Washington’s children.”
Conservatives have claimed that the capital gains tax that exists in 41 states is a huge waste of paper when the state is floating in record tax revenues. Additionally, they say the state’s so-called “upside-down” would be negligible if more agencies cut the fat on their budgets.
As State Representative Chris Corry, R-Yakima, testified to the city council on Monday, local income taxes deserve, if at all, democratic contributions to the grassroots.
“Citizens want good government that is financially responsible,” Corry said. “Imposing a local income tax ban shows a commitment to tax responsibility.”
Historically, Washington voters have shot down income tax votes more than half a dozen times in the past 80 years. Democrats are confident that the Supreme Court will uphold capital gains tax as an excise tax on the voluntary sale of goods rather than income.
Meanwhile, Washington voters are divided over capital gains tax. Most witnesses to the bill from across the state, including some of its wealthiest residents, spoke out in favor of it at the previous session. Two lawsuits filed in the Supreme Court against the state by claimants entitled to pay the tax are pending a ruling from the state’s Supreme Court.
Yakima’s vote follows cities like Battle Ground, Spokane, Granger and Spokane Valley, which have all passed laws banning local income taxes.
Union Gap city council will vote on local income taxes next week, while the Tri-Cities region is also expected to look into the issue in the near future.
The Washington State Supreme Court is due to hear additional arguments on the Capital Gains Tax Act on August 18.
Original location: Yakima, the newest city in Washington, bans local capital gains taxes