‘It’s sleazy’: Local legislators, community leaders voice discontent with capital gains tax bill

As state legislators continue to address the COVID-19 pandemic with a number of bills, one particular proposal gained unfavorable attention from House and Senate Republican lawmakers, as well as local community leaders, calling it sleazy, detrimental and unconstitutional. Supporters of the bill claim it would make the state’s tax system fairer.

Senate Bill 5096 would place a 7% capital gains tax on the “sale or other voluntary exchange of long-term capital assets by individuals” in Washington as early as Jan. 1, 2022, according to the bill’s text.

“This is just a gateway drug for an income tax,” Sen. Mark Schoesler, R-Ritzville, said in an interview with the Herald. “To call it anything but an income tax is being disingenuous with the taxpayers.”

Taxpayers would be required to file a state capital gains tax return for each year — the first tax return would be due 2023, according to the bill’s text. Capital gains worth no more than $250,000 would be excluded from the capital gains tax.

Some sales or capital assets would be excluded from the state capital gains tax, like livestock or assets in a retirement account, according to the bill’s text. A tax deduction would also be provided for the sale of small family businesses that qualify.

The state’s first $350 million of revenue from the capital gains tax would be allocated to the state Education Legacy Trust Account, according to the bill’s text. The rest would go to a taxpayer relief account.

“It’s sleazy,” Schoesler said of the bill.

Debbie Doran-Martinez, president and CEO of the Moses Lake Chamber of Commerce, said in an interview with the Herald SB 5096 would hurt small-business owners, who already “carry the burden” of existing taxes, like the business and occupation tax.

“To add another tax on their shoulders is just not right,” Doran-Martinez said.

The $250,000 threshold proposed in SB 5096 is not much for people to live on when they retire, Doran-Martinez said. The government needs to stop creating new taxes and “live within their means.”

“This bill needs to get quashed,” Doran-Martinez said.

Instead of proposing new taxes, Doran-Martinez said elected officials should focus on the top priority, which is economic recovery and getting through the pandemic.

“We’re being led down a road, and we don’t even know where we’re going,” Doran-Martinez said.

Lorene Fitterer, broker and Realtor for Moses Lake Realty Group, said in an interview with the Herald SB 5096 is an attempt for the state government to make up a shortfall for overspending, which concerns her.

Fitterer said she has seen people leave Washington and move to Idaho or Montana to escape the “crazy taxes” in the state. Having a capital gains tax could slow down and make the real estate market suffer.

“The housing market has been driving a lot of this economic boom that we’ve been having,” Fitterer said. “I think it really would be detrimental — horribly detrimental.”

Some legislators brought forward 22 amendments for SB 5096 during the Senate Ways and Means Committee’s virtual executive session Tuesday. Some were turned down while others were withdrawn.

One of the amendments that failed would have deposited all revenue collected from the state capital gains tax to the taxpayer relief account. This would help fund programs, such as the working families sales tax exemption program.

Schoesler said supporters of SB 5096 say the state’s tax system is regressive — the 22 proposed amendments for the bill would have made the system less regressive.

SB 5096 contains an emergency clause, Schoesler said, even if legislators supporting the bill say the revenue from the state capital gains tax will not be used for the 2021-2023 biennium.

“(The bill has) an emergency clause to prohibit a referendum,” Schoesler said.

Sonya Campion, president of the Campion Advocacy Fund, testified in support of SB 5096 during a virtual legislative hearing Jan. 14. She said the state’s tax structure is unfair, and it is not too much to ask wealthy individuals to pay a bit more.

“Our tax code is upside down,” Campion said. “The wealthy can and should pay their fair share.”

Andy Nicholas, senior fellow for the Washington State Budget and Policy Center, also testified in support of SB 5096 during the virtual legislative hearing. He said the bill would help address the racial wealth and opportunity gaps in the state.

Rep. Alex Ybarra, R-Quincy, said in an interview with the Herald a capital gains tax is an income tax, which is unconstitutional. Legislators should come up with a plan that would not raise or implement new taxes for Washingtonians.

“On the other side, their premise is that our tax system hurts the poor, hurts the middle class but doesn’t hurt the rich,” Ybarra said. “What’s funny is, if that’s the case then why put more taxes?”

Ybarra said SB 5096 is unfair. The state House Republican’s 2021-2023 operating budget proposal would not raise or impose any new taxes. It was released Tuesday.

SB 5096 passed the Senate Ways and Means Committee on Tuesday and will move to the Rules Committee for further deliberation. Senators had not voted on final passage of SB 5096 as of Sunday.