The Washington Supreme Court on Friday upheld the state's new capital gains tax, which was adopted by lawmakers in an effort to balance what is considered the nation's most regressive tax code. FOX13
In a 7-2 decision, the justices found the tax to be an excise tax — not a property tax, which the state Constitution limits to 1% annually, or an income tax, which Supreme Court decisions dating to the 1930s have found unconstitutional.
Washington is one of nine states without an income tax, and its heavy reliance on sales and fuel taxes to pay for schools, roads and other public expenses falls disproportionately on low-income residents. They pay at least six times more in taxes as a percentage of household income than the wealthiest residents do, according to lawmakers. Middle-income residents pay two to four times as much.
Democrats in Olympia, led by Gov. Jay Inslee, sought to begin addressing that in 2021, when they enacted a 7% capital gains tax on the sale of stocks, bonds and other high-end assets, with exemptions for the first $250,000 each year and gains from sales of retirement accounts, real estate and certain small businesses.
It was expected to be paid by 7,000 people — fewer than 1 in every 1,000 residents — and to bring in close to a half-billion dollars a year to help pay for public education in Washington. But it faced a legal challenge from wealthy residents and business and agricultural organizations that said it violates the state and federal constitutions and would discourage the investment in the state.
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