Holy says Senate action opens door to state income tax

The Senate’s narrow passage of a Democrat-sponsored bill aiming to create a state income tax on capital gains opens the door to a full-fledged state income tax in Washington, says 6th District state Sen. Jeff Holy.

The Senate yesterday voted 25-24 to pass Senate Bill 5096, sending the controversial measure to the House of Representatives for further consideration. Holy voted against the proposal.

“Our state’s revenue situation has improved since last year’s dip caused by the COVID-19 pandemic,” said Holy, R-Cheney. “Our long-term state budget outlook is good, so we don’t need to create a state income tax. In addition, we are receiving federal COVID-19 funding. Passing a state income tax measure on a Saturday during a marginally transparent legislative session just sends the wrong message that the majority is trying to hide this from public view.”

Holy said Washington voters have rejected a state income-tax proposal 10 times over the past 85 years. The most recent rejection happened in 2010 when 64 percent of voters shot down Initiative 1098.

“Most of the people in Washington don’t want a state income tax,” said Holy. “The Legislature should listen to the people and not try to impose one.”

Holy said this bill could hurt people throughout Washington, not just wealthy residents in King County.

“Not everyone in our state can enjoy the economic success that the Seattle area has enjoyed,” said Holy. “Most of the voters in my district voted against the last state income tax ballot measure. I expect most of them would oppose this proposal that the Senate passed.”

If SB 5096 is signed into law, it is expected to draw a lawsuit and wind up in court.

“The Internal Revenue Service considers taxes on investment income to be an income tax, so this proposal would be on a collision course with the state Supreme Court over whether it’s legal under our state constitution,” said Holy.

Before the bill was approved, the Senate passed an amendment removing a so-called “emergency clause” from the proposal. Had the emergency clause remained in the bill, it would have prevented citizens from filing a referendum that brought SB 5096 before state voters to approve or reject.

“I’m very pleased the Senate agreed to include this amendment that could allow voters to exercise their right to force a referendum if they wish,” said Holy. “Throughout our history, voters have rejected state income-tax proposals several times. It would be extremely unfair if voters were prevented from having a say on this proposal if the governor signs it into law.”

Holy noted that if SB 5096 ends up become state law, he fears an exodus of wealthier Washingtonians.

“One reason why our state has attracted top talent is because they know Washington does not have a state income tax. But if the majority imposes a state income tax, there is a real concern that we’ll see many wealthier residents move away from Washington to avoid paying a state income tax. It’s never a good thing to drive people out of state with bad tax policies.”