Guest Commentary

Having written for the last several years about the scheme to impose a capital gains income tax, I often receive emails from citizens across the country trying to figure out what is going on in Washington. This is especially true considering the fact the state Department of Commerce runs a website boasting about the lack of an income tax in Washington and why it is a "competitive advantage." State Treasurer Davidson has also repeatedly stated why not having an income tax is positive for Washington. Despite this, efforts continue to impose an income tax even though the voters have already rejected 10 straight income tax proposals.

Based on an email exchange I had this week with an East Coast financier looking to move to Seattle, I'm not the only one shaking my head about this misguided effort to throw away our "competitive advantage."

Here was our exchange:

East Coast Financier: "I've read a lot of your arguments against a Washington state capital gains tax and wanted to reach out to learn about a bit more about this risk.

By way of introduction, I am an aspiring investment fund manager who is planning to launch a fund in mid-2020. My wife and I are located on the East Coast, but are strongly considering a move to the Seattle area in the next few months. We love the region and the lifestyle and would be excited to move to the Pacific Northwest.

With that said, there is one major concern of mine, which is the risk of a capital gains tax being imposed in the state . . . I wanted to understand what is the risk that a proposal like this gets passed in the next 3-5 years. Does the legislature today actually have the votes to pass something like this or are they just playing to their base when they talk about this tax? Finally, how does the constitution protect investors from such a tax?"

Me: "Thank you for the email. I wish I knew for sure the answer to your question. If a capital gains income tax was going to pass, last year was the most likely window. The efforts continue, however. My sense is if they aren't able to pass it in the next 2 years they will pivot to a different kind of tax. This is one option recently floated.

A capital gains income tax that exceeds 1% is clearly unconstitutional but the supporters are trying to use it as a test case to set up a lawsuit. There is a current income tax court case before our State Supreme Court. Depending on the outcome of that case, supporters of a capital gains income tax will either become emboldened or pivot to a different type of tax."

East Coast Financier: "I appreciate the prompt response. I'm not sure if the policy makers in Olympia recognize the impact on job creation and inbound migration that this tax uncertainty causes. It also seems mind-boggling that any state would give up what is a major competitive advantage at a time when so many strapped states are seeing citizens flee to more business-friendly locations."

The East Coast financier thinking about moving to Seattle gets it. The question remaining, do our lawmakers understand this economic fact as well?