Introduction
The Citizen Action Defense Fund (CADF) has filed a lawsuit challenging the constitutionality of the state income tax which Governor Bob Ferguson recently signed into law. The lawsuit is being led by former Attorney General Rob McKenna and former Supreme Court Justice Phil Talmadge.
The progressive narrative that Senate Bill 6346 is a “millionaire’s tax” is highly misleading and it is a mistake to refer to the tax as such. Instead, we should call this tax what it is – an “income tax.” The question is whether Washington State taxpayers can be forced to pay a progressive income tax. This is not a case about millionaires paying their fair share; it is a case about whether Washington State taxpayers can be forced to pay a tax that is prohibited by the State Constitution.
CADF’s lawsuit will determine whether our State Constitution will be upheld or will be reinterpreted so that every taxpayer can be forced to pay a graduated income tax. This case is not about millionaires; it’s about whether income can be taxed progressively so that the legislature can adopt a full-fledged, California-style income tax.
There are four main reasons that the new income tax is both misguided and unconstitutional.
Reason #1 – The Constitution is clear: income is property
The State Constitution was amended by Washington’s voters in 1930 to expansively define “property” as “everything, whether tangible or intangible, subject to ownership.” Voters’ goal in adopting this broad definition was to expand the property tax base to reach all forms of intangible property including, for example, income from stocks and bonds. By adopting this definition, voters also limited taxes on intangible property to the levels permitted on all forms of property. Proponents of the new state income tax must now explain how people do not have a property interest in their income and why income is not subject to ownership.
Reason #2 – The Supreme Court has already ruled against progressive income taxes in a long series of decisions
The Washington State Supreme Court first ruled in 1933 that income does, in fact, fall within the Constitution’s definition of property. An income tax is possible but must meet the rules for property taxes, which include being uniform and capped at 1%. There have been several decisions since that first case in which the Supreme Court has ruled – in an unbroken line of precedents – that income is property under our Constitution. The Constitution’s language is unchanged since voters amended it, and all these Court decisions have simply and consistently applied the plain meaning of “everything,” “intangible,” and “subject to ownership” to strike down progressive income taxes that violate the rules for property taxes.
Reason #3 – Voters have already said “no” 10 times to a state income tax
In 1934, just one year after the first Supreme Court decision holding that income is property under the Constitution, voters were asked by the Legislature to amend the Constitution again by excluding “income” from its definition of property. That amendment was voted down by a wide margin. Five more times since then, voters have considered proposed amendments to the Constitution that would have excluded income from “property” or otherwise would have changed the Constitution to allow progressive income taxes. Voters have rejected all six amendments, most recently in the 1970’s by 77-23 percent.
On four other occasions, voters were presented with ballot initiatives that would have created a state income tax, and they rejected all four of those measures as well. In total, voters have been asked to weigh in on a potential income tax on 10 separate occasions. Each and every time, voters rejected the proposed tax, most recently in 2010, when Initiative 1098 was crushed by a 64%-36% margin.
Reason #4 – There is a pathway for a constitutional progressive income tax, and it is being ignored
While the new state income tax that was passed this year is clearly unconstitutional, there is a legitimate way to institute such a tax. Rather than dumping the question in the state Supreme Court’s lap in hopes of somehow forcing them to reinterpret the Constitution, legislators who want an income tax can do what six prior legislatures have done: propose a constitutional amendment and send it to the ballot for voters to decide.
In advocating for an income tax, proponents willfully ignore the plain reading of the constitution, multiple supreme court precedents, and the will of the voters as repeatedly and emphatically expressed at the ballot box. If proponents want a progressive income tax, they should propose a constitutional amendment to the voters.
Conclusion
If the new state income tax is upheld in court, it immediately opens the door to expanding the tax to reach all Washingtonians. In addition, it opens the door to individual city and county income taxes on top of the state income tax.
The historical absence of an income tax has been a major competitive advantage for Washington, allowing it to flourish by attracting workers, entrepreneurs, businesses of all sizes, and the jobs they have created. If the state income tax is upheld, the capital flight we are already witnessing will continue and accelerate. Our state’s remaining residents will be left to shoulder the growing burden of excessive state government spending – up over 140% since 2013 – and inevitably will be told they must pay the income tax, too.
Learn more by visiting www.citizenactiondefense.org.
Read the complaint that CADF filed HERE.