OLYMPIA — Washington House lawmakers Wednesday approved a new tax on capital gains, propelling one of the Democrats' biggest priorities closer to Gov. Jay Inslee's signature.
The bill still needs final approval in the Senate by Sunday, the scheduled end of the legislative session, before it can head to Inslee's desk.
Even as Democrats drag Senate Bill 5096 closer to becoming law, they face questions — and fierce Republican opposition — about language inserted into it that would prevent a statewide referendum this fall.
Still, Wednesday's passage brought Democrats perhaps the closest they've been in a decade to a long-running and largely elusive goal: making Washington's tax system more progressive.
Senate Bill 5096 would create a 7% tax on the capital gains of the sale of assets — such as bonds and stocks — above $250,000.
During the House floor debate, Rep. Noel Frame, D-Seattle, said the bill would rebalance Washington's tax code in a state where much of the revenue comes from taxes on sales, property and businesses.
"This is how we are rebalancing the tax code, for the wealthy to pay their fair share and working Washingtonians to finally get a break," said Frame. She added that the bill was "a key tool of progressive tax reform."
After hours of debate that began Tuesday evening and resumed Wednesday, House Democrats approved the bill on a vote of 52-46.
Conservatives have long opposed the proposal, contending that it is a tax on income and is thus in violation of the state constitution. If the bill passes, a legal challenge is expected.
But much of the debate this week revolved around the language preventing opponents from collecting signatures and putting it before voters as a referendum.
During Wednesday's debate, Rep. Peter Abbarno, R-Centralia, referenced the many income-tax initiatives rejected by voters over the decades.
Abbarno said he had planned to talk more about tax policy but instead pointed out that voters in his district won't have a chance to weigh in at the ballot box because of the bill's language barring a referendum.
"I only wish and hope that they'll have the opportunity again to voice their opposition," said Abbarno.
Jason Mercier, of the right-leaning Washington Policy Center, said he thinks the so-called "emergency clause" that prevents a referendum has already been abused in recent years.
But the one inserted in this proposal just slots language into the bill, rather than creating a separate section in the text, which is what usually happens, said Mercier, adding: "I've never seen them try to do this."
SB 5096 exempts a range of assets from the tax. That list includes retirement accounts, sales of real estate, livestock, timber and certain agricultural lands. It also exempts the sale of sole proprietor businesses with a gross revenue of as much as $6 million, as well as the sale of certain auto dealerships.
If it were to become law, the tax is estimated to raise roughly $550 million annually, beginning in fiscal year 2023. The version that passed Wednesday would put that revenue into the state's Education Legacy Trust Account to be used for early learning and child care programs.
That referendum language could complicate a final vote in the Senate. In that chamber, Democrats last month passed SB 5096 by just a single vote, and only after they removed language in the initial bill to block a referendum.
In a regularly scheduled news conference Wednesday, Senate Democratic Majority Leader Andy Billig of Spokane said the lawmakers in his caucus would have to decide whether they will approve the bill with the language preventing a referendum.
"We will look at the bill as it comes out of the House," said Billig.
