The Capitol Building is seen Monday, Jan. 8, 2018, in Olympia.
Governor Jay Inslee recently proposed a $54.4 billion 2019-2020 budget that increases spending by 20 percent and increases taxes $3.7 billion. I am opposed to the governor’s massive “tax and spend” proposal. The state of Washington is experiencing historic levels of unanticipated revenue from existing sources. There is no need to create new taxes like the capital gains/income tax and increase the real estate excise tax and business and occupation tax.
The tax increases proposed by the governor will have a chilling effect on economic development and growth for many small and family owned businesses throughout Washington; most notably the capital gains/income tax and the B&O tax increase. As taxes increase, small businesses are stretched even thinner to make capital investments, grow and develop their workforce, and invest in their local communities.
The governor’s proposal would create a 9 percent capital gains tax on earnings over $25,000 for individuals and $50,000 for households. The proceeds from retirement savings accounts would be exempt from the new tax. The sale of a business would not be exempt under the current proposal. As many small business owners would agree, they created, built, and grew their business as an essential part of their retirement. And, extra 9 percent tax (on top of the federal tax) could be devastating.
Many, including myself, believe the capital gains tax is a form of income tax. According to Article VII of the Washington state Constitution “all taxes shall be uniform upon the same class of property within the territorial limits of the authority levying the tax and shall be levied and collected for public purposes only.” Therefore, it is unconstitutional to impose an income tax in the state of Washington. A 1930’s state supreme court case also struck down the idea of creating an income tax and the voters in Washington have repeatedly voted against a graduated income tax.
The governor also wants to raise the B&O tax for services from 1.5 percent of gross receipts to 2.5 percent. That would cover everything from accountants, realtors, attorneys, and financial advisers to barbers and cosmetologists. When taxes are increased on a business, like the B&O tax, it directly and negatively impacts the business’ bottom line and the owner’s investment. The unintended consequence is that an entire community can get hurt.
I’m very proud of my law firm’s growth in Centralia and Olympia. However, it was not by chance. It took a lot of time, a lot of effort, and a lot of personal investment. Many small and local businesses, like my own, have grown and expanded based on planning and certainty. We invest in our business because we love what we do, we believe in what we do, and we invest in our future.
Future growth and economic development becomes a lot less clear and a lot less certain with the imposition of new and increased taxes.
Small businesses and their owners are woven into the fabric of our community. Unfortunately, increasing the cost to do business on all of us negatively impacts our ability to serve our communities. For instance, in Lewis County, Lewis County Bar Legal Aid closed and I am sure many rural county legal aid offices are struggling. In 2018, our attorneys performed over $70,000 worth of free legal services in Lewis and Thurston counties to low income residents. We don’t merely accept it as our professional responsibility. Helping low income residents navigate the complex legal system is something all our attorneys love to do. It is my hope the governor and Legislature recognize the positive impact we have on the community.
Service industries seem to be the low hanging fruit for Governor Inslee. And, attorneys most certainly seem like a popular profession tax and punish. Maybe that is because the worst of my profession is glorified on television and Hollywood. Even though the legal profession is a business, many attorneys like myself also represent the poor and indigent, defend victims of domestic violence, plan your estate, establish the next new local small business, and help injured clients. My message to the governor and the Legislature is don’t forget how much attorneys and all our small and family owned businesses contribute to your local community and local economy.
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Peter Abbarno is an attorney with Althauser Rayan Abbarno and Centralia city councilor.
