Capital gains tax opponents win in Douglas County
Hospital staffing bill dies as things get cranky in Olympia
Editor’s Note: The Morning Wire looks different this morning because it’s now coming to your inbox via Substack, the platform I use to publish The Washington Observer.1 On to the news:
Conservative opponents of the capital gains tax got what they were looking for out in Douglas County — a full-throated declaration that the tax adopted by the Legislature last year is an income tax and therefore a violation of the Washington Constitution.
The opponents went venue-shopping in hopes of taking such a clear ruling to the Supremes, where this issue was always going to wind up. Judge Brian C. Huber’s ruling from Tuesday cribs liberally from the briefs filed by former Attorney General Rob McKenna and his team2 and disdains the argument advanced by the Solicitor General Noah Purcell’s crew that the tax is an excise tax on the act of selling an asset.
"ESSB 5096 is properly characterized as an income tax … rather than as an excise tax as argued by the State. As a tax on the receipt of income, ESSB 5096 is also properly characterized as a tax on property pursuant to that same caselaw. This Court concludes that ESSB 5096 violates the uniformity and limitation requirements of article VII, sections 1 and 2 of the Washington State Constitution. It violates the uniformity requirement by imposing a 7% tax on an individual's long-term capital gains exceeding $250,000 but imposing zero tax on capital gains below that $250,000 threshold. It violates the limitation requirement because the 7% tax exceeds the 1% maximum annual property tax rate of 1%."
We broke down the legal arguments in the Observer in January, so we won’t get too deeply into that here. The ruling tees the issue up before the Supremes for a definitive revisitation of the original ruling from the 1930s that income is property. That’s the outcome that progressives are really looking for because it would clear the way in the future for further changes to a tax structure that falls heavily on the poor and lightly on the rich.
In the short term, the ruling creates some headaches for Ways and Means Chair Christine Rolfes and Appropriations Chair Timm Ormsby because it punches a pretty substantial hole in the state budget. The Supremes certainly won’t resolve the case before the Legislature’s scheduled to blow town next week.
The money from the capital gains tax was intended to pay for a big increase in state spending on child care and other early learning programs also adopted last year. It wasn’t due to start flowing until early next year, but it’s enough in the current budget cycle that they’ll have to figure out how to backfill. Luckily, there’s still a bunch of that federal pandemic aid we like to think of as Uncle Joe’s Pile of Cash (UJPoC) lying around, although majority Democrats had some other plans for all that dough.
It also raises interesting questions of timing for the nascent ballot initiative campaign to repeal the tax. First of all, as it currently stands, there’s nothing to repeal, although the initiative would likely take the form of a broad prohibition of taxes on income, including capital gains.
Meanwhile, briefing and oral arguments over the issue could well eat up the available time between now and the July deadline for turning in signatures to get a measure on the November ballot. The wealthy backers of the ballot committee will have to decide whether they’re willing to put up north of $1 million for signature-gathering costs when they might wind up winning in court sometime later in the summer.
Things get cranky in Olympia
With just over a week left in the session, the Legislature is really getting to the controversial stuff. Lawmakers and lobbyists are frantically scrambling around trying to keep bills alive — or make sure they die. We’re told things are getting tense and testy in the closed caucuses of majority Democrats, who have more bills they want to pass than time to pass them. Here’s a look at a couple of interesting developments:
Nurse staffing bill dies
A proposal to impose minimum staffing standards for nurses and nursing assistants in hospitals died in Senate Ways and Means on Monday after an intense lobbying battle between two of Olympia’s biggest political players. The measure was on the agenda that day but never came up for a vote before a key procedural deadline, indicating it didn’t have enough support to pass.
House Bill 1868, sponsored by Spokane Democrat Marcus Riccelli and more than 40 other lawmakers, was a priority of organized labor, especially SEIU Healthcare 1199, which represents nurses around the state and is one of the larger supporters of Democratic lawmakers and associated political committees.
The union and its allies marshaled nurses from around the state with accounts of chronic overwork, understaffing, and burnout, especially during the deadly COVID pandemic. As the Observer noted in December just before the pre-session fundraising freeze came down, the union’s PAC gave $1,000 each to nearly 80 members of the Legislature, mostly Democrats, on Nov. 15, along with $25,000 each to House Democrats’ Truman Fund, controlled and the Kennedy Fund, the Senate Democrats’ PAC.
But the nurses had formidable opposition in the form of the Washington State Hospital Association. The hospitals and their allies argued that the bill would worsen the existing shortage of nurses and lead to delayed care, especially at rural hospitals. As we reported in October, the association’s PAC, Hospitals for a Healthy Future, cut checks to dozens of incumbent legislators across the political spectrum.
The PAC also gave heavily to the four soft-money committees controlled by leaders of the Legislature’s four caucuses. The PAC gave $45,000 each to the Reagan Fund and the Truman Fund, controlled by House Republicans and Democratic, respectively. The biggest check, for $60,000, went to the Senate Democrats’ Kennedy Fund, while the Leadership Council, controlled by Senate Republicans, got $52,000.
Many of the state’s hospitals are operated by immensely rich companies that pay their top executives eye-popping salaries, which should have given the nurses some ammunition in this fight. But here’s the thing about hospitals: Every district has them, and especially in more remote parts of the state, just keeping the doors open has been a challenge for decades. Meanwhile, the nurse’s union has been in some tough political fights in recent years, sometimes backing the wrong horse.
Unionizing legislative employees rises from the dead
After Democratic leaders got an enormous amount of bad press for letting a bill to allow their own staffers to unionize die in committee last month, a similar bill staged a miraculous comeback this week.
House Bill 2124, also from Riccelli, passed 56-41 on Tuesday. It’s an interesting case study for all you legislative procedure nerds out there. The bill was introduced on Feb. 23, more than a week after House bills are supposed to pass that chamber, so technically it should be deader than disco.
This is an illustration of the fact that the cutoff rules — not unlike the Pirate Code — are more like guidelines than actual rules, provided there’s enough momentum to waive them. Its fate in the Senate is unclear.
The Legislature approved collective bargaining for state employees some two decades ago but exempted its own staff.
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Arya makes her debut in The Morning Wire
I did this mostly because Mailchimp, the platform the Washington State Wire used for newsletters until now, is incredibly irritating to use. (Don’t get me started on how hard it is to include a footnote.) But it’s also part of a larger process of combining the two publications. Observant readers will notice that I swapped out the Wire’s George Washington logo, which was literally PhotoShopped off the dollar bill back in the day, for the Observer’s watchful eyes.
As our lawyer friends like to say: “The first rule of appellate advocacy is: “Never expect the court to do your work for you.”