Capital gains tax starts to gets real

13 mostly safe Democrats support bill out of committee; they need 25 to pass it

Things are starting to get real in Olympia on the progressive-taxation front, with actual politicians who might face actual political consequences casting votes for something resembling an income tax.  

Tuesday’s vote to move Senate Bill 5096 out of the Ways and Means Committee was 13 “yeas,” 10 “nos,” and one “without recommendation.” Sponsored by Sen. June Robinson, D-Everett, it would assess a 7 percent tax on most capital gains over $250,000. So, for example, if Jane Rich Person sells $10 million of Microsoft stock she bought for $1 million, she would owe 7 percent of $8,750,000, or $612,500.1

Here’s why it hasn’t happened before: For the 20 years that your correspondent has been paying attention, the state Senate has either been in Republican hands, or controlled by such a slender Democratic margin that any such tax was DOA there. House Democrats, sensibly, have declined to incur the political damage taking such a vote would have caused members in battleground districts where a “bad” vote to raise taxes can mean the difference between winning and losing. So the tax bills died quietly in committee, year after year.

That’s what makes Tuesday’s vote so interesting. Let’s dispense with the no votes first. Nine Republicans voted against the idea, as did Sen. Mark Mullet, the business-friendly Democrat who survived that crazy-expensive challenge from the left last year, and has been gettin’ up to stuff since. They’re at no on the merits, arguing such a tax isn’t necessary and would make the state less attractive to businesses and highly skilled workers.

Now let’s look at that “without recommendation” from Sen. Kevin Van De Wege, D-Sequim. (Through a spokesperson, Van De Wege declined the Observer’s offer to elaborate on his committee vote.)

Van De Wege represents the sprawling 24th District, which stretches from the Straight of Juan de Fuca down to Grays Harbor, and includes Clallam, Jefferson and most of Grays Harbor counties. Aside from the liberal enclave of Port Townsend in Jefferson County, it’s increasingly conservative territory.2 Republican Loren Culp thumped Gov. Jay Inslee in Grays Harbor County and narrowly beat him in Clallam County. 

Van De Wege was just reelected in November, so he’d have four years for his voters to get over any tax vote.  But he, and others who care about preserving the Democrats’ majority in the future, should be worried about him suffering the same fate as Dean Takko, who lost his seat in the neighboring 19th District last year, in part due to aggressive independent campaigns that featured messaging like this: 

Time for a vote count: The Democrat-Republican split in the Senate is 28-21. Put Mullet in the no column and Van De Wege in the “do-I-gotta?” column, and you’re down to 26 yes votes. Passing a bill takes 25.

Now let’s look at the “yes” votes. Seats on Ways and Means typically go to senior and entrenched lawmakers, so they’re all relatively safe, but there are degrees of safe.

Some of these folks should actively want to take a vote, and even several votes, to make Washington’s famously regressive tax system more progressive. Sens. David Frockt (North Seattle), Reuven Carlyle (Magnolia/Queen Anne/Ballard) and Jamie Pedersen (Capitol Hill, the University District) might actually face primary challengers next time around if the Legislature doesn’t vote to tax the rich.3 Sen. Bob Hasegawa, who represents South Seattle, should also be eager to take such a vote.

Ways and Means Chair Christine Rolfes of Bainbridge Island; Robinson, the bill’s sponsor; and Sam Hunt of Olympia, whose constituents largely work for the state; are also likely bulletproof on this issue. Sens. Jeannie Darnielle and Steve Conway represent safe Democratic districts in Tacoma. Conway seat’s was formerly held by Sen. Rosa Franklin, a Democrat who used to file an income tax bill every session.     

Sens. Karen Keiser of Des Moines and Marko Liias of Lynwood also represent solidly Democratic districts. Keiser got 73 percent of the vote in 2018, while Liias got 63 percent, so they shouldn’t be too nervous about facing voters next year. 

Which gets us to Sens. Manka Dhingra and Lisa Wellman. Dhingra represents the 45th District, in the northeast King County suburbs. She famously won a special election in 2017 to claim the seat vacated by the death of Republican Sen. Andy Hill, giving Democrats a one-vote majority. She won again in 2018, all while openly supporting a capital gains tax. 

Wellman represents Mercer Island and the fancy part of Bellevue. In 2016, she ousted moderate Republican Steve Litzow. She easily won reelection last year. 

Wellman and Dhingra were both brought into office by the well-documented Trump-era tarnishing of the Republican brand, which followed a 20-year trend that shifted the reliably GOP Eastside to the Democrats’ column.

But here’s the thing: If you’ve spent any time in either district, you’ve seen a whole lot of stuff built with capital gains. There are big, beautiful houses and thriving (at least before the pandemic) businesses large and small, many of which trace their origin to a generation of stock options from Microsoft, Amazon and other tech companies that compensate their employees with pieces of the corporate pie. Quitting your job at one of those places to cash in your stock and pursue your dreams is known as Calling In Rich. We give you, for example, the winery district in Woodinville.

Now we should note that the current version of the capital gains tax doesn’t kick in until $250,000 of profit on the transaction, and includes exemptions for real estate and qualifying small business. But we know this from past attempts to tax the really wealthy: It makes garden-variety rich people, and even the merely affluent, extremely nervous. They’re pretty sure Olympia eventually gets around to them.

That’s why the Democrats who voted for the bill on Tuesday had to vote down a series of Republican amendments designed to highlight voters’ antipathy toward new taxes. There was a proposal to put the issue directly before voters in November. Failed. Another amendment would have removed the emergency clause, which in this case is a nakedly tactical move to block a referendum campaign on the tax.4 Nope.

So now 13 Senators — most of them among the safest Democrats in the caucus — are on the record. They need 12 more, which will get them into the real battleground districts, places were vulnerable incumbents might face real challenges in November 2022.  

1

Democrats are billing this as an “excise tax” instead of an income tax, which would be unconstitutional. As a matter of language, excise taxes, like the motor vehicle excise tax collected by Sound Transit or the state real estate excise tax, are typically collected on the total value of the object or transaction being taxed, not the profit. But whatever. This one’s going to wind up across the street at the Washington Supreme Court regardless.

2

It’s also one of the poorer parts of the state, with few people who would pay such a tax.

3

Jim Brunner’s scoop during the Mullet campaign revealed that progressive operatives were plotting exactly that. The pitch to oust Mullet came up just short in the east King County suburbs, but it might be an easier lift in the heart of progressive Seattle.

4

Opponents could still force a statewide vote, but they’d need to run an initiative campaign, which requires twice as many signatures and a more difficult campaign, making such an effort much more expensive.


Thank you for your attention. The Washington Observer is an independent newsletter on politics, government and the influence thereof in Washington State. If you’re not a subscriber, please join us. It’s free — for now.