Will we see the capital gains tax on the ballot?

Some 17,000 people have 500 million reasons to force a public vote

When the Senate narrowly approved a capital gains tax on Saturday, they all but invited two challenges to the measure, should it become law: A legal argument that it violates the constitution and a referendum to force a statewide vote in November.

We’ll dig into the constitutional challenge another day because the referendum poses the more immediate threat to the tax if it passes the House in its current form and Gov. Jay Inslee signs it.

Senate Bill 5096 would assess a 7 percent tax on most capital gains over $250,000.¹ The tax is expected to bring in roughly $500 million per year from around 17,000 people. The money is linked to a massive planned expansion of the state’s support for child care and early learning, and a tax credit for the working poor. It’s also intended as a start on restructuring a tax system that falls heavily on the poor and lightly on the extremely wealthy.

That’s about $30,000 per rich-person taxpayer. But it’s unlikely that it will be spread uniformly across the 17,000 people. A relative handful of whales, some of whom you’ve heard of, will likely pay the lion’s share. For those high rollers, SB 5096 could carry a seven-figure price tag.

Picture, for example, a hypothetical tech executive with founder’s stock in a company that recently went public. She’s about to experience what the financial planners like to refer to as a “liquidity event,” which is a polite way of saying she’ll shortly be reclining on an extremely large pile of money as a reward for her part in creating something valuable. She might be less than enthusiastic about sending 7 percent of it to Olympia. In fact, a whole bunch of tech CEOs oppose the bill with the argument that the absence of such a tax drives innovation.

Now let’s get to the rules for the referendum. The Washington Constitution lets the voters bat last.² In the 90 days after the Legislature adjourns this spring, any bill that hasn’t been declared an emergency³ can be challenged by any citizen. After some process and legal wrangling about the language of the petition, said citizen would have until June 10 to gather 162,258 signatures.⁴

That signature-gathering effort can be relatively easy, especially if the issue at hand is hot. For example, socially conservative opponents of the sex education law passed by the Legislature last year had no trouble gathering signatures, despite the pandemic. Voters upheld the law after its supporters spent about $2.5 million, outspending opponents 5-1.

A referendum might just look like a solid investment to more than enough of those 17,000 taxpayers to bankroll the campaign. History indicates it’s a really good bet.

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Taxing the rich has been on the statewide ballot three times since 1975; it went down in roaring flames each time. The most recent example was Initiative 1098 in 2010, which would have imposed an income tax on individuals making more than $200,000 per year and couples making more than $400,000. It failed 36 percent to 64 percent.

The Observer knows some folks who worked on that campaign, and they’ll tell you the reason it went down so hard is this: folks didn’t believe the tax would stay limited to the very rich. That argument was frequently made during Saturday’s debate, and there isn’t much reason to believe the message wouldn’t resonate in 2021.

It’s instructive to look at the top donors for and against that tax.

These are donations of more than $100,000 to the main committee supporting the initiative, which raised $6 million:

And here’s the “no” money. The main committee against it raised about $6.3 million:

A decade has passed, and the issues aren’t identical, but you can probably expect thematically similar donors to a campaign on the capital gains tax. Opponents widely view it as a prelude to a campaign for a broader income tax.

There may be some interesting shifts, however. For example, Steve Ballmer has retired as CEO of Microsoft since then, and the philanthropic organization he runs with his wife, Connie, is a major supporter of the push for the early learning expansion the capital gains tax is supposed to pay for.⁵ Hard to know where their money goes.

Some of the left-leaning millionaires and billionaires we featured in the Observer’s first story, the folks whose money got funneled through the Democratic Party into Gov. Jay Inslee’s reelection campaign, are vocal supporters of the capital gains tax and would likely cough up big money to defend it.

So expect the money to fly around in a big way.

In Saturday’s preview of the capital gains vote, we wrote about the historic nature of the vote, the fact that enough senators were willing to take a vote long viewed as politically suicidal. We wondered if the social inequalities laid bare during the pandemic might mean there would be no political price to pay in 2022 for taxing the rich to help the poor.

But it’s likely we’ll find out how the voters feel quite a bit sooner.

Elsewhere in potential ballot measures, Maverick drops $1M into sports gambling PAC

Maverick Gaming, the largest non-tribal gambling operator in Washington State, quietly dropped an additional $1 million into its political action committee recently, likely in preparation for a signature drive to put a sports gambling initiative on the ballot in November.

Native American casinos are expected to open sports books later this year, but Maverick’s attempt to expand sports betting to non-tribal card rooms has stalled in the Legislature, as we reported in the Cutoff Day edition on Feb. 15.

To review, lawmakers in 2020 reserved sports betting for the state’s 29 existing Native American casinos, shutting out the 44 non-tribal card rooms scattered around the state. Maverick, which recently moved its corporate headquarters from Nevada to Kirkland, owns 19 of the card rooms, which can currently only offer poker and variations of blackjack. 

Maverick politely told us to pound sand when we reach out to ask about the $2 million-plus now sitting in their PAC, Washingtonians Win. But we know the prospect of a ballot play had the tribes worried enough to conduct a poll earlier this winter. The tribal camp likewise politely told us to go away when we asked to see the results.

But with the halls of Olympia essentially closed to them by the tribes’ clout for the foreseeable future, the ballot is Maverick’s only option, so it’s raise or fold.

But it won’t be easy, or cheap.

For starters, last year’s election raised the bar. Per the Washington Constitution, getting an initiative on the ballot this year will require gathering 324,516 valid signatures from registered voters by July 2, up from around 260,000 in recent years.⁶ In practice, initiative campaigns need to gather far more signatures because many will be invalid. So figure at least 400,000.

Second, signatures may be hard to come by. Many of the larger events that petitioners use to find signers aren’t happening this year due to the pandemic. There likely won’t big crowds at T-Mobile Field for the Mariners’ home opener, for example. And folks are just going to be less willing to be stopped by a stranger with a clipboard. The Observer has heard that paid signature-gathering might be as steep as $10 a signature, which could push the price of just getting to the ballot over $4 million.

Maverick does have the advantage of operating public-facing businesses with a clientele — poker and blackjack players — likely to be willing to sign. It also has hundreds of employees it could conceivably put in the field to gather signatures. One of the easiest signature drives in state history was Costco’s first, mostly DYI attempt at liquor privatization. They put up a table in every store and asked arriving shoppers some variation of: “Hey, you want to buy booze here?”

But even if it gets the initiative on the ballot, the hits will just keep coming. The constitution requires that expansions of gambling be approved by either 60 percent of the Legislature or 60 percent of the people. The tribes got more than 60 percent of lawmakers last year, but 60 percent of the voters is a much heavier lift.⁷

That’s why Maverick CEO Eric Persson was so cranked off about that emergency clause the Legislature slapped on the bill last year to block a Maverick referendum campaign. That campaign would have required less than half the signatures and the tribes would have needed to get 60 percent of voters to affirm the Legislature’s move. Maverick said last year its polling had support for the tribal-only plan at 53 percent, indicating a referendum might have killed it. Hence the ill-fated revenge play against Rep. Jim Walsh, R-Aberdeen, who sponsored the emergency clause amendment, down in the 19th District.

Finally, there’s the opposition. The tribes have fought a version of this battle before, beating back a bid to expand slot-machine gambling to the card rooms in 2002. Their $6.7 million campaign resulted in more than 61 percent of voters filling in the “no” bubble.

We’ll likely know whether this is happening within a few days or weeks. It’s now less than four months to July 2, and getting to the signature-gathering stage takes a few weeks after the initial filing for legal wrangling over the language that appears on the ballot.

Filing an initiative only takes $5, but it gets expensive in a hurry after that.

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After all that realpolitik, some unbridled enthusiasm

Milo really, really wants the Woman Who Lets Us Live With Her to just throw the damn ball already.

1. Several kinds of capital gains, most notably real estate, are exempt. So this is mostly about selling securities or businesses.

2. In the original version of this piece, I referred to the “framers” of the constitution as the originators of the referendum, but a reader with a superior grasp of history points out that it was added by Amendment 7. So it was the 1911 Legislature and the 1912 voters. Let’s call them the remodelers of the constitution.

3. The bill actually did have an emergency clause — clearly attached only to block a referendum — when it arrived on the Senate floor, but it was removed by amendment. But even an emergency clause doesn’t ballot-proof a bill, it just forces a more expensive and difficult campaign via a separate ballot initiative.

4. That’s 4 percent of the votes cast in last year’s election for governor. It’s up significantly over past years, not because Inslee-Culp was so gripping, but because of the record turnout driven by that other race at the top of the ballot.

5. Conflict of Interest Disclaimer: During his previous life as a strategic communications consultant, your correspondent worked on this effort. (The early learning part, not the tax part.)

6. That’s 8 percent of the votes in last year’s gubernatorial election, twice as many as for a referendum.

7. Three statewide initiatives passed in 2018 with minimal opposition. None cracked 60 percent.

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