Democrats' holy grail: WA Senate approves state capital gains tax

Majority Democrats in the Washington Senate passed a capital gains tax bill over the weekend. It's something that has been talked about for a decade in the state, but has never gained enough approval.

The narrow 25-24 vote followed a nearly four-hour debate, revealing just how contentious the issue is.

"You had 25 Democrats voting yes; that's the bare minimum to pass a bill in the state Senate," Northwest News Network's Austin Jenkins told KUOW's Angela King. "Then 20 Republicans voting no. Joining them was Senator Tim Shelton, who runs as a Democrat but doesn't caucus with the Democrats and typically votes with Republicans, so no surprise there. Then three other Democrats were also noes — Senator Annette Cleveland of Vancouver, Senator Steve Hobbs of Lake Stevens, and Senator Mark Mullet of Issaquah."

Mullet issued a statement after the vote noting that he voted against the proposal because he has never seen the state budget in as healthy condition as it is now.

The capital gains proposal now heads to the state House for further approval.

Not surprisingly, Senate Republicans voted against the proposal. They see it as a state income tax in disguise.

But several Democrats joined them in their opposition, rejecting their colleagues' framing of the bill as right-sizing the tax code.

If passed, it would impose a 7% tax on capital gains over $250,000, excluding real estate, retirement portfolios and businesses grossing less than $10 million a year.

Sponsors say the tax would affect about 9,000 wealthier Washingtonians a year — out of nearly four million taxpayers — and that it would raise an estimated $500 million each year. That estimate is not precise, however, because capital gains are volatile and are likely to change year-to-year.

The expectation is that the capital gains tax proposal will pass in the state House. If and when it is approved there, it will go on to the governor's desk for a signature.

"The expectation is that it will pass (in the House) because you don't take a risky tax vote unless you know that you've got the votes to do this and get it to the governor's desk," Jenkins said.

Even if it's successful, the bill is almost certain to be challenged in court. Or it could face a referendum. The Senate removed an emergency clause that would have made it immune.