Sen. Annette Cleveland, D-Vancouver, said Thursday that she’s unsure how she’ll vote on a revised version of the bill that would establish a capital gains tax in Washington.
Senate Bill 5096 passed the state’s House of Representatives 52-46 Wednesday afternoon following two days of debate, bringing Democrats one step closer to their long-sought objective of reforming the state’s famously regressive tax code.
Cleveland is in an unusually influential position over the tax’s future. The original version of the bill barely passed the Senate last month, 25-24. Cleveland was one of only three Democrats to join Republicans and vote in opposition.
The senator said she supports efforts to make the state’s tax code more equitable, but remains unconvinced that a capital gains tax is the best way to achieve that end. She voted to send the bill to a conference committee for additional work Thursday.
“Until there is a final version, I am unable to determine how I will vote on final passage,” Cleveland wrote in a text message to The Columbian afterward.
“I voted ‘no’ on the original bill because I believe any new revenue streams we approve this year must have a return on investment, and must offer direct benefit to my constituents. I do not want Clark County to be one of the donor counties that does not realize benefit from this tax.”
The proposed capital gains tax would impose a 7 percent tax on the sale of certain assets worth more than $250,000, including stocks, bonds, luxury cars and art. Any income earned from residential real estate, farming and timber sales are exempt, as is revenue from retirement accounts like 401(k)s and Roth IRAs.
If passed, the tax is expected to raise around $550 million per year starting in 2023. The House’s version of the bill would allocate that money to Washington’s Education Legacy Trust Account to fund child care and early learning programs.
“I believe steadfastly in the importance of early learning and know what a tremendous need there is for child care for families. Lack of access to child care is one of the issues my constituents across all economic levels contact me about most frequently,” Cleveland said.
The new version of SB 5096 includes language that would prevent those in opposition from gathering signatures for a ballot referendum, creating another potential sticking point for a bill that squeezed through the Senate the first time.
The Senate has until Sunday night – when the 2021 legislative session formally concludes – to pass the bill. The Legislature is also working against the clock to pass the biennial state budget before the deadline.
Gov. Jay Inslee has been advocating for a capital gains tax for years. He identified it as a top priority in a December meeting with The Columbian’s editorial board, just before the current session began.
“Everything happens in its own time,” Inslee said. “If you’re going to help people, you have to find a way to pay for it.”
Republicans unite in opposition
During the House’s floor debate ahead of the bill’s passage Wednesday, Republican legislators from Southwest Washington railed against the tax. They called it an unfair punishment on the financially successful, and a thinly-disguised income tax.
“Why would we ask business owners, business investors, business entrepreneurs to move to Washington state, or stay in this state, or keep their primary residence in the state of Washington, if we are in effect going to punish them for being successful?” Rep. Vicki Kraft, R-Vancouver, asked House Speaker Rep. Laurie Jinkins. “Why would we want to punish those that are helping to contribute to our economy, making it strong?”
“It’s not their responsibility, madam speaker. It’s our responsibility as government, state government, to prioritize much more effectively our budget – $58 billion, roughly – and the funds we already have.”
Republican Rep. Peter Abbarno, whose district includes the northern edge of Clark County, said that the Legislature ought to look for ways to relieve the tax burden instead of adding to it.
“Today is a historic day. It’s a historic day in Washington state, because this body after much debate last night and now are voting to create an income tax,” Abbarno said.
Sen. Ann Rivers, R-La Center, and Sen. Lynda Wilson, R-Vancouver, have opposed the capital gains tax bill over the course of the legislative session.
“The plan to take from ‘the 1 percent’ with the capital-gains income tax is not equitable in and of itself,” Rivers said in a written statement earlier this month. “If the Democrats are serious about having an equitable budget, where is the tax relief for lower- and middle-income families?”
