Washington State Still Relying on ‘Unconstitutional’ Capital Gains Tax Revenue | Local
Rep. Ed Orcutt, R-Kalama, a member of the Economic Revenue Forecast Council (ERFC), ended up voting, for technical reasons only, in favor of a motion he disagreed with – c i.e. the official adoption of the February revenue forecast with income from the assumed capital gains tax.
This is despite the fact that on March 1, Douglas County Superior Court Judge Brian Huber ruled on the capital gains tax passed last year, Senate Bill 5096, is an unconstitutional progressive income tax. Not to mention the estimated $731 million net reduction in Quasi-General Fund resources over the four-year budget outlook, consistent with unassumed capital gains tax revenue.
The state Supreme Court is generally expected to have the final say on the matter.
“While I think the motion goes in the opposite direction to my preferred one, I don’t want to leave staff without a clear indication of how to proceed,” Orcutt explained during Thursday’s virtual ERFC. Meet on the methodology of the budgetary outlook. “With only five members here voting, I will be voting yes on this motion to make sure the staff have a way to do it. But will also ask staff to make the alternative perspectives and make them available to anyone who requests them.
The motion as such passed 5-0, with Orcutt joining fellow ERFC members Rep. Timm Ormsby, D-Spokane; Senator Christine Rolfes, D-Bainbridge Island; Director of the Office of Financial Management David Schumacher; and State Treasurer Mike Pellicciotti voting “yes.”
The motion was in danger of not receiving the supermajority of five of the seven votes required for its adoption, since there were only five voting members present. Sen. Lynda Wilson, R-Vancouver, was absent, while Vikki Smith, director of the state Department of Revenue, recused herself for being named in the capital gains tax case on which Judge Huber ruled.
The ERFC is responsible for overseeing the preparation of the General Fund expenditure outlook for future biennia. With technical assistance from a state budget outlook task force of legislative and executive staff, spending forecasts are released within 30 days of the adoption of the operating budget.
Governor Jay Inslee signed the $64.1 billion supplementary budget later in the day Thursday.
Orcutt initially brought a motion to not include capital gains tax income in accordance with the court’s ruling that it was unconstitutional. Orcutt’s motion ultimately failed.
“I think with the court ruling putting that money in question, I think it would be wise for us to show people a perspective assuming that money is not going to come in, and consistent with the current court ruling and compelling the legislature to consider what we would need to do in the event that the Supreme Court rejects the repeal or essentially rules with the lower court,” Orcutt explained.
Rolfes, however, objected.
“I would say the opposite,” she said. “I would say we should continue to keep it as it was in our enacted budget. And we have time before the next legislative session to readjust the budget if the … Supreme Court or an appellate court rules differently and we have to adjust ourselves accordingly, but I would recommend that we make that decision maybe in the fall.
The head of OFM and the state treasurer agreed with Rolfes.
“We don’t know what the Supreme Court can or cannot do,” Schumacher said. “We’ll have to react to that and changing revenue forecasts and many other variables by the time we get to do another budget, so I don’t know if we should pick things to change now, then I would vote ‘no’ on the motion.”
On March 25, the Attorney General‘s office deposit an application for direct review with the State Supreme Court.
Pellicciotti argued his vote was about “stability”.
“It helps to have stability over the next few months as we meet with our credit rating agencies,” he said. “And I think it would be useful to have that stability instead of going back and forth related to different court cases. So I will be voting ‘no’.
Last year, the Democratic-controlled Legislature passed — and Gov. Jay Inslee signed into law — a capital gains tax aimed at the state’s wealthiest residents. The measure adds a 7% tax on capital gains over $250,000 per year, such as profits from stocks or business sales. Exceptions include the sale of real estate, livestock and small family businesses.