Spin Control: Initiative battle over capital gains tax may be brewing

A state capital gains tax has been a hot topic for years, ever since Democrats started talking about it as a way to raise money for key services while evening out what they view as a regressive tax system.

But it was a surprise last week when social media lit up with the filing of an initiative to repeal that tax.

The proposed ballot initiative, which is too new to have a number, isn’t the first of its kind to be filed with the secretary of state’s office. It appears to be at least the 51st such proposal to end the tax to be filed since Jan. 1, all of which seem to be in initiative limbo, with no life other than a line and a link on the Secretary of State’s website.

Unlike the others, however, this particular proposal has moved progressive groups like Invest In Washington, who support the tax, to DefCon 1.

That’s likely because other potential ballot measures have been filed by serial initiative sponsors like Tim Eyman and state Rep. Jim Walsh, R-Aberdeen, who take a shotgun in the dark approach to ballot measures, firing multiple times at various targets in hopes of hitting something.

This particular effort – or at least the political action committee that spawned it and shares the name “Repeal The Capital Gains Income Tax” with the proposed title of the initiative – has high-powered lobbyists, lawyers and public relations firms behind it. The PAC has raised some $47,000 since being formed last December, spent about $39,000 and racked up an impressive $108,000 in debts to people who aren’t in the business of giving free advice or services to political campaigns.

“It sure looks like that’s an initiative to watch,” said Treasure Mackley, executive director of Invest in Washington. Progressive groups worked with Democrats for about a dozen years to craft a capital gains tax that hit the state’s high-income investors. They managed to get such a tax, which would be dedicated to early learning programs, through both chambers of the Legislature last year.

It was immediately challenged in court and earlier this month. Douglas County Superior Court Judge Brian Huber agreed with opponents that the law as written is an unconstitutional income tax, rather than a legal excise tax as the state and supporters argued.

The legal arguments are going to the state Supreme Court, which is unlikely to uphold or overrule Huber by Nov. 8, when the initiative would be on the ballot. That can only happen if sponsors collect the required 324,516 valid voter signatures by July 8.

Most successful grassroots initiative campaigns – the ones that rely on volunteers and shoe leather to get the needed signatures – start sometime in January to have at least five months to get enough petitions signed. Those who rely on paying signature gatherers a bounty to collect the names can start much later and still get more than enough names. The 2011 ballot measure to get the state out of the liquor business and open up booze sales to private retailers collected more than 360,000 signatures in about a month by paying hefty bounties.

The timing brings up some interesting political questions. With the capital gains tax technically dead, or at least on life support under Huber’s ruling, will voters be unconcerned enough to ignore petition hawkers and campaign arguments? Or will the state’s long-established aversion to an income tax carry over to a tax that may or may not be an income tax that only affects a fraction of the public?

Will initiative supporters be able to call it a “capital gains income tax” in the ballot title? Or will the attorney general’s office, which will represent the state in the appeal of Huber’s decision that will include an argument that it is not an income tax, insist on dropping “income” out of the title or synopsis?

Opponents are likely to bring up the state’s regressive tax system, relying on the sales and property taxes, under which lower income residents pay a larger share of their money for taxes than those in the upper incomes.

“The wealthy need to pay their fair share. We believe the voters are with us,” Mackley said. 

Initiative supporters are likely to point to last year’s tax advisory question, in which 61% said the Legislature should repeal the capital gains tax as proof the voters are with them.

“Supporters of the tax also claim it will only apply to a small number of wealthy people, but in fact the Legislature can expand this tax with a simple majority vote to apply to everyone,” said Mark Funk, a spokesman for the initiative effort. “Supporters of the tax have already stated they hope that it will pave the way for a broad statewide income tax.”

Editor’s note: An earlier version of this column incorrectly associated the capital gains tax initiative campaign with a fine levied against contributors to a 2013 campaign for Initiative 522 who violated state disclosure rules. The 522 campaign itself and people who worked for it were never fined.