Hope for supporters of a statewide income tax in Washington doesn’t come often. But a citizen initiative on the ballot in Olympia this fall represents at least a glimmer.
That’s because the measure, which would levy an income tax on Olympia residents whose household income exceeds $200,000, is likely to end up in the courts if it passes. A legal challenge could give the state Supreme Court a chance to reverse its 1930s decisions that struck down graduated state income taxes as unconstitutional.
“There’s a very good possibility they would rule another way,” said Philip Roberts, a professor at the University of Wyoming who wrote a book about income tax in Washington. Each generation has different interpretations of constitutional language, Roberts said.
If the high court were to reverse itself, the decision could shape the debate at the Legislature, where the court rulings are a common refrain to suggestions of passing an income tax.
State Sen. Maralyn Chase, D-Edmonds, frequently introduces proposals in the Legislature to create a statewide income tax while lowering other taxes. They’ve never been successful, in part because people argue they’re unconstitutional.
“I think if the Olympia measure could get to the Supreme Court, it would be very helpful,” she said.
Legal battles imminent
But the initiative might have to clear another legal hurdle before a court would wrestle with the constitutionality of an income tax.
The ballot measure — which would tax all household income over $200,000 a year at 1.5 percent and send proceeds to a public college fund — already has faced a lawsuit and criticism from opponents who say it is beyond the scope of local initiative power.
Hugh Spitzer, a constitutional law professor at the University of Washington, said courts will likely invalidate the measure on those grounds.
Spitzer’s law firm represented the city of Olympia in an unsuccessful suit to block the measure from Olympia ballots. The city contended the initiative would be struck down by courts if passed, and it wanted to avoid costly future litigation.
Lawyers for the group behind the initiative, Opportunity for Olympia, say voters can pass taxes by initiative because state law doesn’t expressly forbid it.
Pierce County Superior Court Judge Jack Nevin sided with the city in August. An appellate court later stayed his ruling, allowing the measure to appear on the ballot.
Passage of the tax likely would reopen that legal question. It also could prompt scrutiny under other state laws.
Jason Mercier, the government reform director for the conservative Washington Policy Center, points to a 1984 state law that says a city “shall not levy a tax on net income,” as another way a court could strike down the initiative.
Claire Tonry, a lawyer for Opportunity for Olympia, says the initiative is technically an excise tax and not an income tax as defined by state courts, because it taxes gross household income rather than the portion of income that remains after pay deductions such as retirement savings.
I don’t think there’s a single Republican in the Legislature right now that would ever vote to adopt an income tax, whether it’s constitutional or not.
State Rep. Drew Stokesbary, R-Auburn
That argument also would be in play in a constitutional challenge. If the measure is an excise tax, then it might not be subject to the 1933 state Supreme Court decision that struck down a graduated income tax and the 1936 case that reinforced that decision, according to Heather Weiner, a spokeswoman for Opportunity for Olympia.
The 1993 court found that income constituted property. The state constitution requires property taxes to be levied uniformly. Most income tax proposals, the Olympia measure included, don’t charge everyone the same rate.
Predicting whether the state Supreme Court would uphold its ban on graduated income taxes is difficult, Mercier said. Former state Supreme Court Justice Philip Talmadge said he believes today’s court would have to find that the 1930s court was wrong on the law and that its erroneous legal analysis had been harmful in order to overturn the ban.
Spitzer — who has argued that a modern court should not equate income with property, in part because income is not an object like a bed or “the money in the mattress” — said the court would likely uphold a state income tax. But he doesn’t think the court would get that far before invalidating the Olympia measure as beyond the scope of a local initiative.
State Rep. Drew Stokesbary, an Auburn Republican and attorney, said if the high court is eager to readdress whether income is property, it could do so even if the Olympia measure is deemed illegal for other reasons.
He said he wouldn’t put it past today’s court, which he said sees itself as “a political body,” to rule an income tax constitutional.
What the outcome means
Even if the state Supreme Court were to reverse itself, supporters of a statewide income tax would be facing an uphill fight.
Voters have repeatedly shot down ballot initiatives to create income taxes. Republicans, who hold a slim majority in the state Senate, remain united in opposition to the tax.
“I don’t think there’s a single Republican in the Legislature right now that would ever vote to adopt an income tax, whether it’s constitutional or not,” Stokesbary said.
Many Democratic lawmakers and a swath of Democratic legislative candidates are disavowing an income tax as a way to raise money to pay for the state Supreme Court’s McCleary education-funding decision, too.
State Rep. Sam Hunt, D-Olympia, said a favorable state Supreme Court ruling would make it easier for income tax proponents such as himself to advocate for them. It also would make an income tax easier to pass since no longer would the Legislature have to muster the two-thirds vote in each chamber required for a constitutional amendment.
I think it would open up the discussion a little bit, but it would still be like grabbing a hot electric wire.
State Rep. Sam Hunt, D-Olympia
“I think it would open up the discussion a little bit, but it would still be like grabbing a hot electric wire,” Hunt said. “It’s just a very controversial issue, and it would take a lot of selling.”
The political will could shift with the Nov. 8 election. If Democrats win back the Senate this fall while keeping their majority in the House and if Gov. Jay Inslee is reelected, a graduated income tax — or a capital gains tax — could have a better shot, Stokesbary said.
Gov. Jay Inslee has said he doesn’t support a statewide graduated income tax, though he hasn’t promised he would veto one should it cross his desk. He did advocate in 2014 for a capital gains tax, which taxes some income, though it didn’t pass the Legislature.
Hunt figures Democrats in swing districts still would be hesitant to approve a statewide income tax since their voters are unlikely to share the same appetite for an income tax as voters in the liberal stronghold of Olympia.
Then again, Olympia voters themselves might reject the tax, preempting the legal and political test case that it could present.
“There’s really no knowing how people will vote on this,” Spitzer said.