House Passes Capital Gains Tax with Rep. Frame’s Key Amendment

by Leo Brine

After a month of deliberations, the House finally passed capital gains tax legislation (SB 5096), including a pivotal amendment proposed by Finance Committee Chair Rep. Noel Frame (D-36, Seattle) that restored protections against a referendum—a public vote to invalidate a bill before it takes effect. Senators removed those provisions when they voted on the original bill in March. The bill now includes two sections that protect it from voter referendum; however, it no longer contains an emergency clause that would have caused the bill to go into effect right away.

Republicans say the capital gains tax is unconstitutional and want to make sure it stays vulnerable to a referendum, which is their safest option for defeating the tax. But the new language puts their hopes in jeopardy. Republicans proposed 19 amendments attempting to remove the protections, dragging the debate from Tuesday evening to Wednesday afternoon.

Even with the protections against referendum in the bill, the tax could still be vulnerable to a voter initiative—which Frame noted are a far more common way to challenge tax policy than referenda. An initiative is a way to repeal legislation, whereas a referendum cancels the legislation before it becomes law. For someone to propose an initiative, they would need to gather a number of signatures equal to 8 percent of the votes cast in the last gubernatorial election. That’s about 324,516 signatures. A referendum only requires half that number.

The capital gains tax imposes a 7 percent tax on financial gains from intangible financial assets, such as stocks and bonds, above $250,000. Frame said the bill will fix Washington’s upside-down tax code by making wealthy residents pay their fair share. Roughly 7,000 Washington taxpayers would pay the tax beginning in 2023.

Frame’s revised version of the bill says the tax “is necessary for the support of the state government and its existing institutions.” Under Article 2 of the state Constitution, this language protects the bill from a voter referendum.

House Finance Committee chair Rep. Frame’s revised version of the bill says the tax “is necessary for the support of the state government and its existing institutions.”

Frame said she added the section clarifying the necessity of the tax because “this is an important function of government that needs to be paid for. I think we’re pointing out that’s what we believe this is.”

When the House was debating the bill Tuesday night, Republicans proposed multiple amendments to remove the protective language. Some amendments they proposed struck the “necessary” section altogether. Others added new sections specifying there was no emergency clause in the bill. Rep. Ed Orcutt (R-20, Kalama) even proposed an amendment that would required the Secretary of State to place a referendum on the bill on the next state general election ballot. All of the amendments failed, but it was clear from the final tallies that some Democrats voted for them.

Frame also added a second, subtler protection against referendum to the bill. The revised bill would direct tax revenue into the Education Legacy Trust Account (ELTA) which helps fund public schools and childcare services in the state. Because the State uses the account to fulfill its obligation to fund public schools, the tax would be necessary to support government and its existing institutions, Frame said.

Frame defended the language in her revised bill, saying during the debate Tuesday night, “we have a paramount duty to invest in K-12 education and early learning and childcare, and this capital gains excise tax is intended to pay for that. That’s it.” Frame said the judiciary branch should determine whether or not there is an emergency clause in the bill, not the legislature.

“It’s not the language that matters, it’s where we’re making our investments—that’s what matters,” Frame said after the House passed her revised bill. “We believe the investments made in this bill are for the ongoing function of government. That’s what the lawyers will look at.”

Republicans tried passing amendments to direct the funds into accounts that do not support state institutions, but their efforts failed.

The House passed Frame’s bill 53-45 and sent it to the Senate.

Senate Majority Leader, Andy Billig (D-2, Spokane) said Wednesday that Senate Democrats would caucus to see if they had the votes to pass the House’s updated bill without making any changes. Otherwise, senators could propose amendments to strip the bill of its protective language. Senators from both sides of the aisle voted for Sen. Steve Hobbs’ (D-44, Everett) original amendment that got rid of the original bill’s emergency clause.

If the Senate passes the bill with the protective language intact, Republicans options to block the bill would be narrowed to filing a lawsuit or hoping for a voter initiative. Senate Republican Leader, John Braun (R-20, Centralia) said during a press conference on Wednesday, senate republicans will work to get rid of the protective. language in the bill. “The idea of limiting people’s right to a referendum is wrong,” Braun said.

6 thoughts on “House Passes Capital Gains Tax with Rep. Frame’s Key Amendment”

  1. Good to know Rep. Frame is committed to “protecting”: laws from the voters. Will she next be “protecting” herself from the voters by making herself Representative For Life? Apparently, voters often vote “against their own best interests”.

  2. Good to know that Rep. Frame is a big proponent of “protecting” laws from the voters. Will she next be moving to “protect” herself from the voters? Supposedly lots of voters don’t have enough sense to vote “in their own interests”. Wouldn’t it be best to just let Rep. Frame decide what’s best for us without any voting at all?
    It’s bonehead moves like this that make people not trust the Democrats.

    1. Mondo: Thank you for helping to build some momentum in the right direction. However, speaking truth to idiots has a low probability of success. Sometimes all we can do is laugh in their face while their policies fail. Watch Washington State turn blue…..tarps, that is.

  3. On the shoulders of “7000” citizens we put the “necessary support of the Government” of 7.5m people? This is where “progressives” (sic) unwittingly create the “we/they” society. The elite rulers and the rest-of-us. Balancing the budget is a difficult problem to solve. This is a weak approach.
    Plus, keep in mind that many people who see a >$250k capital gain are stock and option owners of early-stage companies. Their efforts to create value for all of us suddenly result in a significant and well-earned gain. 10 years (let’s say) of hard work and RISK at a lower salary; then these heroes will be paying a 7% tax on their deferred compensation, while 7.5m pay no income tax. This will drive entrepreneurs away from our state. At a minimum, the cap gain could be based on a 5 year rolling average if you’re just trying to soak the really rich. (Further pumping up a Louis XIV class, powdered wigs and all.)

    1. Your reply presents another excellent example of how Progressives distort markets. Several things happen next and they are totally predictable and 100% guaranteed: 1. The smart people figure out how to get around the new Progressive law which makes it ineffective. 2. The Progressives realize there was a big hole in their plan, so they pass another law to close that loophole as well, and 3. Everyone suffers when the money finally escapes and goes somewhere else where smarter people are in control.

  4. Leo: You claim that stocks and bonds are intangible assets. They are not. You are wrong. They are tangible assets. You actually have no idea what you are talking about. Perhaps you should have paid more attention in economics or accounting class and then you would not need to write fake news for almost nothing. In addition, your animosity towards referendums and the will of the voters is anti-democratic. Your hatred of the productive class is clear and obscene. I can take this entire article apart at the seams but trying to educate Progressives is a waste of time. Steve Willie (my real name unlike most Progressives who post here and fake their identities for whatever reason).

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