The revenue departments of all 49 other states and even revenue departments of other countries all treat capital gains taxes as income taxes

Paul Guppy
Washington Policy Center

I recently had a guest opinion column published by The Spokesman-Review on Initiative 2109, noting how repeal of the capital gains “excise” tax (it’s actually an income tax) would boost business investment, economic growth and tax revenues in our state. Here’s a preview, with a link to the rest of the column.

Washington voters will soon have an opportunity to repeal our state’s first income tax, but the question won’t be framed that way on the ballot. Income tax proposals have been defeated by voters 10 times, most recently in 2010, when Washingtonians rejected an “income tax on the rich” by a crushing 64%. Previous proposals, however, didn’t have the advantage of the political camouflage afforded by the ability to deny the issue at stake is income taxes.

Thanks to creative maneuvering by lawmakers, the income tax on capital gains was labeled an “excise tax.” Excise taxes are taxes on transactions. A capital gains tax, as the name implies, is a tax on a gain – the income from the transaction. That is why the IRS recognizes capital gains taxes as income taxes and when specifically asked whether a capital gains tax is an excise tax or an income tax the IRS affirmed “it is an income tax.” The revenue departments of all 49 other states and even revenue departments of other countries all treat capital gains taxes as income taxes. Those calculating what they owe under Washington state’s capital gains tax have to use their federal income tax forms to figure out what they owe.

The rest of the piece is here.

Paul Guppy is a senior researcher at the Washington Policy Center.

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