Can Washington's capital gains tax survive the Supreme Court?: Today So Far

• Arguments for and against Washington's capital gains tax are being heard by the state Supreme Court.
• The Bellevue School District is considering the closure of three elementary schools because enrollment is down. Where are all the kids going?
• I don't know who needs to hear this, but it should be said...

This post originally appeared in KUOW's Today So Far newsletter for January 27, 2023.

Will Washington's capital gains tax survive the courts? It's an important question, because lawmakers are currently making state budgets in Olympia right now, and some are counting on that tax to make the numbers work. But a challenge to this tax has made it all the way up to the state Supreme Court.

In 2021, Washington passed a 7% tax on the sale of stocks and bonds worth more than $250,000. Anyone familiar with tax battles in Washington knows that this is very tricky legal territory. In short, Washington's courts ruled in the 1930s that income is property. The state constitution says all property has to be taxed equally. That's why McMansions are taxed the same as the shack on the other side of town. Because of this legal setup, passing taxes on anything that relates to income has been difficult in Washington. And the profits made off assets like stocks and bonds could be considered income. Lawmakers had an idea, however. They got a capital gains tax through by calling it an "excise tax," not "income." So it's taxed like a good or service would be. The folks challenging the capital gains tax argue that this is just word manipulation and capital gains income is just income. A lower court has already ruled in favor of opponents.

Still, how well these arguments hold up remains to be seen. The Supreme Court will have the final say and it just heard arguments this week.

The Bellevue School District is considering the closure of three elementary schools, a move that has spurred deep concerns among parents.

School districts from Northshore to Shoreline and Lake Washington have experienced student enrollment declines of 2–5%. Seattle has seen a decline of about 7%. In Bellevue, it's worse — more than 9% over the past three years.

The above mentioned enrollment declines were brought up by Bellevue Deputy Superintendent Melissa deVita at a recent open house to discuss the developments with families. A core issue is that some schools are well below their capacity, yet the district is paying to keep their full operations up and running.

"The question really comes down to what is the priority in our school district?" deVita said. "Is it the location of the school building, or the services our students receive when they arrive at school? We cannot keep the same service levels in all of our schools if we keep the same number of elementary schools that we currently have, and allow our enrollment to drop down as low as 200 students per school."

Floating around Bellevue's situation are many possible factors: lower birth rates, the rise in housing prices and the cost of living, the pandemic, etc. But KUOW's Soundside points to another possible cause: Private schools. Bellevue doesn't seem to be losing kids in the K-12 age range. So where are all these kids going to school? Soundside notes that private school enrollment has shot up across Washington state over the past three years, with more than 8,300 (11%) ditching public school and going with a private option. Local private schools also tell KUOW that there have been considerable spikes in enrollment in recent years. Public school funding is partially based on the number of its students, so fewer kids means less money. Check out Soundside's full story here.

I just have one last thing before I get to the Friday Five. There's a story on KUOW.org that I just have not been able to shake. It's not local, but it will keep me up at night. Some folks are suing the company that makes Fireball whiskey because they found out the mini-bottles of Fireball don't actually have any whiskey in them. Unlike the large bottles of cinnamon-flavored whiskey, the tiny bottles just have wine and malt beverage, and cinnamon flavor. What?! The irate consumers argue this amounts to fraud. I don't know who needs to hear this, but if you're worked up over the quality of Fireball — the whiskey equivalent of Cheez Whiz in a can — it's time to stop and take a hard look at your life, and maybe come to terms with some regrets. You might also need to hear that Cheez Whiz isn't exactly cheese; Axe body spray will not actually prompt hordes of potential mates to uncontrollably chase you down and cuddle with you; and when when Milli Vanilli sang "Girl you know it's true," they weren't being very truthful (it's still a catchy tune though).

The Friday Five: News you may have missed this week, and other cool stuff

• Mike's adventures in art: Seattle comedy laughs on Cap Hill
• WA could expand resources for solving Indigenous cold cases
• American journalism has no universal set of rules
• 6 WA bars and restaurants on the James Beard semifinalist list
• America, we have a problem. People aren't engaged with their work

AS SEEN ON KUOW

Three small patches of Washington’s Hinman Glacier sit behind a newly formed lake in this 2009 photo along the crest of the Cascades. Hinman is the largest glacier between the high peaks of Mount Rainier and Glacier Peak. For thousands of years, the Hinman Glacier graced the crest of the Washington Cascades in what is now King County. It has now melted away after a long battle with global warming. “This is the biggest North Cascade glacier to completely disappear,” glaciologist Mauri Pelto told KUOW. “I've seen a bunch of small glaciers disappear, and to see one of the larger glaciers disappear is more striking.” (Courtesy of Mauri Pelto)

DID YOU KNOW?

We can change Washington's state constitution. This "Did You Know" is partially food-for-thought for all the lawmakers out there who really, really want a capital gains tax ... just in case Washington's capital gains tax doesn't survive the state Supreme Court.

I know, I know, easier said than done. But is changing the state constitution harder than repeatedly passing laws, and then fighting in court? I mean, all those lawmakers are gonna bicker in Olympia anyway. Washington's state constitution has been amended 108 times since it was approved in 1889. When the state constitution was first established, it only allowed white men who spoke English to vote. So ... that's not a thing anymore.

Washington's original state constitution also addressed "idiots," until the Legislature removed it in 1988. Now I know some folks' knee-jerk reaction might be that something should be done about idiots, however, the context around this is quite different than when you're screaming in traffic on I-5. This originally had to do with the civil rights of "idiots, insane, dumb, and defective youth." Today, we would say something like "mentally incompetent." This was basically the 1980s version of dealing with the language your embarrassing uncle used at the dinner table, except, this language was written down in the state constitution. That's why the Legislature tweaked it in the 1980s.

Washington's tax system is much more complex, so it's likely a heavier lift. Still, if you really, really want that capital gains tax, and a bunch of other fixes to our state tax system, then maybe lawmakers should start making friends and considering a constitutional change.

ALSO ON OUR MINDS

Migration could prevent a looming population crisis. But there are catches

To developmental economist Lant Pritchett, "population decline" is a mild way to describe what could be a global demographic crisis. "The reaction is often 'ho-hum' as the rates [of population decline] are slow and hence the issue seems small and in the future," he told NPR in an email. But the problem is not small, he said, and falling birth rates could upend economies.

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