As Benjamin Franklin was leaving the final day of the Constitutional Convention, he was allegedly asked “what have we got, a republic or a monarchy?” Franklin allegedly replied, “A republic. If you can keep it.”
To paraphrase Franklin, we in Washington State now have a shiny new “Millionaires’ tax.” If we can keep it. Which has started to look more problematic, now that that the anti-income-tax group Let’s Go Washington has submitted half a million signatures – half a million! –on a petition to put an anti-tax initiative on the November ballot.
Of course, the legislature passed it – after some all-night drama – and the governor signed legislation that would tax household income above the first million dollars at a rate of 9.9 percent.
But it’s still a bit early to count those income tax dollars as money in the bank. First, assuming enough of those signatures check out, there’s the initiative. And then, there’s the court. If the tax survives November, it will wind up at the state supreme court. The court has considered a graduated income tax unconstitutional since 1933.
A “graduated” tax means people who earn more pay at a higher rate – e.g., those who earn over a million dollars pay 9.9 percent, and everyone else pays nothing. A flat rate would mean everyone paid the same rate. Despite what some Washingtonians have long believed, a flat rate income tax has always been O.K. here, but the people who have favored an income tax have never wanted a flat one.
As expected, former state attorney general Rob McKenna and allies quickly filed a complaint alleging that a graduated income tax is as unconstitutional as ever. Unless the court decides to do a 180 – as it may — the tax will be tossed out once again.
Some people who detest the United States Supreme Court’s lack of respect for the doctrine of stare decisis – the principle that courts should respect legal precedent – hope that the state supreme court will ditch the 93-year-old precedent that says a graduated state income tax violates the Washington constitution. Shouldn’t a court be willing to toss out an egregiously bad precedent? Sure. And that’s exactly what Justice Samuel Alito said four years ago in his Dobbs majority opinion, which scrapped the nearly half-century-old precedent of Roe, which in 1973 had created a Constitutional right to abortion, and Casey, which had reaffirmed but redefined that right.
“Stare decisis . . . does not compel unending adherence to Roe’s abuse of judicial authority,” Alito wrote. “Roe was egregiously wrong from the start.” Just saying.
This is just the latest act in a drama that dates back almost a century. It all really started during the Great Depression, when hundreds of unemployed men lived in “Hooverville” shacks on Seattle’s waterfront. Property taxes were the main source of state revenue then. Farmers had a lot of property but not much money. They naturally wanted to shift part of the tax burden onto somebody else. (That has always been a popular idea)
The farmers’ group, the Washington Grange, got an income tax initiative onto the 1932 ballot. This was the same election in which Franklin D. Roosevelt won the presidency and Democrats won Congress (all promising to repeal Prohibition, which they quickly did. The Grange’s Initiative 69 passed with 70 percent of the vote – the only time that, faced with a measure that would tax income, the people of Washington have said “yes.” The state supreme court, however, quickly said “no.”
The court reasoned in its 1933 Culliton decision that income was property, and the state constitution required any tax on a kind of property be “uniform” within a taxing jurisdiction, so that a graduated income tax was therefore unconstitutional. Defining income as property is what gets you to uniformity.
Is income really property? That’s still the question. The 1933 court majority had an answer: “It would certainly defy the ingenuity of the most profound lexicographer to formulate a more comprehensive definition of ‘property’” than the one found in Washington’s state constitution, the majority said. “It is ‘everything, whether tangible or intangible, or subject to ownership.’ Income is either property . . . or no one owns it. The overwhelming weight of judicial authority is that ‘income’ is property and a tax upon income is a tax upon property.”
And that has been that ever since. McKenna recently told Libby Denkmann on KUOW that his argument doesn’t rest only on Culliton; the state court has ruled the same way half a dozen times.
Jason Mercier of the conservative Washington Policy Institute has written that of the relatively few state constitutions that define property, “Washington’s constitution has the broadest definition. This is why our state supreme court has repeatedly ruled that in order to impose a graduated income tax, the constitution must be amended, something the voters have overwhelmingly rejected six times.”
Mercier quotes a 1960 decision (on a challenge to a law that imposed a non-uniform tax on rental income) in which the state supreme court came down squarely in favor of the idea that income was, indeed, property. “This court,” it said, “is unwilling . . . to recede from the position announced in its repeated decisions. Among other things, the attorney general urges that the result should now be different because” – shades of 2026 – “the state is confronted with a financial crisis. If so, the constitution may be amended by vote of the people. Such a constitutional amendment was rejected by popular vote in 1934.”
But some people have always had their doubts about Culliton. The decision got only a one-vote majority of justices back in 1933. And some people have been skeptical of its reasoning ever since.
The court in that 1960 ruling noted that “The argument is again pressed upon us that these [previous income tax] cases were wrongly decided.” The justices sounded rather annoyed. (We’ve heard this before. Enough already.) Clearly, even then, arguments against Culliton were hardly new.
A 1993 Seattle University Law Review article by current UW Law School Associate Dean Emeritus Hugh Spitzer “shows,” in the words of the abstract, that “because of changes in key rulings of the United States Supreme Court and in other state court rulings on the character of income taxes, Washington’s legislature could now implement a graduated net income tax on both individuals and businesses… [S]uch a net income tax measure could lawfully be enacted by today’s legislature without amending the state’s constitution” – advice that legislators have finally taken.
Constitutionality aside, the best thing about the new tax may be its name. “Millionaires’ tax” is great branding. “Millionaires” don’t need the money. They probably get their riches by exploiting workers. And they’re somebody else. They’re other.
Unless they’re not. The common definition of “millionaire” isn’t someone who makes a million dollars a year; it’s someone who owns assets worth a million dollars. By that measure, roughly one-third of Seattle-area homeowners are millionaires. Sounds a little different that way.
For the tax to win at the polls – and maybe at the court – it will have to be seen as money paid by somebody else. The court? Why not? If the Supreme Court gets the opportunity, it will discuss the tax in constitutional terms, but the decision – and the deciders – will be products of politics.
Five seats on the court will up for election this year. The court that rules on the tax will be shaped by the next election – which may in turn be shaped by how voters expect candidates to rule.
We are talking about the familiar entanglement of law and politics. Which always been with us – and which, perhaps, is just fine. Jamelle Bouie has recently suggested in The New York Times that it’s the way things should be. Bouie concedes that the U.S. Supreme Court should have the last word on the meanings of statutes, but “[c]onstitutional meaning is more abstract. It deals with the shape and structure of our political community. And as much as courts help build our collective constitutional understanding, the question of meaning is as much the purview of the public as it is the job of a jurist.”
There are no new arguments against Culliton. Why would the court change its mind now? Because the justices have decided that times have changed, and they should finally change with them. In other words, they’d have to decide that the politics were different.
Which they may be.
But only if most people dismiss the warnings that local entrepreneurs will pack up and move, and the fear that once the income tax camel’s nose gets in under the constitutional tent, no one will escape the legislature’s hunger for revenue. This is a rational fear. But in 2010, when it didn’t seem rational, it evidently helped torpedo an initiative that would have amended the constitution to impose an income tax on high earners — even though that tax couldn’t have been extended to anyone who earned less without another amendment. As Ballotopedia explains, the initiative would have let the state tax any income above “$200,000 for individuals and $400,000 for married couples or domestic partners filing jointly. Additionally, the measure would have reduced the limit on statewide property taxes by 20% and increased the business and occupation (B&O) tax credit to $4,800.”
Bill Gates, Sr – a life-long believer in tax fairness — served as the initiative’s main spokesperson. It didn’t matter. The “yes” vote limped in a tad under 36 percent.
But that was then. Occupy Wall Street still lay nearly a year in the future. Seattle hadn’t yet elected a self-proclaimed socialist mayor. Rents hadn’t come close to their current levels. Billionaires had not yet occupied prominent places in a Presidential inauguration. Elon Musk had not yet become the world’s first trillionaire. Do people want it now?
Polls suggest that they just may.
From the perspective of nearly a century, Culliton may look like a sturdy constitutional fortress, but close up, from this mid-20s perspective, it may look more like a sand castle. As may the recent evidence that suggests an income tax can finally survive a statewide vote.
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