Edmonds School District asks for permission to join lawsuit defending education funding through capital gains tax

Superintendent Gustavo Balderas

The Edmonds School District is among those asking the Washington State Superior Court in Douglas County for permission to join Washington State Attorney General Bob Ferguson in defending $500 million per year in education funding that would be raised from a capital gains tax approved this year by the Washington State Legislature.

A group that includes the district earlier this week filed a motion to intervene as defendants in the cases of Clayton v. Washington and Quinn v. Washington. Both lawsuits are trying to eliminate $500 million per year in education funding raised from a capital gains tax.

The named potential intervenors are the Edmonds School District, East Wenatchee junior high school teacher Tammy Grubb, parent Adrienne Stuart, Pathways Enrichment Academy director Mary Curry, and the Washington Education Association.

The next court hearing is scheduled for 10 a.m. Monday, July 13.

“State funding is crucial to carrying out our mission of providing all children an excellent education,” said Edmonds School District Superintendent Dr. Gustavo Balderas. “Edmonds provides a wide variety of programs and services to those who qualify for special education services. Our programs include occupational and physical therapy, speech therapy, intensive academic, social and emotional support, and developmental kindergarten. All of these programs would benefit from additional funding, especially as the district works to help students adjust to in-person schooling after the effects of the recent global pandemic.

According to our online news partner The Seattle Times, the Freedom Foundation, working in conjunction with a Seattle law firm, filed suit in April opposing the tax. Then in May, former Washington Attorney General Rob McKenna filed another lawsuit brought on behalf of several state residents, including owners of farms and manufacturing businesses, investors, and the Washington State Farm Bureau.

The measure adds a 7% tax on capital gains above $250,000 a year, such as profits from stocks or business sales. It would raise an estimated $445 million a year, starting in 2023, The Times reported.

 

19 Replies to “Edmonds School District asks for permission to join lawsuit defending education funding through capital gains tax”

  1. This is an income tax. This is unconstitutional. No more taxes. Balance a budget and cut wasteful programs.

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  2. Superintendent Gustavo Balderas hates family farms.

    The bill that past exempts capital gains from selling real estate when the farmer sells the land directly, a sharing equity that owns farmland may not be exempt. This is important because farms are often owned by multiple entities in various corporate structures, including LLC’s, corporations and partnerships. Family farms are structured this way as part of their succession plans and to pass the farm from generation to the next.

    How possibly did the Edmonds community end up with so many corrupt and poor leaders?

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  3. Nick got it right. This is an income tax plain and simple which is prohibited by our state constitution. The Governor and his cronies have been conniving for years to try and get a state income tax on the books even thought the voters of Washington have repeatedly rejected state income tax propositions when put to a vote. This is just the camels nose under the tent. This “law” will require farmers, ranchers and many small business owners or their heirs to sell their properties in order to pay the taxes. Today it is 7% of capitol gains. The nest legislature will raise it just like the sales tax that never goers down. The Edmonds School District has no business supporting an unconstitutional law. The School Board members are sworn in to support the Constitution of the U.S. and State. Instead they take a partisan position to support an unconstitutional law passed only by Democrats in the legislature.

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    1. Hi, Mark. For what it’s worth, I did look to the Attorney General first before I, as a school board member, agreed to the District joining this. I’m no constitutional scholar, but I take my oath seriously and will abide by any court’s decision, of course.

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      1. Deborah:

        Perhaps you should have also looked to the opinion of our former Attorney General Rob McKenna who said in his lawsuit to strike this unconstitutional law down:
        “Every taxing authority in the country, including the IRS and all other state revenue departments, agrees that capital gains are income.”
        As writer Nick Bowman wrote:
        “A graduated income tax has been illegal in Washington since a landmark 1936 case, in which the state Supreme Court ruled that the state constitution required all property to be taxed at the same rate. The court said income counted as property, striking down a graduated income tax rate approved by voters.”

        Current Attorney General Ferguson is required by law to defend any bill passed by the legislature and signed into law. The Edmonds School District has no such legal compulsion. You voluntarily chose to spend Edmonds School District taxpayers dollars to defend a patently unconstitutional law.

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  4. I agree that this is an income tax. While I do not have any hope of a $250,000 capital gains I see this as an entry to lower the limit and get an income tax in. I have now voted in favor of my last school bond, period.

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  5. How is this an income tax? I would say it is more of a wealth tax, similar to property taxes in some respects. Property is a form of wealth which is taxed to the hilt, without much thought or concern for the people being taxed really being able to pay it or not. Granted there are some provisions for deferring or forgiving property taxes in extreme cases of low ordinary income, but generally, people with expensive real estate are expected to pay up. Capital gains are the profit result of selling some sort of property, like equities or real property.

    If the capital gains tax was on all gains, rather than just gains over $250,000, then I could maybe see it as a sort of income tax. The fact that it doesn’t kick in until after the first $250,000 gained, would make it more of a tax on wealth I would think. Just like we tax property wealth and the value of vehicles, etc. I don’t think it’s an income tax, unless the State Supreme Court rules it as such which might be possible. but not necessarily a sure thing.

    Unless you want anarchy and the law of the jungle, tax money must come from somewhere for the necessities of living in a civil society. I guess the big questions are what are the necessities, what should they cost, and who should pay for them?

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    1. Clinton, I’m responding here to your post (the reply button is not working for some reason).

      Capital gains is considered as income by all other states in the country, the Congressional Budget Office, and the Internal Revenue Service. Jason Mercier at the Washington Policy Center submitted a query to the IRS about this, here is the quoted response he received:

      “This is in response to your inquiry regarding the tax treatment of capital gains. You ask whether tax on capital gains is considered an excise tax or an income tax? It is an income tax. More specifically, capital gains are treated as income under the tax code and taxed as such.”

      Wealth is different from income. Wealth is the value of what you own, whether it was gained by income, inheritance, etc. Any positive capital gains you make when selling property, whether land, stock, or other securities, is considered as income. What is left after paying capital gain taxes will contribute to your wealth, but the gains themselves are income. The amount of the gains made when selling a stock or other security does not make a difference as to whether the gains are income or not, just like the amount of salary you make does not make a difference as to whether it is your income or not.

      I hope this helped answer your question as to why this is an income tax.

      Regards,

      Michael

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  6. I’m sure you are right about how capital gains taxes are generally seen as income taxes. The difference in this case is at what level does the taxation on this form of income kick in? Taking seven percent of the gains from someone actually living on $60,000/Yr. from a stock fund is a totally different proposition than taking seven percent of the gains from someone only after they have received $250,000 in capital gains that are exempt from this tax. That begs the question of whether the state is actually taxing income or wealth, in my opinion. That will get decided by the state Supreme Court at some point.

    We have traditionally favored taxing income in this country, as opposed to taxing wealth (except the wealth held in personal property real estate which is seen as very fair game for local taxation) since the 1980s. In the 50’s and 60’s we taxed wealth at high rates nationally and built the Interstate Highway system and properly funded things like National Parks and the Postal System that serve everyone in the society and are generally valued by everyone. This capital gains tax is an attempt to tax wealth locally to help pay for things that everyone needs – like a good education that most people can’t afford to provide for their kids without public help.

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    1. I think I’m reading that in your analysis, a capital gains tax is an income tax if everyone’s capital gains are taxed, but not an income tax if applied to large (as defined by legislature) capital gains.

      I understand it is a more difficult task, but instead of trying to circumvent the law and spending $$$ in litigation, the legislature should propose a change to the constitution.

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    2. “I’m sure you are right about how capital gains taxes are generally seen as income taxes. The difference in this case is at what level does the taxation on this form of income kick in?” There is no difference in regards to whether capital gains is seen as income. The amount of capital gains a person receives does not change its nature from income to wealth. $60000/Yr. from a stock fund is income, and so is $250,000/Yr. The definition of income and the definition of wealth does not change because of the amount that a person has regarding either one.

      “That begs the question of whether the state is actually taxing income or wealth, in my opinion. That will get decided by the state Supreme Court at some point.” Again, capital gains is income regardless of the amount. The law is being challenged in court because the WA state constitution and multiple state Supreme Court rulings in the past have ruled that a graduated income tax is un-constitutional in this state.

      “We have traditionally favored taxing income in this country, as opposed to taxing wealth (except the wealth held in personal property real estate which is seen as very fair game for local taxation) since the 1980s.” Focusing on WA state, there have been 11 times WA voters have been asked to approve an income tax between 1932 and 2010, either by initiatives or approving constitutional amendments. All but the first were thrown out, and the first one which was an initiative and not a constitutional amendment got tossed out by the state Supreme Court as unconstitutional. If the state legislature wants to have a graduated state income tax, they should pass a constitutional amendment and send it to the voters for approval.

      “This capital gains tax is an attempt to tax wealth locally to help pay for things that everyone needs – like a good education that most people can’t afford to provide for their kids without public help.” Again, this a tax on income, not a tax on wealth. The two should not be confused.

      Regards,

      Michael

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      1. Great explanation Michael, you are very knowledgeable. This is how Washington state i.e. Bob Ferguson works, confuse the voter and they get what they want. It is how our present mayor of Edmonds and his gang got in, smoke and mirrors, and less knowledgeable or people who don’t understand the “word salad” of these politicians voted for them. The points you make regarding tax on income vs tax on wealth should be read and understood. Thank you for your persistence in making this very clear.

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  7. The only point I’m trying to make here is that we have to come up with tax money to pay for what is needed for the society for the common good; and I’m not trying to confuse anything. For the little guy with no stock portfolio, his “wealth” is his job and paycheck and we have no problem with the idea of taxing him/her on that (nationally). Same is true for the little guy when the local governments property tax his home, if he’s lucky or smart enough to own or be buying
    one. Most people think the only good tax is the one someone else has to pay. I suspect this new tax will get struck down which should make all of you very happy, again, even though I doubt most of you would even have to pay it. If you do have to pay this tax you are a pretty high roller compared to most of us.

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  8. You are correct that few of us will have to pay this new tax. But just because I (we) don’t have to pay a tax, doesn’t mean I will look the other way when a tax is prohibited by a well-established constitutional rule. Again, if this (an income tax) is what we want then legislators need to step up to the plate, propose a change to the constitution, and get the votes rather than using fallacious arguments that capital gains is not income.

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  9. Jim, 100% agreement from me. Fallacious arguments abound for the “common good”……. When our government sells their programs for the “common good” it is usually entry into a system I have lived in …”socialism/communism”. If anyone thinks the Want List of the Government or Public Schools will ever be satisfied by only taxing Rich people, by calling it Capital Gains Tax instead of what it really is, an Income Tax, I’ve got a bridge to Cuba to sell you; they ALWAYS come after the Middle Class, then the Lower Working Class. All a ploy to control mass populations, for the “common good”, of course.

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  10. The common good in the United States has generally been seen as, good strong military, good roads and highways, good police and fire protection, good public sanitation, good public parks, good communications systems (U.S. mail and public ownership of the airwaves), and good public schools. This has nothing to do with socialism/communism and it all costs tax money from somewhere and someone. Income taxes, property taxes, wealth taxes, sales taxes – it’s all taxation for something we think government should take care of for us.

    U.S. taxation has never been about the government owning all means of production and national assets like you would find in a Socialist or Communist system. Our middle class is being destroyed by labor law favoring management, low wages to compete with low international wages, and a concerted effort by the wealthy in our country not to be taxed at any sort of high rate such as seen in the 50’s when we were actually going head to head against Communist ruled countries. As soon as Soviet Communism was defeated, the destruction of our unions and middle class began in earnest and this is why we now have people (many with low income jobs) living in their cars or on some public space in a tent. (Yes, I know some of this is also substance abuse caused).

    On top of all this, when our banks and lending institutions fail, we turn to tax payer bail outs to save them so our entire system doesn’t fall apart, i.e temporary Socialism for the already rich class. (This was a bipartisan action taken in 2009 by the outgoing Bush and incoming Obama administrations to prevent a depression like the 30’s and the very possible failure of the American Auto and banking industries to survive. When all else fails, we levy taxes wherever we can get them. That’s what this new tax in WA. is all about too.

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  11. Hi, Mark. I’m sorry I did not mention immediately: there is no cost to the District in time or money to be included as an intervener in this case.

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    1. Deborah
      That is hard to understand. To become an intervenor in a lawsuit pleadings have to be prepared and filed with the court by an attorney representing the intervenor, in this case Edmonds School District. The court must then rule on wether Intervenor status will be granted. If Intervenor status is granted the Intervenor is then a party to the lawsuit and is expected to file briefs and make legal arguments to the court in favor of its position. This all takes lawyer time. Is the District now getting free legal service? If so, from whom?

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