Republicans Insist No New Taxes Needed for Washington

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Could this actually be the year?

Since at least 2015, Democratic lawmakers or Gov. Jay Inslee have proposed a tax on capital gains. Democrats see it as a 2-for-1 deal: a way to raise more revenue for priorities such as education while reshaping Washington's regressive tax system.

Republicans have in turn condemned the concept as unconstitutional and not necessary for a state budget that has grown by sizable amounts over several years.

Yet, despite Democratic majorities in the House and Senate and years of debates and campaigning and discussions, the capital-gains tax hasn't gained enough traction in Olympia. That's been most notable in the state Senate, where a handful of moderate Democratic senators in previous years have opposed the idea.

So it seemed notable last week when lawmakers on the Senate Ways and Means Committee voted to approve Senate Bill 5096.

Sponsored by Sen. June Robinson, D-Everett, the bill would implement a 7% tax on the capital gains of the sale of assets — like stocks and bonds — above $250,000. It includes a host of exemptions, such as retirement accounts, sales of real estate, livestock, timbers and certain agricultural lands. Also exempt is the sale of sole proprietor businesses with a gross revenue of up to $6 million and in the sale of certain automobile dealerships.

In an interview, Robinson said the bill will need some more tweaks "before we pass it off the floor."

Robinson and Sen. Christine Rolfes, the Senate's chief Democratic budget writer, both said they believe Senate Democrats may have the votes this year to pass it out of the chamber.

Still, the bill faces a series of hurdles. If it passed the Senate, and then the House, it would almost surely face a legal challenge by conservatives who argue that it is a tax on income, and thus violates the state constitution.

"We have to remind ourselves that the IRS says that this is an income tax ... and a very volatile one at that," said Sen. Lynda Wilson, R-Vancouver, before the bill got voted out of committee.

Given a legal challenge, "My concern there is the cost to the state and the taxpayers," added Wilson.

She and other GOP lawmakers have also criticized the emergency clause attached to the bill that would make it take effect immediately — and prevent any efforts to put it on the ballot as a referendum.

Voters could still weigh in by gathering signatures for an initiative to overturn the law.

If enacted, SB 5096 would raise about $550 million per year, starting in fiscal year 2023. To address the volatility of the tax, Robinson's proposal would dedicate only a portion of that money each year — $350 million — into a budget fund that pays for education.

"The need to invest in early learning and child care is real, and is something that we feel strongly about wanting to do," said Robinson.

The remainder of that money would go into a new account that would be used for taxpayer relief.

Inslee and Rep. Tana Senn, D-Mercer Island, have introduced their own versions of the tax.

Asked last week about Robinson's capital-gains proposal in a regularly scheduled news conference, Inslee declined to comment. The governor's proposed tax on capital gains sets a higher rate — at 9% — and taxes more people by setting the threshold for gains at above $50,000 for joint filers or $25,000 for individuals.

That would help fund Inslee's proposed $57.6 billion, two-year budget proposal, which focuses on public health programs and recovery initiatives for the economy and education in the wake of the pandemic.



That's an increase from the $52.4 billion two-year budget approved by the Legislature and governor in 2019.

Meanwhile, House Democrats this year have floated a proposal for a flat tax of 1% on some intangible assets — such as cash, stocks and bonds — aimed at billionaires. Under House Bill 1406, the first $1 billion of such assets would be exempt.

Republicans point to the growth during Inslee's tenure — the two-year operating budget approved in 2015, for example, was about $38.2 billion — as a sign that no new taxes are needed.

Meanwhile, House and Senate Republicans have released their own proposed two-year budgets to build their case for how the budget could be written without new taxes.

Those spending blueprints depend on counting the distribution of federal COVID-19 aid dollars the Legislature recently approved in a $2.2 billion package. Inslee is expected to approve that measure, which includes hundreds of millions for K-12 schools, public health programs, rental assistance and small-business aid.

The House Republican proposal would spend $55 billion for the 2021-23 budget cycle.

"It continues to grow the budget, but on a much more responsible glide path," said Rep. Drew Stokesbary, R-Auburn, in a news conference announcing the bill.

House Republicans touted their spending blueprint as a way to reopen schools, address housing issues and implement a long-stalled tax refund for working families.

With Republicans in the minority, the proposals are not likely to go anywhere.

But the proposals are a way for voters to "compare and contrast the different approaches that each caucus would take, depending on who's in charge," said Stokesbary.

The Senate Republican budget proposal is similar in size, spending $55.2 billion over two years. GOP lawmakers touted the money it puts into mental-health services and transportation funding.

The GOP proposals arrive as Democratic House and Senate budget writers prepare in the coming weeks to unveil their new operating budget proposals. Those spending blueprints fund everything from Washington's schools, parks and prisons, to mental-health and foster-care services.

In a statement, Rolfes, the Democratic budget writer in the Senate, said she welcomed the proposals.

"I welcome all ideas and solutions as we continue our work crafting a smart and sustainable budget that will guide state spending over the next two years," said Rolfes. "I appreciate the proposal from my Republican colleagues and I will certainly consider their priorities as we move forward in the process."

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