How much Washington should raise in new tax revenue and who will pay is something state lawmakers and Gov. Bob Ferguson will hash out in the final weeks of the legislative session.
Washington’s wealthiest individuals, largest corporations and biggest banks are prime targets. Homeowners, vapers and self-storage unit renters are among those who could share in the burden. Possible tweaks to expand the state’s capital gains tax could also be in play.
“There will be a tax increase,” House Speaker Laurie Jinkins, D-Tacoma, said Wednesday. “It’s figuring out the right kind of balance and making sure we’re able to not harm everyday Washingtonians.”
A day earlier, Ferguson threw cold water on House and Senate Democrats’ desire to tax those with more than $50 million. He said the tax is “untested, difficult to implement, and most importantly, for purposes of adopting a sustainable budget, will face an immediate challenge in court.”
Ferguson said he could, however, tolerate such a tax if the take is tiny, just to have its legality tested. But a drastically slimmed version of the so-called wealth tax won’t raise anywhere near what Democrats say is necessary to close a wide budget gap and stave off harsh cuts.
Notably, Ferguson did not express dissent on other revenue-raising measures under discussion, such as hiking taxes on large businesses and financial institutions, a new payroll tax and lifting the 1% cap on annual increases in property tax collections by the state.
These are all means Democrats are eyeing to fill a budget hole the governor pegged at $16 billion.
Republican legislators were glad the governor dissed the wealth tax but disappointed he didn’t go further.
“I wish he had also pushed back against the Democrats’ property-tax increase, as that will take billions upon billions from families of all income levels — but maybe it will be next,” Sen. Nikki Torres, R-Pasco, said in a statement.
Staking out their positions
Fans and foes of the Democrats’ efforts argued their cases at lengthy hearings in the Senate and House this week. They’ve also intensified their direct lobbying of party leaders and budget writers, knowing it’s crunch time.
Leaders of Washington’s most-recognized corporate giants signed onto a letter Wednesday opposing new business-related taxes and warning of severe economic consequences if companies and jobs start decamping to less expensive states.
“Given national economic trends, Washington state cannot sustain continued tax and spending increases and simultaneously maintain our economic resilience and competitiveness,” reads the letter sent Wednesday to Ferguson and leaders of the four caucuses.
More than 60 executives — including those from Amazon, Costco, Microsoft, Nordstrom, T-Mobile, the Seattle Mariners and Weyerhaeuser — signed on.
Rachel Smith, president and CEO of the Seattle Metropolitan Chamber of Commerce, which helped put together the letter, said Thursday that political leaders at all levels of government need “a reality check” or they’re risking a recession.
“Whether you want to tax the rich to be righteous or enact tariffs to drive an ideological policy goal, we need to ask ourselves: when has kamikaze economic policy ever worked?” she said.
Jinkins took umbrage at Weyerhaeuser’s participation, telling reporters company representatives have sat in her office and told her “we’re never leaving this state.”
Supporters have focused on the importance of Democrats’ proposals as a needed corrective to a tax system in which those with lower incomes pay a greater percentage of their earnings in taxes.
The tax hikes will sustain vital services and move the state closer to carrying out its paramount duty of funding basic education for public school students, they’ve said.
“The governor and legislative leaders have all said that our tax structure is too regressive. Now is the time to help us close this budget shortfall while preserving public schools and essential services for our community,” said Larry Delaney, president of the Washington Education Association, a teachers’ union.
The big taxes
Democrats in the Senate and House have teed up four major proposals. Hearings were held this week on all of them, but no votes are planned until Democrats decide which to pursue.
One is the wealth tax targeting about 4,300 people. Each chamber has its own approach.
In the House version, there would be a tax of $8 on every $1,000 of assessed value of certain financial assets such as stocks, bonds, exchange-traded funds, and mutual funds. The tax would only apply to the value of these assets that is above $50 million.
Senate Democrats want to set the tax rate at $10. They also want to tax the full value of the covered assets if a person has more than $50 million of them. In other words, if you have $51 million of these assets, Senate Democrats would apply the new tax on all of it, while the House would only tax the $1 million.
Both chambers want to erase the 1% cap on increases in the annual property tax growth for the state’s common schools levy and for cities and counties, as well as special purpose districts.
The Senate replaces it with one based on the combined rate of population growth plus inflation. There would be no cap. The House also moves to a rate based on population growth plus inflation, but sets a cap of 3%. Both assume the state property tax limit will be uncapped but local governments would not make a change without voter approval.
A third major proposal is a Senate-backed statewide payroll tax. Employers would pay a 5% tax on payroll expenses above the Social Security threshold — currently $176,100 per year. This tax is limited to companies with $7 million or more in payroll expenses — about 5,289 businesses. It’s modeled on Seattle’s JumpStart tax. Critics point to employers who have shifted jobs away from Seattle after the city imposed its levy.
House Democrats are eyeing a permanent 1% surcharge to the business and occupation tax rate on businesses with taxable income over $250 million. About 370 businesses would be affected. The same bill would increase the surcharge on financial institutions with annual net income of $1 billion or more from 1.2% to 1.9%. This will impact about 250 businesses.
Wait, there’s more
Budgets passed in the House and Senate relied on billions of dollars from the wealth tax to balance. Ferguson’s comments have them casting around for other ideas.
“There are other revenue options out there,” Jinkins said Wednesday, including eight to 10 business tax possibilities.
“There are capital gains,” she added without elaborating. Washington imposes a 7% tax on gains over $270,000 from the sale or exchange of long-term assets like stocks, bonds and business interests. Democrats in December looked at the possibility of upping it to 9% or having a higher rate for gains greater than $1 million.
The Senate has a bill to repeal 20 tax exemptions considered obsolete or ineffective. These include carve-outs for gold bullion and prescription drug wholesalers.
This week, the House Finance Committee is expected to advance a bill expanding definitions of “moist snuff” and “tobacco products” to include those containing nicotine. That would make them subject to the state’s tobacco products tax and net $25 million a year. Next week the committee will consider a bill that could raise the price of cigarettes and vape products.
Bills to tax storage units, which could generate a similar amount each year, and increasing the advanced computing surcharge paid by large technology companies, are lurking. The latter legislation could bring in around $200 million a year.
“It’s clear we have work to do in negotiating a compromise that leads to a budget and revenue package that works for Washington families,” said House Finance Chair April Berg, D-Mill Creek.
The 105-day legislative session is scheduled to end April 27.
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