House Democrats propose $46.9 billion budget, taxes on upper income Washington residents and big businesses

OLYMPIA – Upper income residents of Washington would pay more taxes on their investments and their home sales but small businesses would pay less under a $46.9 billion budget that House Democrats unveiled Monday.

But with less than a month left in the regular session, the proposal is so different from the budget passed last week in the Senate that lawmakers publicly conceded the Legislature likely will need an overtime special session to work out a compromise.

The House Democrats’ 2017-19 spending plan, commonly called the state operating budget, would spend an extra $1.8 billion over four years on public schools as part of the state’s efforts to comply with a court order to improve education and freeze tuition at state colleges and universities.

“It puts families first,” House Appropriations Chairman Timm Ormsby, D-Spokane, said. “It represents a contract between generations.”

It includes more money for early childhood education before kindergarten, post secondary education in technical fields, family coordinators in schools and more money for starting teachers, House Finance Chairwoman Kristine, Lytton, D-Anacortes, said.

Included in the higher education portion of the budget is enough money for classes of 60 new medical students in each budget year at both the new Washington State University medical school in Spokane and the joint University of Washington-Gonzaga University program. The Senate Republican budget has similar amounts.

The proposal has increases for mental health programs, accepts federal money to continue the state’s expanded Medicaid program and raises for long-term health care workers. It also would approve the labor contracts negotiated by the state employees’ unions and the Office of Financial Management.

It spends significantly more than the $43 billion budget that passed the Senate last week. That Republican-crafted budget spends less, and in different ways, on schools and social services. It has a slight increase in public college tuition tied to inflation and rejects most of the negotiated contracts, offering instead $500 raises each year.

Ormsby conceded that comparing the two budgets is not an “apples to apples” comparison. “This is apples to zucchinis,” he said.

Senate Ways and Means Chairman John Braun, R-Centralia, called the House proposal “really more of a wish list” because Democrats will vote on the spending at the end of the week but will hold off voting on the tax increases needed to pay for it.

He also defended the Senate plan to allow tuition to rise with inflation at colleges and universities, noting that it was Senate Republicans who introduced four years ago a tuition freeze and two years ago a tuition cut.

“We’ve been working on tuition for four years, we have it on a stable path. We’ve moved on to other challenges in higher education,” Braun said.

To pay for some increases, House Democrats propose in separate legislation a capital gains tax on annual investment earnings above $25,000 for an individual or double that for a couple. The proposal also would shift the burden of the state’s business and occupation tax on a company’s gross receipts, providing an exemption for businesses with receipts under $250,000 but a 20 percent increase for some of the state’s highest grossing businesses.

Democrats released an estimate that of the state’s 365,000 businesses, 260,000 would be exempt from the B & O tax, another 33,000 would receive a partial deduction and 72,000 would pay the same amount or more.

They also propose a shift in the real estate excise tax, which currently collects 1.28 percent on every home sale. Under the House Democrats’ plan, the tax rate on homes that sell for less than $250,000 would drop to .75 percent; after that the rate for sales up to $1 million would remain the same, but the rate would climb after that, reaching 2.5 percent for sales above $5 million.

Together, those three tax changes would raise about $2.4 billion. There are also proposals to collect sales tax from online retailers outside the state and close several tax exemptions that have been targeted unsuccessfully in past years.

“We already proved you don’t have to raise taxes to solve the budget,” Sen. Dino Rossi, R-Sammamish, said.

But the Senate Republicans’ budget relies on a shift in the way property taxes are collected to pay for schools, creating a tax cut for some and an increase for others. It would levy a statewide school property tax levy and do away with the individual maintenance and operations levies from the state’s 295 school districts. The proposed state levy of $1.55 per thousand is smaller than most districts impose, but larger than some districts in central Puget Sound, most noticeably Seattle Public Schools. That means property owners in most districts would see their taxes go down, while those in Seattle, Bellevue and some others school districts with high property values would see an increase.

Democrats and Republicans argued in separate press conference which tax plan is fairer. Democrats say their new taxes are more progressive because they target higher income residents. Republicans say their property tax shift targets the same geographical area as the Democrats while creating a single statewide tax levy for schools.

The House is expected to hold hearings on the budget and bring it to a vote by the end of the week. If it passes, negotiations between budget leaders in the two chambers would begin to reach a compromise that can pass a Senate controlled by Republicans and a House controlled by Democrats.

Committee hearings on the Democratic tax proposals will be held next week, but votes in the full House would be delayed until a negotiated budget is reached. Anticipating complaints from Senate Republicans, Lytton said the House has passed tax increases in previous years that the Senate has ignored, not even giving them a hearing.

But Braun and Rossi said negotiations will be difficult if House Democrats can’t prove they can pass their tax increases.

“It’s kind of like fishing, you just got to be patient,” Rossi said. “I’m not sure it can be done in the regular session.”