Democratic lawmakers push tax increases in hopes of balancing Washington’s budget

OLYMPIA – Faced with a looming deadline, the Washington Senate passed a trio of bills over the weekend that would raise the capital gains tax on financial assets above $1 million a year, close certain tax exemptions and expand the sales and tobacco taxes.

The legislation is part of a slate of tax increases Democrats unveiled last week as the state works to close an estimated $15 billion budget deficit.

As legislators released the new revenue plan last week, Sen. Noel Frame, D-Seattle, vice chair for finance of the Senate Ways & Means Committee, said the proposals find “a balance to meet our short-term need of addressing the budget shortfall and protecting the critical services on which our communities rely, as well as our long-term goal of reforming our outdated, unfair tax code.”

The bills passed the Senate this weekend along nearly party lines, with Republicans universally opposing the measures. Each bill the Senate passed this weekend received a hearing in the House Finance Committee on Monday morning and could be voted out of committee Tuesday.

The largest piece of new revenue is a bill Democrats say would “modernize” the state’s sales tax and bring in a projected $2.9 billion over the next two years and $4.7 billion over four years. The sales tax would be expanded to cover software development and other information technology services. The state’s tobacco tax would expand to cover nicotine pouches, such as Zyn.

Sen. Marko Liias, D-Mukilteo, said Saturday that the state’s sales tax has not been adjusted to keep up with a shift from a goods-based economy to a services-based economy.

“The folks that can only afford to buy goods still pay, but the folks who can afford to pay for services increasingly are not,” Liias said. “We are modernizing that with this bill.”

A proposal to raise the capital gains tax on assets over $1 million and bring in approximately $282 million over the next two years and $561 million over four years also has found support among Senate Democrats. Sen. Claire Wilson, D-Federal Way, said the bill would “move us in the right direction towards tax fairness.”

“The impact of the modifications of the capital gains and estate taxes will impact only a small portion of the wealthy people in our state,” Wilson said.

The Senate also adopted a bill to repeal tax exemptions where the “public policy objective was not met” or the exemption is “legally obsolete.” Sen. Jesse Salomon, D-Shoreline, said the legislation is “what responsible government efficiency looks like.”

“A thoughtful and better result,” Salomon said.

Among the exemptions targeted to be removed is one on the international business and occupation tax credit and the dentistry prepayment insurance premiums tax exemption. Tax exemptions listed to end in the bill were previously identified by the Joint Legislative Audit and Review Committee.

Following Saturday’s votes, Sen. Chris Gildon, R-Puyallup, the Senate Republican budget leader, said the three bills “are just part of the Democrats’ effort to impose the largest tax increase in state history on the people of Washington.”

Senate Republicans attempted to bring their budget proposal to a vote on Saturday , saying the state can adopt a balanced budget and fund major programs without new taxes. The effort failed.

“I realize our budget may not fully satisfy some of the special interests that are looking to the majority to deliver, but our plan respects the taxpayers – and with eight days left in this session, it also offers the surest way to finish our work on time,” Gildon said.

Sen. Nikki Torres, R-Pasco, the Republican’s assistant budget leader, said the revenue proposals supported by Democrats will “take more money from the people who can least afford to lose it.”

With less than a week before the Legislature is set to adjourn, the House also is considering tax increases.

The House Finance committee heard four other tax proposals on Saturday, which include increasing the state’s business and occupation tax, and could bring the proposals to a full vote Monday evening.

Still, it’s unclear which of the proposals the Legislature will consider this week will ultimately make it over the finish line or how much they could raise. While Gov. Bob Ferguson has indicated he would not support an all-cuts budget, he has not said which tax he prefers, or how much new revenue he would support.

Ferguson previously proposed approximately $4 billion in spending cuts on top of roughly $3 billion in cuts identified by former Gov. Jay Inslee.

Citing concern over how the federal administration could impact the state, Ferguson released a statement on Thursday following the unveiling of the Democrats’ revenue proposals that said in part that “raising $12 billion in taxes is unsustainable, too risky and fails to adequately prepare Washington state for the crisis that looms ahead.”

Ferguson added that the Legislature had made “progress on key issues” in the updated revenue proposals.

“We will continue to work together to produce a budget that supports a strong economy, and the people of Washington,” Ferguson said Thursday.

The Legislature faces a Sunday deadline to adopt a budget to avoid a special session.