Going into the 2021 legislative session, there were many major issues for the two parties to battle over.
Taxes are always at the top of the list. Facing projections in revenue of $9 billion lower through 2023 than earlier projections because of the pandemic, Democrats, who prefer to tax businesses or the wealthy, have been discussing a capital gains tax. It is one of the options they have been considering since 2015.
Republicans prefer not to tax anyone, even though the state still has bills to pay. Democrats are always hesitant to add to the sales tax because it tends to hit lower wage earners disproportionally harder. Democrats also argue the capital gains tax will move us closer to a less regressive tax system, and it doesn’t impact very many people.
Even though our current state gas tax is 49.4 cents per gallon, there are still significant needs in freeways, bridges and the ferry system to maintain as part of the state transportation system. An increase of 18 cents per gallon has been discussed.
With the state budget looking bleak for the next two years, Gov. Jay Inslee requested a tax on capital gains from the state’s highest earners. Inslee’s plan was a 9% tax on profits of more $25,000 or $50,000 for joint filers. With Democrats in control of both Houses and the governor’s office, this looked like the year to finally pass the tax on capital gains. State Sen. June Robinson (D-Everett) sponsored the legislation. However, the final form is different and the voters may get a chance to hear the issue this fall.
The capital gains tax only squeaked by the state Senate, 25-24, as three caucus Democrats — Steve Hobbs (D-Lake Stevens), Annette Cleveland (D-Vancouver) and Mark Mullet (D-Issaquah) — all voted against the final bill. The changes to the final bill included profits of 7%, rather than 9%, on stocks, bonds and assets of more than $250,000. Excluded were retirement accounts, real estate, livestock, farms, forestry, some agricultural land or selling a sole proprietor business with gross revenue of up to $6 million.
The tax could generate $500 million to $550 million and would only affect 16,000 to 18,000 people, or possibly 9,000 joint filers. The first $350 million would go toward the education legacy account and the next $100 million would go to the general fund.
Opponents believe the exclusions will be deleted over time and everyone will eventually be included — and that it is really an income tax. They offered several amendments, including one to make the tax voluntary, which were rejected.
However, one amendment that was adopted deleted the emergency clause, which would have allowed the law to take effect upon the governor’s signature rather than 90 days after the end of the legislative session. That is the first time the Democrats have been able to pass the tax in one of the Houses. Both sides were anticipating a fight in the House of Representatives.
However, the Economic and Revenue Forecast Council recently announced that there was an upward economic turn and there would be $3.2 billion more for the 2021-2023 budget cycle. But there is always a strategy, and removal of the emergency clause could allow opponents to try and get enough signatures on a referendum to qualify for the November election where political messaging is likely to increase voter turnout for both parties.
The emergency clause was deleted with help from Democrats as Steve Hobbs (D-Lake Stevens) is also chair of the transportation committee, and he may want to keep his focus on the gas tax because there are significant needs in transportation. However, even with the news from the Economic and Revenue Forecast Council, neither side has changed its position much. Democrats argue that those most negatively affected by the pandemic — individuals, families, transit, schools and communities — still need help. The job market continues to look weak, particularly in areas affected by the pandemic.
While housing sales have been strong, there are questions about how long it will last. Republicans argue new taxes are not needed. As we await a Democratic strategy on the capital gains tax, the next two weeks will be full of debates as budget committees in the state Senate and state House announce their recommendations. Will the Democrats try to pass the capital gains tax in the House?
Should voters get ready for an initiative? The political messaging from the Democrats will be that the wealthy should pay their share and we need to have a less regressive tax system while helping those in need. Republicans will counter that a tax increase is not needed, and they will accuse the Democrats of supporting the capital gains tax as the next step toward an income tax. The legislative session is set to expire April 25, but the next update from the Economic and Revenue Forecast Council isn’t until June. Watch the committee budget action closely.
Federal Way resident Bob Roegner is a former mayor of Auburn. Contact firstname.lastname@example.org.