House Democrats propose nearly $8 billion in tax increases

2017 legislative session • March 31, 2017 

The Current -- 2017 legislative session

Letter from Leadership 

The Current 2017-18

Dear Friend:  

As we turn the calendar to April tonight, just 21 days will remain in the legislative session when state lawmakers return to Olympia on Monday. While significant progress has been made on several key issues, a lot of work still remains to be done in the last three weeks.

Wednesday was policy committee cutoff (opposite chamber). This means Senate bills needed to pass out of their respective House policy committees or they are considered dead. Our next deadline is fiscal committee cutoff (opposite chamber) this Tuesday. You can find next week's House calendar here.  

House Democrats pass state spending plan 

The House Democrats unveiled their state spending plan on Monday. I describe it as a state spending plan and not an operating budget because they have not passed the massive tax package to pay for it yet. We will find out next week if they plan to do so.

First, the spending plan. House Bill 1067 was unveiled at a news conference on Monday, heard in the House Appropriation Committee that afternoon, and voted out of the committee Tuesday night. We offered 20 amendments in committee, with seven being accepted.

The proposal reached the House floor Thursday afternoon in the form of a striking amendment to Senate Bill 5048. It was voted out on a 50-48 party-line vote just after noon today. We offered 41 amendments in an attempt to improve the legislation, but only six were accepted. You can find a few of the highlights that relate to school funding and preventing tax increases here

34 percent increase, $51.2 billion 

The House Democrats would increase state spending by 34 percent by the 2019-21 budget cycle. In terms of dollars, our current two-year operating budget spends less than $38.2 billion. They want to increase this amount to more than $51.2 billion for 2019-21.

Does it balance over four years? 

This proposal would also leave an ending-fund balance of just $12 million in the four-year outlook -- which is fiscally irresponsible given the unpredictability of our future economy. In fact, it may not actually balance over four years with the amendments that were added to the bill after its initial introduction and analysis. 

Nearly $8 billion in tax increases

That's the spending part. Now for the tax increases.

The House Democrats are proposing just under $8 billion in tax increases over a four-year period. This, despite the fact our state will have an additional $2.6 billion in revenue for the next budget cycle. As this chart shows, very few states are seeing this type of revenue growth.

In this document, House Democrats attempt to explain their tax increases. This list includes a capital gains income tax (learn more below), modifying our state's already onerous B&O tax (see a list of winners and losers here), a change to the real estate excise tax, and closing some tax exemptions.

The good news is the governor's carbon tax proposal appears to be dead. As this recent article explains, this concept is not popular with many state lawmakers.   

Will House Democrats pass their tax package?

The major piece of legislation to establish these tax increases will be heard in the House Finance Committee on Monday. The measure could pass out of committee on Tuesday, but it's still unclear it if will ever reach the House floor for a full vote. If not, it will mean that House Democrats passed a state spending plan with no way to pay for it.

I've said it before and I'll say it again: We think tax increases should always be the last resort.

Through the lens of the House Democrats

In closing and to be fair, there are many programs and services in this state spending plan that we support and would include in our operating budget if we were in the majority. You can learn more about what the House Democrats describe as their priorities in this link.  

It's now time to negotiate

The Senate Majority Coalition Caucus passed its operating budget last week. A summary comparison of the House and Senate proposals can be found at this link

We can now begin final budget negotiations, including how to fund K-12 education and teacher compensation. Our budget leader in this process is Rep. Bruce Chandler, with Reps. Paul Harris and David Taylor representing our caucus on the McCleary negotiations.  

It's time to roll up our sleeves and get the job done. 

In your service,

Rep. Dan Kristiansen
House Republican Leader
39th District
(360) 786-7967

The problems with a capital gains income tax

The centerpiece to the House Democrats' tax package is a new capital gains income tax. The tax would be imposed at 7 percent, with exemptions for residences, retirement account assets, livestock, agriculture and timberland, and certain property used in a trade or business.

Under our state constitution, income is a form of property and state taxes on that property may not exceed 1 percent. In an attempt to get around this prohibition, House Democrats refer to their capital gains income tax proposal as an excise tax. That's debatable and leads us to the first potential problem: is this new tax even constitutional?

Secondly, it has proven to be a volatile and unpredictable revenue stream in other states. As we look for stable funding for our schools in the years to come, why would we put in place an unstable and perhaps unconstitutional revenue source?   

A big step toward a state income tax

Finally, a capital gains income tax would be a big step toward a state income tax -- an idea that has been rejected by voters several times. Every state in the nation that has a capital gains income tax also has a state income tax.

This Washington Policy Center brief provides more details and links to the problems noted above. 

Sen. Tim Sheldon, a Democrat who caucuses with the Republicans, wrote an op-ed in Crosscut a few months ago.  He's clear about the Democrats' intent: "The monster lurking behind school funding: an income tax. Our big debate isn’t about education. It’s about the income tax."

Rep. Mike Volz

Volz brings financial background to the Legislature 

Freshman Rep. Mike Volz is a numbers guy. The 6th District Republican, who replaced Kevin Parker, graduated from Eastern Washington University with a degree in business finance and accounting, and earned his MBA from Gonzaga University (Go Zags!). Mike is also a licensed CPA and currently serves as the Chief Deputy Treasurer for Spokane County.

Mike is putting his education and financial background to use in the Legislature. He was selected to serve on the House Appropriations Committee, which is rare for a freshman lawmaker. He is also a member of the House Education Committee, and assistant ranking Republican on the House State Government, Elections and Information Technology Committee.

Learn more about Mike, including his time in the U.S. Army, at his legislative website

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