House Democrats on Friday released a $38.8 billion budget proposal that includes $1.4 billion in new taxes, including a new capital gains tax and changes to the business and occupation tax.
Money raised from the new taxes would fund education, including operating costs, all-day kindergarten, smaller class sizes through the 3rd grade and college readiness programs.
“Without investment, you can’t have a return on investment. That’s what this budget is,” said House Majority Leader Pat Sullivan at the budget rollout on Friday.
The budget spends an additional $588 million in cost-of-living pay raises and health benefits for teachers. While allocating $412 million to reduce class sizes for kindergarten through 3rd grade, it does not fully fund Initiative 1351, the class size reduction measure passed by voters last year.
Lead budget writer Rep. Ross Hunter said he believes the budget meets the mandate to fully fund basic education in the McCleary decision by the state Supreme Court. “I think the court will be fine with this,” he said.
The budget would freeze tuition at the state’s colleges and universities for the next two years, and also provide $8 million dollars for a new Washington State University medical school that was given the green light to open by the Legislature this week.
The budget also funds more mental health beds in community facilities and state hospitals, as well as $5.1 million for “Joel’s Law.” The bill is named after Joel Reuter, who was shot by Seattle police after having a mental health breakdown. It allows families to appeal to a court if mental health professionals decide not to involuntarily commit someone who is mentally ill.
“We want to make sure people can get the help they need at the time they are having a crisis,” Hunter told reporters.
Among the largest sources of new revenue is a capital gains tax, which would raise about $570 million for the two-year budget.
Individuals who earn more than $25,000 in profits on the sales of stocks and bonds, or married joint filers earning more than $50,000 in profits, would pay a 5 percent capital gains tax under the proposal. It would not apply to retirement accounts.
Budget leaders estimate about 32,000 Washington residents would begin paying the capital gains tax starting in 2016. “This is for the super wealthy,” said Rep. Reuven Carlyle, D-Seattle.
Critics say the capital gains tax is too volatile to use as a reliable source of revenue, which Democrats acknowledge. “We’re not pretending anything other than that,” said Carlyle.
To protect against fluctuations, Carlyle said the budget only counts on $400 million a year from the capital gains tax to go toward paying for basic education requirements. Any additional money raised above that threshold would go into a higher education fund.
Another $532 million in new revenue would come from changes to the business and occupation tax. It would increase the B&O tax by 0.3 percentage points for certain businesses, while also reducing or eliminating the tax for about 15,000 small businesses.
Online retailers that do not have a physical presence in Washington — such as eBay or Etsy — would be required to start collecting tax from online transactions. Currently, only companies with an presence in Washington, like Amazon, collect tax from online sales.
Democrats also propose eliminating several tax breaks. Out-of-state residents would no longer be exempted from paying sales tax when they shop in Washington, and sales tax would be added to the cost of bottled water. It also eliminates a tax break for oil refiners and other industries, including travel agents.
Lead Republican budget writer Sen. Andy Hill criticized the budget for imposing new taxes when the state has $3 billion in new revenue coming into the state. “When you don’t use that to pay for education and instead you use taxes – quite frankly, I don’t know if that’s unconstitutional or just unconscionable,” he said. (more…)