WA Democrats are pushing for capital good points tax in a 12 months when "tax" doesn't look like a nasty phrase

Even if Washington state's revenue picture improves, Majority Democrats in the legislature appear to be committed to a course that includes, in one way or another, a tax hike this year. Not necessarily to redress a recession-era budget, but rather to reform tax legislation they consider regressive and to fill gaps and inequalities exposed by the global pandemic.

With the 105-day legislature nearing halfway, Democratic leaders are making it clear that the existing revenue, combined with the state's $ 1.8 billion Rainy Day Fund, plus additional federal aid dollars the state may have Received will likely not be enough to fund all of their priorities.

At the same time, Democrats seem increasingly to see the issue of “tax justice” as a profitable subject that is both a matter of good public order and good politics.

This year's tax break has its roots in continued regret among Democrats over the state's austerity measures in relation to the Great Recession. It also reflects a leaning to the left as Democrats consolidate their legislative majorities and add a more diverse and progressive group of newly elected lawmakers to their ranks.

For the first time in recent years, minority Republicans have felt the need to back up their standard rhetoric without new taxes with full-fledged budget proposals aimed at demonstrating that the next state budget can spend more and still balance without new revenue.

The philosophical divide underlying the debate is how much the next biennial budget should spend, what those spending priorities should be, and whether or not the state's current tax structure works.

Democrats say the system isn't working, often citing a 2018 study by the Liberal Institute of Taxes and Economic Policy (ITEP) that ranked Washington as the most regressive tax system in the country. The study found that the lowest 20 percent of the Washington workforce spends nearly 18 percent of their income on taxes, compared to the top 1 percent who spend just 3 percent.

Change advocates are also shaping tax reforms in the context of racial justice and equity – which have become a top priority for Democrats. Last month, Washington State's left-wing Budget and Policy Center, citing ITEP data, urged lawmakers "to crack down on our racist, perverse tax laws."

Meanwhile, Republicans like the House Minority Leader J.T. Wilcox counters that Washington's tax system, while not without its flaws, has provided a relatively reliable source of income through the current crisis.

"We have a system that actually gives the government a much more predictable flow of resources than any other place in the country," Wilcox said recently.

The conversation and debate over tax reform this year is fueled by the Democrats' decades of flirtation with a new state capital gains tax on the sale of stocks and bonds.

The idea has preoccupied Olympia for so long that it is following a predictable path to nowhere. Democrats, including Governor Jay Inslee, propose the tax as a progressive source of income for wealthy Washingtoners. Republicans and their allies attack it as a volatile and unconstitutional form of income tax. And in the end there is not even a vote.

But 2021 could be different.

"I feel we have momentum this year," said Democratic State Senator Mona Das, who was elected in 2018. "If there's a year we're going to pass, this year is it."

The pressure on the Democrats to finally pass a capital gains tax has been mounting for months. In December, Inslee reintroduced the tax in its budget proposal. That same month, a new union-backed political group called "Invest in Washington Now" launched the first in a series of advertisements calling for "progressive income solutions".

Then, before the legislature even met, Democratic Senator June Robinson, a vice-chairman of the Senate Committee on Ways and Means, proposed the governor's capital gains tax bill.

This was an important signal. Over the past few years, House Democrats have led the way on capital gains tax, and have even passed it several times on the Finance Committee. But it was always a tough sell in the Senate. With no assurance that it could happen to both houses, House Democrats understandably hesitated to hold a tough tax vote on the floor just to see the idea die in the Senate.

However, this year Senate Democrats have taken the lead on the issue, suggesting that political dynamics related to a capital gains tax have shifted.

"In many ways, the Senate is driving this forward," said Heather Weiner, an advisor working with the Invest in Washington Now campaign.

So what has changed? On the one hand, the political chessboard. It takes 25 votes to pass a bill in the Senate. Democrats have 28 members. But not all support capital gains tax.

Up until that year, it was widely believed that there were four no votes, making it impossible for Democrats to get the 25 votes they needed. But in November longtime Democratic Senator Dean Takko was defeated by Longview – a likely no. At the same time, with the victory of T & # 39; wina Nobles of University Place, the Democrats won a seat over Republican Senator Steve O’Ban. Nobles has said it supports capital gains tax and is able to cast the 25th vote.

"Basically there weren't any votes to pass the tax beforehand, but one of the no-vote Democrats was replaced by a yes-vote Democrat," said Issaquah Democratic Senator Mark Mullet, who speaks out against the tax. "That was a tidal wave shift."

While many progressive voters are counting on lawmakers to pass capital gains tax this year, Mullet argues that Democrats should instead focus on funding the state's next transportation package.

"I think the second Democrats are starting to pass taxes … we are going to lose voter support," said Mullet.

But Mullet admits he is "at odds" with his caucus on the matter. And it seems that capital gains tax is on a potential fast lane. The bill received a public hearing in the Ways and Means Committee during the first week of the legislature. Then, in mid-February, a revised version of the bill – with a lower tax rate and a much higher income threshold ($ 250,000 instead of $ 25,000) before it went into effect – was eliminated from that committee.

"I can never recall a major tax bill postponed before the sales forecast or budget was approved. That signals that this is an effort in itself," said Jason Mercier of the Washington Policy Center, a free market think tank that actively speaks out against capital gains tax.

Typically, taxes and tax votes are tied to the budget, and the budget is tied to the quarterly sales forecast for March, which tells budget writers how much revenue they need to work with. When Democrats feel that there is a gap between what the state expects and what they want to fund, they often turn to taxes at this point.

It did so in 2019 when the Democrats held tax votes in the final hours of the legislature to fund a biennial budget of $ 52.8 billion. Remarkably, however, there was no capital gains tax.

"I would say we have recorded that we are not using capital gains tax to balance the budget," said Senator Christine Rolfes, Democratic Chair of the Ways and Means Committee, after the budget was passed this year.

This year, the Democrats are making it clear that the capital gains tax is not tied to the normal budget process – and that passing it does not depend on how financially the state is doing.

"We haven't decided exactly when to speak, but the sales forecast is not a factor in deciding when we will execute this bill," Senate Majority Leader Andy Cheap, recently told reporters.

Instead, Billig praised the capital gains tax to make Washington tax laws fairer while funding new priorities like early learning and affordable childcare.

"We're 50th out of 50 states in terms of tax justice, and I don't think we should wait any longer than it takes to help middle-class and working-class families achieve better tax justice in this state," said Billig.

The feeling that the capital gains tax is far from an accomplished fact this year has alarmed opponents and energized Republicans.

The Washington Policy Center has launched an online advertising campaign against the tax. An ad shows the similarities between Star Trek's Captain Kirk and Spock, who contemplate the Democrats' insistence that capital gains tax is an excise tax, not an income tax.

Republicans in the legislature are also attacking capital gains tax as a form of income tax. And they have criticized Democrats for promoting tax justice without offering to cut taxes for lower-income Washingtoners. Instead, according to the amended draft law, part of the income would flow into an unspecified tax relief fund.

"The bottom line is obvious – SB 5096 is a money heist masquerading as tax reform," Republican Senate chairman John Braun said in a statement after the bill was out of committee. "The people in our state don't need that, especially at a time like this."

Adding to the anger of Republicans, the Senate bill includes an emergency clause, meaning the tax will take effect immediately and not be subject to an electoral referendum.

Some opponents have also complained that the Democrats are pushing ahead with tax reform before a non-partisan working group examining Washington's tax system has a chance to finish its work.

The chairman of home finance, Noel Frame, co-chair of the steering group, denies this criticism.

"They have parallel efforts that are happening at the same time, and that's fine," said Frame.

Capital gains tax isn't the only tax that will be considered this year. Frame introduced a bill to impose a wealth tax on Washington billionaires.

Senate Democrats also revived the idea of ​​a sugary beverage tax, which Washington voters rejected in 2010, with the aim of creating a permanent source of funding for public health and health equality.

Separately, Inslee has proposed funding public health through a reassessment of each health insurance plan.

Also in the mix is ​​a proposal for an employer's compensation tax on salaries in excess of $ 150,000, although no formal bill has yet been tabled.

But as Democrats prepare to write the next two-year state budget, it may become increasingly difficult for them to stand up for new and higher taxes.

For one, Washington is in a much better budget position than it was in June last year, when the state's revenue forecast projected a drop in sales of nearly $ 9 billion due to the recession sparked by the pandemic. This prompted Inslee to order vacations for government employees and to cancel some salary increases.

Since then, the forecasts have improved significantly. By November, the projected drop in sales had shrunk to $ 3.3 billion below forecasts prior to the pandemic. The March forecast could potentially fill much of the rest of that void. Republicans are already insisting that the upcoming state budget is essentially in balance – even before declining demand for state services and the state's rainy day fund are taken into account.

If Congress passes another COVID relief effort, Washington state could be able to get billions of dollars more federal aid.

House spokeswoman Laurie Jinkins admits that another round of federal money could change the tax debate. However, she also warned that every federal dollar would be one-time money to meet ongoing pandemic needs.

"You don't want to start new programs with this," said Jinkins.

Of all the proposals, the capital gains seem to be the most buzzing this year. But even when it's over, its future is uncertain. It would almost certainly be an immediate legal challenge to whether it was a consumption tax or an income tax.

Despite this legal limbo and the general caution of Washington voters about new taxes, longtime Democratic strategist and advisor Christian Sinderman still thinks this is a good topic for Democrats, especially this year.

"I think there is broad consensus that the rich should pay a fair share," Sinderman said, noting that economic disparities have increased during the pandemic.

America's billionaires – some of whom live in Washington – have increased their fortunes by more than $ 1 trillion since the pandemic began, according to Forbes.

A recent survey by KING 5 / Survey USA found that 59% support the current proposal which is being considered in the legislation. However, a Crosscut / Elway poll in January asking for Inslee's original proposal with the lower income thresholds found that only 41% supported the idea.

According to Sinderman, Democrats can make capital gains tax a profitable topic if they focus on tax equity and the services that the proceeds of a capital gains tax can buy.

"You can run for re-election," said Sinderman. (Copyright 2021 Northwest News Network)