The regular legislative session ended for all intents and purposes last week in Olympia with a symbolic vote on two Senate bills seeking to impose new taxes via the business gross receipts (B&O) tax and an income tax on capital gains. The floor debate quickly became a venue for lawmakers on both sides to vent frustration over ongoing statehouse gridlock ever since the House Democrats released their proposed 2017-19 operating budget expenditures without approving new revenue streams to pay for the billions in increased spending.
On Friday, April 21, SB 5111 and SB 5113 failed to receive a single “yes” vote, with one member excused. The bills were sponsored at the request of Governor Jay Inslee and were originally part of his proposed operating budget. However, amendments made by Senate Republicans replaced the language in Inslee’s bill with that similar to House bills also restructuring the B&O system and imposing an income tax on capital gains.
Both bills were brought to the Senate floor for debate after Lieutenant Governor Cyrus Habib (D) declared certain Senate procedural rules unconstitutional; his opinion came at the request of Senate Republicans. Those rules passed early in the session required a supermajority or two-thirds vote for any bills increasing taxes could be brought to the floor for a vote. Although the Senate Majority Coalition could have overridden Habib’s ruling with a simple majority vote, they let it stand.
‘Not A Helpful Way To Get Started’
The symbolic vote served to make a point Senate Republicans have reiterated throughout the session; they will not begin negotiations with House Democrats until they approve new taxes to fund the spending in their budget.
State Sen. Michael Baumgartner (R-6) told colleagues on the Senate floor that “we’ve had one budget in Olympia that is funded. We started this session with the governor proposing a budget that was not a helpful budget, it was not in balance, it was unlawful because it did not abide the four-year balanced budget requirement, and it relied on ridiculous taxes that no one would fund. That was not a helpful way to get started.”
HB 2186 sponsored by Finance Committee Chair Rep. Kristine Lytton (D-40) would provide the necessary revenue for the House Democrat budget, but it has not advanced since it received a “do pass” recommendation from the House Finance Committee on April 4 and was referred to Rules Committee.
Braun: House Democrats Need To Be Serious
As Lens previously reported, the bill would add a number of new taxes in an attempt to fully fund education, including a seven percent capital gains income tax, modifying the business and occupation (B&O) tax surcharge, and replacing the real estate excise tax with a progressive tax rate.
“If you want to propose a tax increase, that’s certainly within your rights to do so,” State Sen. John Braun (R-20) told colleagues. “But you have to be serious, you have to bring it to the floor of your chamber and you have to vote on it, and if you don’t do so, you cannot expect us to negotiate about it.”
“I’m hopeful today that it will show conclusively that there is not support for this bill and that we can set this bill and the previous bill aside and we can sit down and do the serious work of funding services in our state, of funding education in our state,” he added.
As currently amended, the Senate’s 2017-19 operating budget includes $44.9 billion in appropriations from the State General Fund, Education Legacy Trust Account, and the Opportunity Pathways Account, and includes $88.3 billion in state, federal, or other funding sources.
SB 5113 would have added a one percent tax rate to the business and occupation (B&O) tax classification for services excluding hospitals and research and development activities, from 1.5 percent to 2.5 percent. The additional revenue would then be deposited into the Education Legacy Trust account, in an attempt further invest in education.
The bill would also provide small businesses relief by increasing their tax credit from $70 per month to $125 per month, for those reporting at least half of their B&O taxes under the service and other activities classification. Also, businesses reporting at least 50 percent of their B&O taxes under that classification would receive an increased tax return filing threshold, from $46,000 annually to $100,000.
‘Different Tact’ Needed By House Dems.
Democratic Floor Leader Marko Liias (D-21) considered a Senate vote on SB 5113 unacceptable before the House finished its own vote on the bill, and urged House Democrats to “take a different tact moving forward.”
He added, “Let’s find things we can do together to fund education, mental health, our safety net, and continue investing in our communities so together we can move our state forward. This (bill) does not accomplish that…I am asking for us to stop this type of behavior, to work together, and get this job done for the people of Washington.
State Sen. Steve O’Ban (R-28) likened the legislature budget negotiations to selling a house, where a smart seller should only negotiate with a buyer who actually has money available.
“We are showing tonight how negotiation will proceed and we have defined that we will negotiate with the buyer who will negotiate with us with existing revenue…this is a real vote, this is a real indication of us if there is support for new revenue; there is no support for new revenue,” he said.
However, State Sen. Patty Kuderer (D-48) argued that “if we had invested half that amount of effort into negotiating, we’d already have a budget agreed to, and we’d been done on time.”
State Sen. Phil Fortunato (R-31) stated that talks can’t commence until either House Democrats reduce spending in their budget or get the votes necessary to pay for it.
“If I am on a negotiating table, how am I going to stand up there and how am I going to say ‘well, maybe if you cut this, it might bring your budget into balance,'” he said. “I’m not negotiating against myself; somebody has to make the hard decisions….now, if you are going to cut your spending and not raise taxes, I need to know that, I need to know what you are going to cut, I need to know if you are going to raise taxes, it’s a pretty simple equation.”
Additional reporting by TJ Martinell.