As Budget Talks Stall, Members Resort to Political Theater

As Budget Talks Stall, Members Resort to Political Theater
T?he day before the state legislature began its special session, Sen. Dino Rossi (R-45) introduced SB 5929. The bill is a replica of HB 2186, which calls for a variety of new taxes, including an income tax on capital gains.

With budget negotiations at a standstill, Washington state lawmakers are resorting to creative methods to continue discussions. After forcing a symbolic vote April 21 on two tax proposals, Senate Republicans this week introduced replica legislation of a House Democrat tax bill to further highlight the lack of political support for new taxes necessary to cover increased spending in the House’s 2017-19 proposed operating budget.

Ways and Means Vice Chair Sen. Dino Rossi (R-45), prime sponsor of that bill — SB 5929 — told Lens “we’ve already proven on Friday that we have zero votes for the capital gains tax and zero votes for the B&O (business gross receipts) tax. My goal is to just move this thing along; let’s get down to some serious budget writing.”

The Rossi bill’s language comes from HB 2186, sponsored by House Finance Chair Rep. Kristine Lytton (D-40). He said he introduced it on the last day of regular session to “see what kind of votes we have” for it in the Senate.

Which To Approve First: Spending Or Funding

Driving the legislative impasse is disagreement regarding the conditions for budget talks to commence. Top-ranking House lawmakers say they won’t pass HB 2186 until both chambers approve the spending portion of the operating budget. However, Senate Republican say without it, the proposed new spending is a “wish list,” and refuse to negotiate until the House either reduces spending or passes a tax package.

Like HB 2186, SB 5929 would implement the following:

  • A 20 percent business and occupation tax surcharge for employers that make more than $150,000 a year;
  • A seven percent capital gains income tax;
  • Replacement of the state’s 1.28 percent real estate excise tax (REET) with a graduated rate based on the sale amount;
  • Elimination of the sale and use tax exemption for bottled water; and
  • Elimination of the nonresidential sales tax exemption, replacing it with a rebate program.

Questioning The Necessity Of New Taxes

However, Rossi told Lens that “just like the House Democrats, I have no intention of voting for it. Bottom line is that they have been telling their supporters for so long that we have to punish the public with high confiscatory tax rates, even though we have $3 billion more in revenue this year to spend than we did the previous one, that they dragged us into special session just to prove to their supporters…that they tried. That’s unfortunately where we are.”

Senate Democrats at the April 26 public hearing for SB 5929 focused on the minority of state residents they believe would be negatively affected by the tax proposals. Sen. Andy Billig (D-3) told colleagues that it “sounds like there are a lot of winners in this type of a plan.”

When asked by Ranking Minority Member Sen. Kevin Ranker (D-40) to provide the information, committee staff said that around 48,000 people would be financially liable for the capital gains tax. Under the proposed REET system, four percent of transactions would experience a rate increase, while 49 percent of transactions would have a reduced rate and 47 percent would have the same rate.

Tax Proposals Effect On Retiring Business Owners

However, business and industry leaders testifying at the hearing warned that many of the bill’s taxes would harm the state’s business climate—particularly small business owners.

“Most small business owners rely on the sale of that enterprise in order to fund their retirement,” said Patrick Connor, Washington State Director for the National Federation of Independent Businesses.

He added that although “the bill does include a number of exemptions for retirement investment accounts from the capital gains proposal…the sale of a small business would largely be subject to tax.”

Connor said the B&O surcharge takes the wrong approach to system restructure. “We should have a broad-based, low tax rate, rather than having it pyramided to where fewer taxpayers are bearing more of the burden.”

Echoing that sentiment was Mark Johnson, Senior Vice President of Government Relations for the Washington Retail Association. “Many privately owned establishments are the owner’s retirement plan. They put all their efforts into making a business successful in the hopes of one day selling the shop to retire. The capital gains tax unfairly punishes them.”

With no executive action scheduled for Rossi’s bill, it remains to be seen how lawmakers will proceed.

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