Capital gains tax, LCFS within reach next session

Capital gains tax, LCFS within reach next session
The change in the makeup of the Washington legislature may make a capital gains income tax and low carbon fuel standard more likely outcomes in the 2021 legislative session. Photo: freepik.com

Democrat lawmakers and Governor Jay Inslee for years have sought to enact a variety of tax and regulatory proposals that have failed due to bipartisan opposition from key legislators in both chambers. However, the Nov. 3 election concluded with four incumbents trailing their opponents, which could result in an overall stronger Democrat majority in both chambers, making a low carbon fuel standard (LCFS) and a capital gains tax more likely outcomes of the upcoming legislative session in January.

Washington Retail Association Government Affairs Vice President Mark Johnson said there are also other issues on the table such as secure scheduling, citing the possible defeat of Sen. Mark Mullet (D-5) in a high-profile race against another Democrat, Ingrid Anderson. A secure scheduling bill was introduced last year, but failed to clear the state Senate.

“We really viewed him (Mullet) as a moderate pro-business, pro-retail voice within his caucus,” Johnson said. “With him possibly losing, we see that moderate pro-business voice in the caucus going away. If that’s the case, folks that want the prescheduling bill will have an easier time getting it through the Senate.”

Along with Mullet, Sens. Dean Takko (D-19), Steve O’Ban (R-28) and Rep. Brian Blake (D-19) are trailing their opponents. Forecasting the 19th District’s shift in political leanings was Rep. Jim Walsh’s (R-19) victory in the 2016 election that made him the second Republican to serve from there in the past 70 years.

Washington Policy Center (WPC) Environmental Director Todd Myers told Lens the election has resulted in further polarization, adding that “the role of special interests has increased. We’re seeing moderate Democrats lose in Grays Harbor and moderate Democrats lose in Issaquah. People are pushing their own districts to the fringes.”

WPC Government Reform Director Jason Mercier told Lens that if the election results so far don’t change, he also expects lawmakers to enact a capital gains income tax, which has been previously included in proposed state operating budgets and as standalone bills. Advocates argue that it will help make the state tax system more progressive, while state officials have called the lack of a capital gains income tax a “selling point” for attracting businesses and “economic refugees” from other states. Other critics view the proposal as both unconstitutional and also part of a strategy to overturn the state’s prohibition on a graduated income tax. Incidentally, Washington voters opposed new taxes passed by the state legislature in all four advisory votes.

Johnson said a capital gains income tax would hurt smaller retailers and would be ill-timed to coincide with an expected surge in unemployment insurance taxes. The one positive change he sees affecting retailers is data privacy management; nine separate bills were introduced this session, with Sen. Reuven Carlyle (D-36) and Rep. Norma Smith (R-10) among the sponsors. However, none of the bills passed. The closest was Carlyle’s SB 6182 that cleared the Senate, but the chamber rejected amendments made to the version approved by the House.

Although Johnson says he’s “cautiously optimistic on” that bill getting through this year, he added: “I don’t see any positive tax policy from our point of view coming from the legislature. There’s a lot of thirst for more revenue, and folks – we’re in the middle of a pandemic.”

A defeat of Mullet could also trigger internal changes within Senate Democrat committee leadership that to date has kept an LCFS proposal from passing since it was first introduced in 2017. After numerous failed attempts in the legislature, the Puget Sound Regional Air Agency (PSRAA) introduced its own proposal before shelving it for the 2020 legislative session, where another LCFS bill in the Senate met intense opposition. An LCFS program regulates the carbon intensity of fuels, requiring entities that sell fuel above the standard to buy credits from entities such as biofuel producers. California and Oregon are both in the process of implementing LCFS programs. One of the primary contentions that opponents have with an LCFS is cost – PSRAA’s own analysis estimated it could raise fuel prices in that region by $.57 per gallon.

Myers and others who oppose such a program also highlight the relative ineffectiveness of an LCFS compared to other greenhouse gas reduction projects.

“My concern is that data matters less and special interest pandering matters more,” Myers said. Given the amount of money and the nastiness of that (5th District) race and some others, I would be surprised if those legislators in their freshmen year turned their back on the special interests even for policies that are silly.”

The legislative session is scheduled to begin Jan. 11.

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