Washington Governor Jay Inslee said Thursday, "it is time to reinvest in Washington." He proposed that the state adopt a new capital-gains tax to help fund a $39 billion two-year budget that would prioritize education, union-negotiated pay raises for state employees, and avoid what the Democratic governor calls “devastating” cuts to corrections, higher education and social services.
The proposed seven percent tax on capital gains is aimed a higher-earning Washingtonians and would include exemptions for retirement accounts, homes and farms. The Inslee administration notes Oregon and Idaho already tax capital gains at a higher rate. Critics say it’s a volatile source of funds, but Inslee Thursday called it "a fair way to raise needed revenue."
"This budget will accomplish these four things," he said, "stronger schools, healthier kids, cleaner air and a fairer tax system."
Inslee’s proposal would tax capital gains over $25,000 ($50,000 for joint filers) and is part of a larger $1.5 billion tax package Inslee is urging lawmakers to enact. Other elements of that package include:
- a tax on carbon pollution
- a cigarette tax increase of 50 cents per pack
- an excise tax on e-cigarettes
- a repeal of the tax exemption for vehicle trade-ins over $10,000 in value
Inslee would also eliminate a handful of other tax exemptions, including for bottled water and for out-of-state shoppers from states like Oregon that have no sales tax.
On the flip side, Inslee wants to extend or renew several tax breaks worth about $100 million, including ones designed to encourage high-tech and carbon fiber investment in Washington.
Inslee unveiled his budget and the accompanying tax package at a news conference at the capitol at 10:30 a.m. The governor has the power to propose a budget, but the legislature will decide on the budget for the next two years when it convenes in January 2015.
In budget documents the Inslee administration said, “state revenue collections no longer keep pace with the growth of our economy or with increasing demands for services.”
Inslee also views the state’s tax system as “unfair and outdated.” His embrace of a robust tax package represents a reversal from his position as a candidate in 2012 when Inslee indicated opposition to raising taxes.
Even without a tax package, Washington is expected to reel in an additional nearly $3 billion in revenues over the next two years because of the recovering economy. But Inslee believes that isn’t enough to maintain services and fund other demands, like the Supreme Court’s mandate in the McCleary case that the state increase spending on K-12 education.
As required by law, Inslee also released a balanced budget proposal that relies on no new revenues. In that budget, higher education would face a 10 percent cut, prison inmates would have 150 days shaved off their sentences and nearly 1,400 low-income pre-school slots would be eliminated.
The Inslee administration has warned that additional cuts to social services would likely open the state to additional lawsuits. Already, the state of Washington is under court order to expand funding to public schools, mental health and foster youth. Social service advocates call this the “boomerang” effect of cuts.
Inslee’s budget, which represents a 15 percent increase over the current two-year spending plan, is sure to face criticism from Republican lawmakers who now control the Washington Senate. Senate budget chair Andy Hill, R-Redmond, reacted warily.
“I’m not a no-tax-ever person," Hill said. "But I believe taxes should be the last thing you look at.”
Last month, Hill offered a toothpaste analogy when it comes to state spending. “For the last four years I’ve heard that tube of toothpaste has been squeezed all it can be squeezed,” Hill said after a revenue forecast meeting.
Inslee’s budget rollout follows a three-day road show during which he unveiled details of his pre-K through higher education spending plan, a proposed $12 billion transportation package and his plan to enact a cap-and-trade system to reduce carbon emissions.