Tax the rich, cut sales tax: WA Democrats gear up for budget talks

Washington’s Democratic lawmakers began to unveil details Thursday about how they want to change state taxes as they grapple with how to close a multibillion-dollar budget deficit.

Their plans include five separate proposals that would boost taxes on wealthy people and companies, give local governments more options to raise property taxes, end some tax exemptions, and cut the state’s sales tax rate.

“We are choosing not to balance our budget entirely through devastating cuts or doubling down on our regressive tax code,” said Seattle Sen. Noel Frame, one of the revenue budget leads for Senate Democrats.

It's unclear whether Gov. Bob Ferguson will support any of the proposals. Ferguson, a Democrat, has so far focused on cuts when he's talked about the state's budget deficit. His office did not respond to a request for comment for this story.

According to Senate Democrats’ calculations, the proposals together would bring in roughly $17 billion over the next four years. Officials have estimated that the state’s budget deficit over that same time period ranges between $10-15 billion, depending on new spending decisions.

But because Democrats are anticipating major additional spending in education, and some of the revenue proposals wouldn’t kick in until 2027, they are still planning to make some cuts, even if only temporarily. They’ll reveal their comprehensive budget plans — with more details about how their revenue proposals would intersect with new spending and cuts — Monday.

The two biggest proposals from the Senate Democrats would raise taxes on the state’s wealthiest residents and companies.

The first would add a $10 tax on every $1,000 worth of a person’s “intangible assets” — things like stocks and bonds. Those totals would be calculated based on a person’s assets as of Dec. 31st of each year, and only apply to people who have more than $50 million worth of those types of assets.

Democrats estimate that tax would apply to about 4,300 people in the state and bring in roughly $4 billion a year starting in 2027, with that revenue directed to schools.

The second largest proposal would replicate Seattle’s “JumpStart” tax, which taxes large companies based on their highly paid employees’ earnings. Democrats' proposal would impose a 5% tax for companies based on payroll expenses above the Social Security taxation threshold.

Essentially, companies are required to pay Social Security and paid family medical leave taxes alongside their employees, up to a base amount calculated at the federal level – which this year, is $176,100. Companies aren’t required to pay Social Security taxes on an employee’s income above that base limit. The Democrats’ proposal would add a 5% tax that companies would have to pay on an employee’s income above the limit, basically picking up where Social Security and paid family medical leave left off.

It would apply only to companies with $7 million or more in payroll costs — that’s about 5,289 companies in the state, according to Senate Democrats. They estimate that this change would bring in about $2.3 billion a year once fully implemented. Companies that already pay into Seattle’s JumpStart tax would be fully exempt from the state’s version.

House Democrats haven’t formally announced their tax proposals yet, but House Speaker Laurie Jinkins (D-Tacoma) said Wednesday that her caucus’s tax bills would be made public before full budget proposals are released. Democratic leaders have said there is widespread agreement between the two majority caucuses in both chambers, but that their revenue proposals won’t be identical.

“It’s important to have as many options as we can out there and get feedback on them,” Jinkins said.

That means that the details of the various proposals will change before lawmakers in both the House and Senate strike an agreement in the coming weeks.

Republicans, meanwhile, are already condemning the newly unveiled tax plans.

Sen. Chris Gildon (R-Puyallup) said in a statement he is particularly concerned by the proposal to give local governments the option to increase property tax collections based on population growth and inflation.

“My first reaction was wow — this is a new kind of March madness,” Gildon said in the statement, referencing the national college basketball tournaments that began this week. “We keep hearing from Senate Democrats that they want to make the wealthiest Washingtonians pay more. But the property-tax increase they want is regressive.”

Senate Republicans unveiled their own budget proposal last week, which would include no new taxes and eliminate some spending — including raises for state workers. Instead, the Republican proposal would offer $5,000 bonuses to workers in lieu of the pay raises they collectively bargained for last year.

Organizations that work with the Legislature weighed in Thursday after the Democrats’ revenue plans went public.

Business groups, including the Association of Washington Businesses and Bellevue and Seattle Metropolitan Chambers of Commerce, said in a statement the Democrats’ proposals were disappointing but unsurprising.

“What makes these proposals particularly reckless is that lawmakers are knowingly taking these actions against a backdrop of national policy instability and global tensions,“ the statement said.

Meanwhile, Invest in Washington Now, a coalition that advocates for progressive taxes and played a key part in last year’s campaign to preserve the state’s capital gains tax, praised the Democrats’ plans in a statement.

“This is a major win for working people in Washington,” said Treasure Mackley, Invest In Washington Now’s executive director. “The Legislature is finally listening to the voters who are saying that the wealthy few need to come to the table and pay what they owe.”