2018 Legislature blocks big new taxes – for now
Yet Dems balk at meaningful relief from property taxes and car-tab increases
You might think Washington’s booming economy and fast-rising tax collections would silence the Legislature’s talk of big tax increases. But never underestimate the appetite for money at the statehouse. 2018 was one of the best years ever for Washington state finances, yet advocates of higher taxes and spending were thinking big, and they weren’t about to let a lack of need get in the way.
Proposals for a new state income tax and steep new taxes on energy usage made considerable headway in the Democrat-controlled House and Senate during the 2018 legislative session. Though these taxes were blocked by Republicans and a handful of fiscally responsible Democrats, a return bout is likely in 2019.
Meanwhile, the assumption of many liberal Democrats that the state just isn’t taxed enough was underscored by 2018’s debate over property tax relief. Washington had more than enough money to erase this year’s $1 billion spike in property taxes, but Democratic-party leaders chose instead to spend the cash on new programs. As they did so, they started the long, slow process of repeating the mistakes that got the state into trouble during the last recession.
Worse, Democratic decision-makers failed to consider the reasons for the state’s good fortune. Economists tell us a rip-roaring state economy will generate a whopping $2.3 billion in unanticipated tax collections over the next four years. This windfall is generated by an increase in business activity – the result of low-cost energy and a tax code favorable toward the tech industry and other types of business enterprises. The benefits of an improving economy are felt by all, right down to struggling families in need of good-paying jobs. Believing Washington’s prosperity has no connection with taxes is a little like believing you can kill the golden goose and still have it lay eggs.
Here’s a rundown on 2018’s most-taxing proposals:
ENERGY TAXES: For the third session in a row [It seems like he has proposed something all five of his years as Governor], Gov. Jay Inslee pushed a tax on energy, arguing that higher taxes would reduce carbon emissions, and leading people to believe – wrongly – that the tax would have a measurable impact on world climate. This “tax on carbon” was really a tax on the people of Washington. SB 6203 exempted virtually all industries that generate carbon, in a bid for support from Washington’s most influential businesses. Nearly all costs would have been borne by individuals in Washington state, in the form of higher prices for gasoline and electricity. Taxes on motor fuel would have reached 30 cents a gallon, driving up the cost of transportation, goods and services, yet not a dime would have gone toward road projects. Problems are inherent in the concept: The assumption is that higher prices would discourage energy consumption – meaning that the tax is predicated on creating hardship and misery for the state’s working families. The tax made it out of committee in the Senate, but failed to receive a vote on the Senate floor. Even Democrats had trouble swallowing it.
Seattle Times: Washington’s carbon tax bill dies in Legislature
Associated Press: Governor’s carbon tax bill dies in Legislature
Tri-City Herald (editorial): Inslee’s carbon tax unfair to middle class
CAPITAL GAINS INCOME TAX: The people of Washington have said no to an income tax nine times since 1934. The last time it appeared on the ballot, in 2010, nearly two-thirds of voters said no. Yet advocates of higher taxes and spending are unwilling to admit defeat. Instead they’ve just gotten cleverer, and this year they got further than ever.
Ever since that last drubbing at the polls, tax advocates have been pushing a narrow type of income tax, on capital gains income. They say it isn’t an income tax, but rather something entirely different — contrary to federal definitions, the tax codes of every other state that taxes capital gains and ordinary common sense. They insist the tax would only hurt the rich. And they say it would never, ever, EVER be expanded into a general income tax – cross their hearts and hope to die.
The experience of other states shows us otherwise. Tax collections would plummet in the next downturn, backing the state into a corner and forcing lawmakers to consider increases in other taxes. The easiest way out would be to broaden the base to encompass ordinary income, and by doing so, taxing the middle class. Worse, a capital gains income tax would likely face an immediate court challenge. This would give Washington’s liberal, activist Supreme Court an excuse to overturn its 1933 decision that a graduated income tax requires a constitutional amendment. This would allow the Legislature to impose a general income tax without a public vote.
This year’s proposal was offered by House Democrats, ostensibly to provide property tax relief, though no relief would have occurred until after 2021, long after this year’s crisis has passed. Future Legislatures would have been free to divert the money to other purposes. Passage of the tax bill, HB 2967, was assumed in the budget proposal passed by House Democrats on a party-line vote, but House Democratic leaders did not bring the tax bill to the floor, sparing their members the need to take a recorded vote for an income tax. The proposal did not emerge in the Legislature’s final budget agreement.
The (Everett) Herald: House Democrats: Use capital gains tax to keep property tax rate lower
Spokesman-Review: Property tax break, capital gains in Democrats’ budget
SUGARY DRINK TAX: Taking their lead from the Seattle City Council, a dozen Democrats sought to reintroduce a bill, HB 1975, that would have imposed a sugary drink tax statewide. Seattle’s new soda tax, imposed in January, raises the cost of a standard can of pop by 21 cents. The state proposal was even higher, and would have included sugar-free beverages as well. Favored by those who think beverage choices are a proper concern for the Legislature, the proposal failed to win support and did not move forward this session.
PROPERTY TAX RELIEF: One of the big disappointments of the year, the Legislature failed to pass meaningful property tax relief. Temporary increases in this year’s property taxes, the result of a school-financing plan approved last year, will reach nearly $1 billion. This year’s record tax revenues were more than enough to fix the problem Since the Legislature adjourned in 2017, new tax revenue projections have shown the state can expect $2.3 billion in additional tax money. During debates on the Senate floor, Republicans proposed four times that $1 billion be returned to the people of the state, in the form of a property tax cut this year. All Republicans voted yes, and all members of the Senate Democratic Caucus voted no – every time.
Democrats countered with a plan that provided just $400 million in relief – 40 cents on the dollar – and won’t provide relief until next year, when the crisis has passed. Worse, rather than taking the money from the state’s unrestricted reserves, SB 6614 plucked it from a deposit the state was supposed to make this year to its Rainy Day Fund. This accounting maneuver evaded a constitutional requirement for a two-thirds vote of the House and Senate before the fund can be drawn down, and leaves Washington more vulnerable to a recession economists insist is just around the corner.
Sen. Doug Ericksen: Republicans propose $1 billion property tax cut
The (Everett) Herald: Why Republican legislators voted against a property tax cut
SOUND TRANSIT RELIEF: In another major disappointment, Democratic leaders turned their back on Puget Sound motorists angered by steep increases in car-tab taxes. These increases – sometimes hundreds of dollars per vehicle – are caused by a $54 billion transit measure offered by Sound Transit and approved by voters in 2016. Unfortunately, Sound Transit understated the impact and failed to tell voters that it planned to use a long-discarded tax schedule that deliberately inflates vehicle valuations. A Republican proposal, SB 6303, offered meaningful relief – a 55 percent cut in car-tab taxes that would not affect Sound Transit’s plans for rail expansion if it brings in projects on time and on budget. Democrats in both chambers passed much more meager proposals, worth only about $40 to the average household, and then waited until the final days of the session to launch debate. On the very last day, House Democratic leaders refused to allow a vote on SB 5955, and tried to blame Republicans for offering amendments – making it clear that car-tab relief was not one of their priorities.
The (Tacoma) News Tribune: Push to cut Sound Transit 3 car tab fees fails as last-minute deal falls through
Steve O’Ban: Democrats killed car-tab relief during 2018 session