Gov. Inslee’s tax proposals have been introduced in the Legislature

By: Emily Makings
10:31 am
January 15, 2019

The 2019 legislative session began yesterday. The main to-do this year, of course, is the 2019–21 budget. Gov. Inslee’s proposal, which we wrote about here, would increase spending from funds subject to the outlook by $9.973 billion and taxes by $3.689 billion. The tax package includes a capital gains tax and an increase to the B&O tax rate on services.

Gov. Inslee also proposed a graduated rate for the real estate excise tax (REET), but the increase in those revenues would not go to the funds subject to the outlook. The proposal would increase revenues by $402 million (on top of the $3.689 billion).

Gov. Inslee’s proposals to impose a 9 percent capital gains tax and increase the B&O tax rate on services have been introduced in the Senate as SB 5129. The bill specifies that the revenues from the additional B&O tax rate must be split between the general fund (20 percent) and the education legacy trust account (80 percent). This is done to avoid an extraordinary revenue growth deposit to the rainy day fund, as we discussed in our policy brief on the governor’s budget.

There’s no fiscal note yet, but in the governor’s budget documents, the B&O tax change is estimated to increase revenues by $2.612 billion in 2019–21. The capital gains tax is estimated to increase revenues by $975.6 million in 2019–21 (when there would be just one year of receipts) and $2.141 billion in 2021–23. But, as we noted in our brief on the governor’s budget, given the likelihood that a capital gains tax would be challenged in the courts, it is unlikely that the state would collect any revenues from the tax in the near future.

The REET proposal has been introduced in the Senate as SB 5130. Under current law, revenues from the REET are deposited in the public works assistance account, the education legacy trust account, the city-county assistance account, and the general fund. Under the bill, 16.7 percent of the revenues would be deposited in the motor vehicle fund going forward. This corresponds to the estimated revenue increase from the proposal. (Additionally, SB 5130 would move up increases in certain vehicle weight fees from July 1, 2022 to Aug. 1, 2019.)

How likely is it that these proposals will be enacted? Joseph O’Sullivan of the Seattle Times reports,

Lawmakers will need some new revenue to fund existing programs and new priorities, according to Sen. Christine Rolfes, D-Bainbridge Island.

But Rolfes, the Senate’s chief Democratic budget writer, said her party doesn’t have the votes — or necessarily the agreement — to “unilaterally do a lot of radical things.”

For new revenue, Rolfes said eliminating some tax preferences or a version of the governor’s real estate excise tax plan, could work. She also said a smaller version of the governor’s proposed business-and-occupation tax might gain traction. That plan would raise the rate for some services, including accountants, architects, attorneys, janitorial services, massage therapists and beauticians.

Meanwhile, TVW’s show “The Impact” interviewed various legislators and the governor yesterday. House Majority Leader Pat Sullivan said that at the end of the budget-writing process, they’ll

. . . take a look at revenue, if that’s needed in order to ensure that we can have a quality budget that moves our state forward. . . . Our budget in the House the last several years has included a capital gains excise tax and I think there’s a majority in our caucus that would continue to support that, so I would say that would be on the top of the list.

Categories: Budget , Categories , Tax Policy.
Tags: 2019-21