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State leaders split on sales tax hike

Senate, House Democrats differ with each other, governor over how to bridge $2.8 billion deficit

The Columbian
Published: February 24, 2010, 12:00am

OLYMPIA — With less than three weeks remaining to strike a deal, the state’s Democratic leaders are split over which taxes to raise as they work toward balancing a $2.8 billion budget deficit.

In dueling proposals revealed Tuesday, the state’s House and Senate budget writers sketched out their preferred methods of bridging that deficit, which represents the gap between planned state spending and expected tax revenue through June 2011.

Lawmakers from both chambers want to raise more revenue and cut less state spending than Democratic Gov. Chris Gregoire. But it’s unclear exactly how they’ll make those plans pencil out.

Plan would maintain some Larch funding

In short: The Senate wants a temporary sales tax increase as one of its revenue streams, but Gregoire doesn’t like that approach and has offered a menu of targeted tax hikes instead. The House, which is supposed to unveil its tax plan today, has appeared to be leaning away from a sales tax in recent days.

Even as they explained the details of their tax proposal Tuesday morning, it was clear that Senate Democrats are still not necessarily united behind their revenue plan.

“We said everything’s on the table,” said Ways and Means Chairwoman Margarita Prentice, D-Renton. “Everything was, and probably still is.”

Minority Republicans have little ability to affect the final budget picture, but offered plenty of criticism over the Democratic plans to raise taxes amid a fragile economic recovery and the worst state unemployment in 25 years.

“I believe we can balance this budget without harming employers and families with onerous tax increases,” said Rep. Gary Alexander, R-Olympia. “We need true government reform — something which the majority party has been reluctant to consider thus far.”

Tax increases would outweigh government spending cuts in both chambers’ proposals for the $31 billion state general fund.

Democratic leaders pointed out that they closed a $9 billion deficit last year without major tax increases, instead relying heavily on federal aid and across-the-board reductions in state spending.

The Senate plan assumes roughly $920 million in tax increases and about $840 million in spending cuts. About $500 million would come from fund transfers and other one-time fixes, with federal assistance penciled in for about $580 million.

The tax package was the highlight of Tuesday’s news, particularly the decision to seek a 0.3 percent increase in the state sales tax, expiring in mid-2013. That would push the state rate to 6.8 percent, and with local additions consumers would pay just under 10 percent in the state’s most expensive cities.

Factoring in a proposed rebate for lower-income Washingtonians, the sales tax increase would net about $313 million for the remainder of this fiscal year.

The Senate plan also would close a bevy of tax exemptions totaling about $520 million. That list includes $92 million from ending a tax break for car trade-ins and $73 million for a tax-code rewrite that hits out-of-state firms doing business in Washington.

Senators also want to slap an additional $1-per-pack tax on cigarettes. That would generate $86 million in the short term, but Democrats say they hope it also saves long-term health costs by pricing more people out of the habit.

The House Democrats’ budget plan calls for about $860 million in higher taxes and about $650 million in spending cuts. Some $550 million would be solved with fund transfers and other one-time solutions, while federal bailouts would account for about $640 million.

Cuts in both budget plans would hit across government, although the two chambers showed some noticeable differences. Public education advocates particularly decried the Senate’s stronger hand in reducing K-12 education payments, centered around a roughly $103 million reduction in staffing money for teachers up to fourth grade.

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