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Sept. 18, 2021

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In Our View: Get Back to Reality

House Dems' capital-gains tax, GOP's reliance on pot money bad budget steps

The Columbian
Published:

They’re getting closer. Slowly, incrementally, tantalizingly, House Democrats and Senate Republicans are inching toward each other in their competing budget proposals for the 2015-17 biennium. Yet while the sides are closing in on those favored political catchphrases of “compromise” and “bipartisanship,” problems remain with both proposals as the Legislature digs into its second special session.

On Monday, Democrats unveiled their latest proposal, a plan that reduces spending from their previous budget by about $460 million. Yet the linchpin of their budget remains a proposed capital-gains tax designed to raise a projected $570 million for the final year of the 2015-17 budget. Of that, $400 million would be earmarked for K-12 public schools, with the rest going toward higher education.

The new tax would affect an estimated 32,000 Washington residents, placing a 5 percent charge on investment earnings of greater than $50,000 for married couples and greater than $25,000 for individuals, with exceptions for primary residences and retirement accounts. “If you are super-wealthy in this state, your tax rate is about 2.4 percent,” said Rep. Reuven Carlyle, D-Seattle. “If you’re really low income, your tax rate is nearly 17 percent. And if you’re middle class, it’s about 9 percent. … We’re better than this as a state.”

Carlyle’s argument makes sense, and it points out the regressive nature of the state’s tax structure. But the fact is that House Democrats — with support from Gov. Jay Inslee — are howling at the moon when it comes to a capital-gains tax. With state revenue growing thanks to an improving economy, the assertion from Republicans that government does not require new taxes has garnered momentum. On May 11, the latest revenue forecast from economists projected an additional $400 million in revenue for state coffers through mid-2017, lending gravitas to the Republicans’ position.

The reality is that the Democrats’ push for a capital-gains tax might be defensible, but the debate appears unwinnable.

Not that Republicans are on the side of the angels when it comes to their budget proposal. Among the faulty assumptions is one that takes at face value the state’s estimate for money from marijuana taxes. Economists have projected $1.1 billion in such revenue over the next four years, and Republicans are counting on that in their budget proposal. Reality, however, suggests that marijuana-tax projections are an imperfect science.

Unlike projections for property taxes or sales taxes, where there are decades worth of data from which to formulate predictions, marijuana is uncharted territory. With the medical marijuana industry being folded into the recreational marijuana industry — and with Oregon certain to cut into Washington’s marijuana taxes as it legalizes recreational use — revenue is largely unpredictable. Because of that, budget writers should proceed with caution rather than counting upon the most rosy of predictions.

Furthermore, the Republican proposal boosts its previous allocation for state-worker contracts negotiated with the state — in exchange for making collective bargaining negotiations open to the public. Like the Democrats’ quest for a capital-gains tax, this is an idea whose time has not yet come.

For now, budget-writers from both sides are meeting each morning in the governor’s office as they continue to hammer away at the proposals. The time has come for a leap forward rather than incremental progress.

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