Each December, in accordance with state law, the governor presents a proposed budget to the Legislature. And each January, lawmakers largely ignore that proposal. So consider the two-year operating budget offered recently by Gov. Jay Inslee to be little more than a suggestion, but one that requires examination.
The state government is expected to have record revenue of about $50 billion for the next two years, and Inslee has presented a plan that would spend $54.4 billion — an increase of roughly 20 percent over the budget for the current biennium. Inslee has proposed $3.7 billion in new taxes, which is sure to make more than a few legislators choke on their lattes. Rather than reaching deeper into the pockets of taxpayers, lawmakers should figure out a way to make do with what they have.
Most notable among the governor’s requests is a new capital gains tax. The tax would charge 9 percent on capital gains above $25,000 for individuals and above $50,000 for households. Retirement accounts, homes and farms would be exempt, and the tax would affect an estimated 1.5 percent of Washington households. It would raise $1 billion for the first biennium and about $1 billion annually after that.
It also would invite a protracted legal battle over whether or not a capital gains tax constitutes an income tax, which was deemed unconstitutional by the state Supreme Court in the 1930s. Since then, voters have rejected income tax proposals on 11 occasions.
A capital gains tax might, indeed, be best for the long-term fiscal health of the state. Washington’s tax system, which relies heavily on sales tax because there is no income tax, is often deemed the most regressive in the nation. But until the Legislature and voters agree to alter the state constitution to allow an income tax, it is unlikely that a capital gains proposal will make it further than the recycling bin — or get past the courts.
Inslee also has proposed increasing the business-and-occupation tax rate for services — such as lawyers or accountants — from 1.5 percent to 2.5 percent, a boost that would bring in an additional $2.6 billion over two years. And he wants to increase the real estate excise tax.
The reason for the proposal is not a reflexive desire to raise taxes. The state does, indeed, have pressing issues that require attention, particularly the Legislature’s solution to the McCleary school-funding case, mental health care and clean energy development to combat climate change. “This budget is asking Washingtonians to decide we care enough about our children and our future and our clean air and water to make investments to maintain those things,” the governor said.
Many of those expenses are unavoidable. The Legislature followed its constitutional mandate for school funding by shifting some of the burden from districts to the state, and Washington’s mental health system is in dire need of attention. But with the revenue produced by a strong economy, lawmakers have the funds they need.
Meanwhile, the Legislature also should reject Inslee’s recommendation to lift the levy lid placed on school districts as part of the McCleary fix. Republicans in Olympia accepted the lid as part of a compromise, and the Legislature should not be eager to scuttle that agreement.
Then again, these are just suggestions as lawmakers prepare for the difficult task of putting together a budget that will serve the needs of citizens.
