Washington state needs to increase its revenue — not cut services — to get through the COVID-19 pandemic, Gov. Jay Inslee said Monday.
Five days after the Democratic governor proposed his $57.6 billion biennial budget, he spoke with The Columbian’s Editorial Board and made clear that the state needs money. The cornerstone of his budget is a new capital gains tax, which if passed by the Legislature and upheld by the state’s Supreme Court is expected to raise $1.1 billion in 2023.
“We don’t want to kick anyone to the curb. We don’t want to cut services in the middle of a pandemic,” Inslee said. “This is a moment of utmost need.”
Although the state’s economic outlook looks much rosier today than the dire projections early in the pandemic, it’s still facing a shortfall of around $3.3 billion. That figure could change, depending on the details of the federal aid package Congress seemed poised to pass on Monday.
The new capital gains tax would collect 9 percent of profits (more than $25,000 for individuals and $50,000 for joint filers) earned from selling assets like stocks and bonds starting in 2022. Residential real estate sales would be exempt, Inslee said. His office estimates that about 2 percent of Washington families would pay the tax in the first year.
“It’s a very limited request to help a lot of people,” Inslee said. “We think it is a reasonable thing.”
Pressed on whether he thinks he could get a capital gains tax through the Legislature — Inslee has been pushing one for years, as a way to help right the state’s regressive tax structure — the governor said that he thinks now is simply the right time.
“Everything happens in its own time,” Inslee said. “If you’re going to help people, you have to find a way to pay for it. We’re not like the federal government, who can just put it on the credit card.”
The governor’s budget posits another potential source of revenue that’s previously failed both on the legislative floor and at the ballot box: carbon pricing. Inslee proposes implementing a carbon cap-and-trade system that imposes a limit on carbon emissions. Polluters would swap and purchase allowances, with the goal of shrinking the overall cap over time.
The revenue that could be raised through a cap-and-trade program is unclear. Its sponsor, Sen. Reuven Carlyle, D-Seattle, told Crosscut that it could add up to $1 billion to the state’s coffers annually.
While Inslee can propose a budget and outline the priorities of the executive branch, the power to pass the budget ultimately lies with the Legislature. Across the aisle, some Republican lawmakers have criticized Inslee for pushing new taxes while COVID-19 continues to strain the economy.
Sen. Lynda Wilson, R-Vancouver, released a statement after the governor announced his proposed budget last week.
“I had hoped that for once, we’d see a new biennial budget from Gov. Inslee that doesn’t include tax increases. If the people of our state ever deserved that kind of consideration from their elected leaders, it’s now,” said Wilson, who serves as the lead Republican on the Senate Ways and Means Committee.
“Instead, it’s hard to tell from his budget proposal that our state is still dealing with a pandemic, because he’s again looking for billions in new spending and making another run at imposing unpopular taxes that were failures even before COVID-19 came along.”
Asked by the editorial board about critics who would consider implementing a capital gains tax a roundabout way of getting an income tax — forbidden by the state’s constitution — Inslee said he wasn’t worried. It’s a fundamentally different revenue source, he said.
“Those critics share something: they’re wrong. This is a constitutional and fair system,” Inslee said. “If the critics of the capital gains tax want to propose some other progressive tax as an alternative, we’d love to hear their proposals.”
4 guiding principles
When crafting a proposed budget, Inslee said his office stuck to four guiding principles: Avoiding cuts to programs; treating the pandemic like an economic crisis; using the capital budget to promote short-term economic growth; and promoting equity and racial justice.
He doesn’t expect much pushback among the majority party in the Legislature, though he does plan to hear some alternative ideas from Democrats.
“I really don’t see obvious points of huge contention with the majorities in the House and the Senate,” the governor said. “We’re largely in line with the four values I articulated.”
Inslee is urging the Legislature to pass a bill — separate from the budget — establishing $100 million in grants for businesses hit hard by the pandemic when lawmakers convene on Jan. 11.
Inslee’s budget proposal includes a hefty $6.2 billion for capital construction projects, estimated to generate around 35,000 jobs.
On racial justice, Inslee said, his proposal funds a new state office to fight inequity. His budget additionally takes the burden off of working-class communities and people of color because the capital gains tax would shift that burden toward wealthier Washingtonians, he added.
“Throughout this budget, you’ll see evidence of equity,” Inslee said.