Democratic legislative leaders are gearing up for one of the most challenging conversations this session: taxes.
With control of the state House and Senate, their members are bent on using the next state budget to make a dent in curing social ills, correcting economic wrongs and combating climate change.
They desire to transform the state’s mental health system, end homelessness, build housing, expand pre-school education, make college tuition free, boost special education funding, broaden access to health care, provide pay raises for state workers, clear every blocked fish passage and save the Southern Resident orcas.
This is an expensive list, far more expensive than can be afforded with the amount of revenues expected to flow into state coffers.
Democratic leaders of the two chambers aren’t ready to come right out and say they intend to raise taxes. On Tuesday, they did provide reporters with a chart showing why they think there may be no other choice.
It shows that revenues are expected to reach $50 billion for the two-year budget that begins July 1 but the cost of continuing current state programs as is, plus the tab for McCleary school funding commitments, add up to $51.1 billion.
Theoretically, the gap can be covered with existing reserves, they said.
Not part of the equation are all those investments — code for new spending — their members want to do. They cost a couple more billion dollars.
As party leaders try to keep a lid on members’ expectations, they seem to be constructing a case for a spend-and-tax approach in budgets to be released next month.
“Nobody wants to raise taxes for the sake of raising taxes,” Senate Majority Leader Andy Billig, D-Spokane, said Tuesday.
Gov. Jay Inslee, also a Democrat, reached the taxes-are-necessary line a couple months ago.
As part of his proposed budget, Inslee called for creation of a new tax on capital gains, an increase in the business tax rate paid by professional services and changing the state’s share of the real estate excise tax from a flat rate to a graduated rate. In all, these would bring in roughly $3.7 billion.
The governor said earlier this week he has not delved deeply on the topic of taxes with lawmakers as he figured they need time to get a better handle on the situation.
“I think legislators are just now coming to grips with the financial challenges we have,” he said.
Thus far, lawmakers haven’t expended much energy on a capital gains tax or hiking the business and occupation tax rate. But they are looking at reworking the state’s share of the real estate excise tax, or REET. The idea is replace the flat rate of 1.28 percent imposed on each sale of property with a four-tier graduated rate.
And right now some Democrats disagree with the governor’s approach.
Inslee suggests setting rates of 0.75 percent on sales of property valued at less than $250,000, 1.28 percent for properties worth between $250,000 and $999,999, 2 percent rate on those valued between $1 million and $5 million, and 2.5 percent on properties valued above $5 million. And he wants the resulting $400 million steered into the state transportation budget to remove barriers to fish passage.
Rep. Noel Frame, D-Seattle, authored House Bill 1921 which would impose the lower rate of 0.75 percent on sales of properties up to $500,000. It would apply the 1.28 percent rate on sales between $500,000 and $1.5 million, 2 percent on those between $1.5 million and $7 million and 3 percent if the selling price is greater than $7 million.
And her bill keeps the money in the operating budget and directs a portion into development of affordable housing. It received a hearing this week.
That doesn’t mean it’s a done deal. It is a signal the conversation on taxes is going to get serious, soon.