December 19, 2016
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Gov. Inslee proposes $8 billion tax increase



Gov. Jay Inslee unveiled his budget proposal last week. The headlines were that Inslee proposed raising taxes by $4.4 billion, and while that's substantial, it only reflects part of the taxes. When fully phased in, the governor's proposed tax increases in the 2019-21 budget would add up to more than $8 billion in new taxes, mostly hitting employers. Overall, the governor proposes increasing the state budget by $8.2 billion over the next two years.

Inslee would increase taxes in these ways:

  • Taxing carbon emissions. By the next biennium (2019-21), this would increase state tax receipts by $4.1 billion. For manufacturers, this new tax on energy would be a major blow on top of the governor's recently unveiled carbon rule. The Associated Press examined the new carbon tax here, including comment from AWB.

  • Increasing the B&O tax on service businesses by 66.7 percent, (from 1.5 percentage points currently to 2.5 percentage points on gross receipts). This proposal would hit rural areas particularly hard, since service industries are some of the few bright spots in many small towns. Inslee has proposed increasing the threshold at which businesses are required to pay the tax and increasing the small business tax credit to $125 per month; he said this would at least partially offset the B&O tax for 38,000 small businesses.

  • Creating a capital gains tax. This is expected to bring in $1.8 billion in 2019-21, although these taxes are volatile. Instituting the tax here would also remove one of Washington's competitive advantages compared with other states. This would be one of the highest capital gains taxes in the nation. Capital gains taxes can create a bias against savings, can slow economic growth, and can harm our state's competitiveness.

  • Removing tax incentives. Many of his proposals have already been suggested and rejected by lawmakers and the public, including taxes on bottled water, out-of-state shoppers, and auto trade-ins.

Inslee proposes $46.7 billion in state government spending in the upcoming 2017-19 biennium, which is $8.3 billion more -- 21 percent higher -- than the current biennium. Without tax increases, the state is already on track to collect $2.6 billion more thanks to a strong economy -- a 6.7 percent increase.

While Inslee said the proposed tax increases would go largely to education and mental health, the reality is that the money would largely go to the near general fund, where it could potentially be spent on other things.

Senate Majority Leader Mark Schoesler said the governor's budget proposal would threaten the stability of Washington's economy: “The governor’s proposal ignores the constitutional requirement of a dependable funding source for public education by relying on a new and unproven tax on carbon and a highly volatile capital-gains income tax. It also ignores the requirement for a four-year balanced budget and adds nothing to our reserves, which we’ll need when the next recession hits."

Former Attorney General Rob McKenna said the specific taxes Inslee wants to increase have all been discussed (and rejected) before: "The whole budget plan is a very familiar retread; it’s just the whopping size of the increase that’s unprecedented."

Meanwhile, Oregon public employee unions and other advocacy groups are calling for $5 billion in new taxes per biennium on employers, health care providers and insurers. Voters have already rejected a similar proposal.



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