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Speaker Chopp unfurls his tax roadmap

Speaker Frank Chopp leads House Democrats. Credit: Washington State House Democrats

A blunt lawmaker once told me that Democrats in Olympia walk around with two numbers stamped on their foreheads: 1994 and 133.

1994 is the year Democrats over-reached, raised taxes, and lost their majority status; 133 is number of votes by which Gov. Chris Gregoire eventually won the 2004 gubernatorial election. Those numbers serve as haunting reminders to Democrats — at least those who experienced the 1994 bloodbath and the 2004 embarrassment — of days they hope not to relive.

It is against this historical backdrop that the majority party enters the 2010 legislative session. There’s reason for Democrats in Olympia to be concerned. Nationally, political analysts are watching for signs that another 1994-style voter backlash against Democrats is fomenting.

All this helps explain why last week Speaker of the House Frank Chopp sent strong signals that a general sales tax increase is all but dead on arrival this year. Lawmakers, who just convened for a 60-day election year session, must close another $2.6 billion hole in the budget. On TVW’s “Inside Olympia program, I asked Chopp if a sales tax hike is on the table, off the table,or on the edge of the table. “Well, I think it’s more on the edge of the table,” answered Chopp. “I think most folks worry that it might add to the more regressive nature of our tax system. So a general sales tax, I think there are a lot of people concerned about that.”

Chopp did acknowledge that one sales tax proposal remains in the mix. That’s a temporary one-cent increase coupled with a tax credit for lower-income working families based on their federal Earned Income Tax Credit. This is a concept Senate Majority Leader Lisa Brown, D-Spokane, has mentioned and the Budget and Policy Center in Seattle is pushing. The liberal think tank projects it would raise $1 billion in revenues in fiscal year 2011.

But even this idea, with its offset for the working poor, would be risky for Democrats. And Chopp told me, in the “final analysis,” he doubts it will pass. Polling last year showed the electorate is very cool to any type of sales tax hike, especially one that would push the combined state and local sales tax in King County over the dreaded 10-percent mark.

Furthermore, consumer spending is a key part of the economic recovery and Democrats have to be mindful of the psychological impact of any tax increases on consumers, not to mention voters.

So instead of looking at general tax increases, the code term of the session for Democrats is going to be “tax fairness.” What this means is Democrats are going to target people and businesses they think aren’t paying their fair share — and that’s how they’re going to sell it to the public. Who do Democrats have in their sights? For starters: out-of-state corporations, airplane owners, and sinners.

Gov. Gregoire has a proposal to charge the B&O tax on services and royalties to out-of-state companies that do big business in Washington. This would mostly snare banks and credit card issuers.

In the Senate, Ed Murray, D-Seattle, the go-to guy on revenue options, thinks Democrats will have to do more than just close loopholes in order to solve the budget gap. That doesn’t necessarily mean an across-the-board tax hike, but Murray mentions two ideas that are floating around the legislature: taxing water bottles and soda pop syrup. Both could raise considerable revenue. Murray is particularly concerned that state’s capital construction budget is now imperiled by the state of the operating budget.

Speaker Chopp told me about a plan to charge an annual excise tax for privately owned airplanes similar to what boat owners pay. He said he doesn’t think “wealthy” aircraft owners deserve a break when public education is being cut. There are also proposals to increase the cigarette tax and end the sales tax exemption for gum, candy, and bakery goods.

The key here, at least as Chopp envisions it, is to raise money for specific programs the public cares about. For instance, the tax on sweets might go to pay for dental care for the poor; the cigarette tax increase could be earmarked for the Basic Health Plan. Chopp is confident this is a winning approach based on the fact that Washington voters in recent years have upheld a gas tax increase for road construction and the reinstatement of the estate tax with the money going to education.

Last week, Gregoire outlined nearly $800 million in programs she wants to “buy-back” from her “all-cuts” December budget. But closing tax loopholes will only purchase so much. Here lies another truth about this legislative session. Democrats are once again banking, as they did last year, on a significant assist from their fellow Democrats in Congress. Gregoire says Washington could be in line for as much as another $1 billion in federal money this year.

None of this though obviates the serious pressure labor unions, social service advocates, and others intend to bring upon Democrats in the coming weeks. They want a much more robust revenue package and they want it whether Washington gets new federal money or not. These advocates represent the Democrats’ core constituencies and so Democrats will have to strike a balance between satisfying the base and not angering voters.

It’s important to remember Democratic lawmakers are far from a monolithic crowd. There is the potential for huge dissension within the ranks — something Speaker Chopp so far has done a masterful job of preventing. You have more conservative Democrats who will want to hold the line on taxes while more liberal members will be pushing for that bigger revenue package. In addition, members can always threaten to withhold their vote for the budget if they don’t get their way on an issue of importance to them or their district.

And what are minority Republicans saying about all of this? That raising taxes will only harm the economic and jobs recovery. They also warn that if Democrats rely on one-time federal dollars to rebalance the budget, they’re only kicking the problem down the road until after the 2010 elections. Already there’s another projected two-plus-billion-dollar shortfall in the 2011-13 budget.

Two other matters merit some attention. On workers compensation reform, Speaker Chopp has effectively shot down two of the business lobby’s top priorities this year. One is allowing private companies like AIG and Liberty Mutual (which bought Safeco) to offer workers’ compensation insurance in Washington. Currently private insurers are barred from the marketplace and instead businesses can either participate in the state-run program or self-insure, as Boeing does. Also, business wants to be able to settle claims for permanently injured workers instead of paying out on those cases indefinitely. Labor opposes both of these changes, as does Chopp.

As for higher education funding, there’s a lot of talk already about giving the state’s public universities more tuition-setting authority. But don’t assume all the public institutions have endorsed the idea. One lobbyist for a four-year state university told me just because the University of Washington wants something doesn’t mean they all do. The concerns? With more authority to raise tuition could come more regulations in other areas. Or the universities might be on the hook to pick up costs currently borne by the state. Further, not all state colleges can raise tuition as easily as U.W. can, without suffering losses in enrollment.

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