With only one House Democratic tax revenue proposal still on the bargaining table, legislative Republican leaders doubled down on their previous stance — that a proposed capital gains tax, along with any other new tax revenue, is a deal breaker in the sluggish budget negotiations.
At a Tuesday press session, Senate Majority Leader Mark Schoesler, R-Ritzville, said there is no need for new tax sources. “We still believe we have enough revenue to fund the budget,” he said.
Republican leaders described a capital gains tax as really being an income tax, and they argued that the creation of a capital gains tax for Washington’s wealthiest citizens would lead to the creeping infiltration of an income tax into Washington. They said the 41 states with capital gains taxes also have income taxes.
They also contended that a new capital gains tax would lead to a legal challenge, which would jeopardize a significant part of the main state budget for 2015-17.
Technically, a capital gains tax is an excise tax, similar to a real estate excise tax, according to the staff of the Washington Senate Ways & Means Committee. The term “income tax” is politically loaded with Washington’s voters, making very few politicians even willing to talk about one. This legislative session, business lobbyists have been painting a capital gains tax as a type of income tax, saying lawsuits might be filed because an income tax may be unconstitutional.
Schoesler sits on the Ways & Means Committee. But on Tuesday, he characterized the committee staff’s interpretation as one person’s opinion.
However a few hours after the press conference, a Washington Department of Revenue spokeswoman said that agency had also studied the Democrats' various capital gains proposals, and ended up classifying them as excise taxes.
Originally, in separate budget proposals, Gov. Jay Inslee and House Democrats had variously proposed a tax on carbon emissions by the state biggest polluters, a capital gains tax, an increase in the business-and-occupation tax on service firms and the closure of several tax breaks. The bottom line was that until recently, Democrats sought $1.5 billion in extra tax revenue.
As of Monday, the Democrats have taken all of those tax revenue proposals off the bargaining table except the capital gains tax. That raises a question of whether the Democrats, who insist that additional revenue is needed to create a good 2015-2017 budget, would punt on this tax proposal after conceding on the rest.
The House Democrats propose a tax of 5 percent on individuals making at least $25,000 in a year in capital gains and on couples making at least $50,000 a year in capital gains. Gains from transactions involving primary homes, retirement funds and most agricultural and timber-related gains would be exempt. It is estimated that 32,000 Washingtonians would pay a capital gains tax.
The plan would raise $550 million per budget biennium. The final 2015-2017 budget will be in the range of $37.9 billion to $38.4 billion.
While the capital gains tax dispute is a major bargaining issue, the two sides are still significantly apart on several other budget matters. A few of those unresolved issues could ripple into still ongoing talks on a long-range $15 billion transportation projects package and the 2015-2017 capital projects budget.
If the two sides don’t pass a budget by June 30, the state government will partly shutdown on July 1.