Actually, closer to $4 billion. As a candidate for governor in 2012, Inslee repeatedly said he did not see the need to raise taxes. But now he wants $3.7 billion in new taxes in 2019. Odd, because in 2012 the state was still digging its way out of a recession, while in 2019 state spending has already soared 32 percent in just six years.
So why the call for new taxes? Because the governor wants to raise spending another 22 percent in the next two years. That’s roughly seven times higher than the inflation rate. The population during that time will likely grow about 4 percent.
The state Economic and Revenue Forecast Council is predicting that revenue will grow about 12 percent more in the next two years.
That’s usually good news. In fact, other states enjoying revenue growth are rebating some of it back to taxpayers. Missouri, Mississippi, Arkansas and North Carolina trimmed back their income tax rates. Idaho, Utah and liberal Vermont did the same, but made them retroactive to January 2018. Purplish New Hampshire has reduced business taxes for two years running, while Georgia trimmed both its personal and business tax rates.
But there will be no tax relief in this Legislature. Instead, the governor wants new and additional taxes, one of which is flat-out unconstitutional, the other which is flat-out unpopular, and neither of which he mentioned in his 30-minute State of the State speech on Tuesday.
The governor, with a progressive chorus behind him, is calling for a 9 percent tax on capital gains (investment income) above $25,000 for individuals and $50,000 for households. He is calling it an “excise tax,” a similar argument Seattle's lawyers made when they defended the city’s new income tax in 2017.
Three problems here. First, the Internal Revenue Service stated in a letter to U.S. Rep. Dan Newhouse, R-Wash., that a tax on capital gains “is an income tax.” Second, Seattle’s defense of its income tax as an excise tax was struck down by King County Superior Court Judge John Ruhl, who noted that city documents called the income tax an income tax. Hoping for a favorable ruling from a strongly liberal leaning State Supreme Court (there is not a single conservative on it), the city tried to fast-track its appeal directly to the High Court. No thanks, said the court last week.
Finally, Article 7, Section 1, of the Washington State Constitution is about as clear as a clean pane of glass about taxes on income: “All taxes shall be uniform upon the same class of property within the territorial limits of the authority levying the tax….” The very next sentence reads, “The word “property” as used herein shall mean and include everything, whether tangible or intangible, subject to ownership.”
You don’t need a law degree to comprehend the meaning of those words; a working knowledge of the English language will do.
And it’s not like the public is clamoring for it. According to the Crosscut/Elway Poll released last week, even though the capital gains tax would affect just 1.5 percent of Washington residents, 53 percent already oppose it, while 44 percent support it. That’s before the Legislature's new session even started and opponents have opened fire.
The news for the governor on the business-tax front isn’t much better. It is probably constitutional to increase taxes on service businesses 67 percent, from 1.5 percent of gross receipts to 2.5 percent, but it’s less popular than reruns of Cosby. The same poll showed 37 percent supporting the tax (just a little more than the Democratic base vote) while 59 percent (pretty much everyone else) oppose it.
The governor has to be careful here. Governors running for president want to be seen as effective chief executives in order to build their credibility, especially if they are a new candidate. If Jay Inslee whiffs this year on passing a capital gains tax (a tax designed to reduce tax inequality without having to provide tax relief to the poor), and fails to increase the business tax with a Democratic Legislature (after previously failing to get a carbon tax passed), then he heads into the presidential campaign looking like a talker with no follow through, someone who can’t even pass his agenda on his own side of the aisle in a true blue state.
It might be smarter for the governor to lower his sights, live within his means (which still allows for a 12 percent budget increase), and pass bipartisan legislation in areas like mental-health reform, which badly needs to happen and has worsened on Inslee’s watch. It would remove a liability from his record while showing that he can get important work done by working with members of the other party.
Voters around the country might find that refreshing.