Progressive or fauxgressive? State Democrats want to let local property taxes rise
While Washington Democrats in Olympia propose raising taxes on the wealthy, they also are considering bills to allow higher property taxes, which would affect more than just the rich.
Democrats in the state House spent significant time last week trumpeting how they plan to make the state’s tax system more fair. By raising taxes on businesses and the wealthy, House leaders said, their new two-year budget would avoid increasing the tax burden on average Washingtonians.
“Instead of asking all hard-working families to pay more property taxes or sales taxes, we are asking the wealthiest people living off their investments to contribute to the things we all need,” House Democrats proclaimed in a policy document.
Yet House leaders were less upfront about another part of their plan that is likely to increase taxes on everyday people, too — not just the rich.
To help generate more money for schools, House Democrats want to raise the current limits on how much school districts can collect in local property taxes.
By lifting those levy caps, the House’s plan could cause property owners across the state to pay as much as $1 billion more in taxes per year. That’s more than House Democrats would raise annually from their proposed capital-gains tax, which targets people who make big profits selling stocks and bonds.
The Senate, also controlled by Democrats, is similarly proposing to let local property taxes rise. In its current form, the Senate’s proposal would allow local property-tax collections for schools to increase by as much as $835 million per year. If realized, that would be about a 50 percent increase over what the state’s school districts are currently allowed to raise through local property taxes.
All the while, leaders from both chambers continue to rail against Washington's tax code, which has been ranked among the most regressive in the country, meaning low-income individuals pay a higher share of their income in taxes than the richest.
While the Senate is proposing tax relief for low-income households, as well as breaks for small businesses and families purchasing diapers, the House budget takes fewer steps to offset the burden local-levy increases could place on low- and middle-income taxpayers. Even for people who don’t own homes, higher property taxes can also affect them by fueling higher rents.
State Sen. Christine Rolfes, the Senate’s chief budget writer, agreed that allowing local property taxes to increase doesn’t align with state Democrats’ oft-repeated goal of making Washington’s tax system more progressive.
“That doesn’t square, because I don’t consider the property tax to be progressive,” Rolfes, D-Bainbridge Island, said last week. “It’s not based on people’s ability to pay.”
At the same time, she said, Democratic leaders view the lifting of restrictions on local levies to be fundamentally different than raising property taxes at the state level. That’s partly because in each school district, voters ultimately have to approve the tax increases before they can take effect.
“It’s up to the voters,” said House Majority Leader Pat Sullivan, D-Covington.
Right now, the state limits local school districts’ taxing authority to $1.50 per $1,000 in assessed property value, or $2,500 per student, whichever is lower.
State lawmakers approved those limits for local school-district levies in 2017, partly to offset the cost of an across-the-board property-tax increase they OK'ed the same year. By increasing the state’s property tax rate, legislative leaders said they could boost state funding of public schools by more than $7 billion over four years, while decreasing school districts' dependence on local levies.
Now, some school districts, including those in Seattle and Tacoma, have been pressuring the Legislature to relax the local levy limits. They say the school-funding fixes the Legislature passed two years ago haven’t supplied enough money to meet all their needs, and they now need to raise more in local taxes to close the gap.
“We’re not saying local levies should not be limited — we’re just saying they were cut too far,” said Kate Davis, the chief financial officer for Highline Public Schools.
Many lawmakers, however, saw the local levy cap as an important tool to keep property taxes in check. State Sen. Mark Mullet, D-Issaquah, said if legislators allow local levies to rise substantially higher, it will amount to reneging on a promise to taxpayers.
“The whole deal in 2017 was the state [tax] goes up, local [tax] goes down,” Mullet said. “The point of the deal was not to just have the largest property tax increase in state history. We’ll just end up with a huge, giant state property tax increase, without any local property tax decrease to offset it.”
There's another concern, too: Overreliance on local levies to pay for schools has been a problem for the state before. In the McCleary case, the state Supreme Court ruled in 2012 the state was failing to meet its constitutional duty to amply fund basic education. The court said too many basic education expenses — such as the cost of paying teachers, operating schools and transporting students — were left unfunded by the state, and were instead being paid through local school district levies, which are not a dependable source of funding.
The cap on levies, while not required by the state Supreme Court, was part of the Legislature’s plan to address the McCleary ruling. For some, it was an important safeguard to prevent the state from shirking its school-funding responsibilities, something it has done repeatedly in the past.
State Sen. John Braun, R-Centralia, said lifting the cap on local levies “will ultimately lead to us not paying the bill at the state level.”
“You have got to keep pressure on legislators, or we won’t behave,” said Braun, the ranking Republican on the Senate budget-writing committee.
Already, many school districts — including Seattle and several others around the central Puget Sound — will see a sizable property-tax increase under the McCleary plan. For those districts, taxes are likely to rise even higher if lawmakers raise the levy lid.
Last year, lawmakers approved a one-year, temporary property tax cut to help ease the bite of their statewide property tax increase. This year, however, neither chamber is proposing across-the-board property tax relief in its budget. While Chris Reykdal, state superintendent of public instruction, proposed enacting a capital-gains tax and using part of the revenue to reduce property taxes, his proposal didn't receive a hearing this year.
Sullivan, the House majority leader, said House leaders looked toward other, more modest ways of providing tax relief. One of the House tax proposals, a graduated real-estate excise tax, would raise taxes on people who sell homes for $1.5 million or more, while lowering taxes on sellers of homes that cost under $500,000. That program would provide about $100 million in tax breaks to sellers of lower-priced homes each year.
The House budget would also provide about $20 million over two years in property-tax relief for seniors and people with disabilities.
Still, the combined tax relief from those two policies would offset only a small portion of the $1 billion in potential property tax increases the House's levy plan would allow.
Senate leaders, meanwhile, are trying a different approach. Their plan is to spend $780 million per year from their proposed capital-gains tax on various forms of tax relief, including paying for tax breaks for working families, seniors and small businesses.
Sullivan said House leaders know their budget doesn’t fully address the state’s “upside-down” tax system, in which the rich pay a much smaller share of their income in taxes than the poor.
To that end, House leaders are proposing a work group to analyze the state’s tax structure and recommend ways to update it and make it less regressive, he said.
Braun, the Senate Republican budget leader, said he still thinks House Democrats are failing to live up to their rhetoric when it comes to balancing the state’s tax code.
“In no way does this lower sales tax or lower property tax, or do any of the things you think of when you think of tax reform,” Braun said of the House Democratic budget. “I don’t know how you can be expected to be taken seriously when all of your tax proposals just raise more money and don’t give any of it back to the taxpayers.”
Sullivan said it’s complicated — which is why House leaders want a work group to dig into the problem.
“You have to address the underlying issues with our tax system,” he said. “Looking at one single component doesn’t work.”