Legislative Democrats have released a new tax proposal to fill an estimated $15 billion budget gap after Gov. Bob Ferguson said earlier this month he would not support their first plan. The plan does not include a “wealth tax” on the state’s highest earners, which Ferguson said he would veto. Instead, the updated package includes expanded taxes on businesses, properties, stocks and bonds. It would raise about $12 billion over the next four years.
House and Senate Democrats appear to be in agreement on the package, which focuses on taxing wealthier individuals and businesses to fund K-12 education, higher education, public safety and social services.
“We’ve updated our proposal to reflect the feedback we received from our colleagues and the public,” said Sen. Noel Frame, D-Seattle, vice chair for finance of the Senate Ways & Means Committee. “These proposals are a key step in modernizing our nearly 100-year-old tax code to meet the economy and needs of the 21st century.”Earlier this month, Ferguson rejected a budget proposal from Democrats that would have included a wealth tax on the wealthiest Washingtonians. Ferguson’s office said he is still reviewing the proposals and will have more to say on Thursday. Supporters of new taxes on the wealthy, including the largest state employee union, have been vocal throughout the legislative session about the need for a progressive revenue stream to avoid deep cuts. Opponents to such policies, including Republicans and conservative advocates, have argued that the state’s budget shortfall can be addressed without new taxes if the state trims its spending.“It can’t be said enough: Our state can have a balanced budget that funds our shared priorities without a single tax increase, or a single cut in services, and without touching the rainy-day fund,” said Sen. Chris Gildon, R-Puyallup.The proposals will receive public hearings and committee votes in both the House and the Senate over the next week. If they want to end the legislative session on time, lawmakers must approve a final budget by April 27. Here’s what the Democrats’ plan would include.Capital gains and estate tax changesThe state’s capital gains tax, which assesses profits from the sale of stocks, bonds and assets, would see significant changes under Democrats’ plan.Currently, the state imposes a 7% tax on the exchange of gains worth over $270,000. The new proposal creates a tiered system: Profits from the annual sales of stocks and bonds worth more than $1 million would be taxed an additional 2.9% each year.The proposal also makes changes to the estate tax, which is levied on the transfer of property at the time of someone’s death. The bill would exclude smaller estates worth under $3 million; currently, the exclusion is capped at $2.1 million. It would also gradually increase rates for larger estates; they’d go up to 35% for estates worth $9 million or more.Business tax hikesThe Democrats’ new plan includes a proposal to increase taxes on the state’s wealthiest businesses.All businesses in the state must pay a business and occupation tax measured according to the value of products, proceeds and income. Certain activities are taxed differently.The changes to this tax include raising the base rates for wholesaling and manufacturing companies. Big banks would also face surcharges. And all businesses earning more than $250 million annually would face an additional temporary 0.5% surcharge.Property tax reformA plan to increase the state’s property tax cap is also included in the package.The Democrats’ plan would raise the current 1% cap to as much as 3%, taking into account population growth and inflation. The increased cap would apply to the state’s common schools levy and to cities, counties and special-purpose districts.The plan also includes a property tax exemption for seniors and people with disabilities.Sales and tobacco taxesDemocrats are proposing updates to the state sales tax code that would add retail taxes to software development, web design and IT training. It also would repeal an exemption for some digital services like advertising.Those activities would be subject to the state’s sales-and-use tax of 6.5%, and to local rates, which vary depending on location.The proposal also adds Zyn nicotine pouches to products subject to the state’s tobacco tax.
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