Building an Economy that Works for Everyone

A dollar short: How Washington legislators can improve on Governor Gregoire’s proposed tax package

Governor Gregoire’s proposed revenue package is a good start toward restoring cuts to essential public services – but doesn’t go far enough.

Under the Governor’s proposal, we’ll still have: over 90,000 working people on the wait list for the Basic Health Plan; low-income children cut off from access to quality daycare – while already underpaid early learning teachers face pay cuts; larger class sizes in the K-12 system; higher college tuition – on top of the 30% increase of the past two years; and at least more 85,000 seniors struggling to pay for prescription drugs.

With the recession still a daily reality for our state’s working families and small businesses, and an all-cuts budget adopted last year, we need to add another $1 billion (at least) to the Governor’s package to make the vital investments that will help lift our state out of recession and onto a path for prosperity.

Here’s what’s good about the Governor’s proposal – and what the legislature should add to fill that $2.8 billion gap:

Closing tax loopholes for a fair business climate:

Governor proposes: $104.65 million
House Bill 3176 proposes: $404.1 million
EOI proposes: $893.4 million

  • The Governor makes some commonsense tweaks to the tax code to close loopholes and end preferential treatment. Out-of-state corporations raking in profits by doing business in Washington should have to pay taxes, even when they find a court willing to say they don’t have to because of some technicality (as in the Dot Foods, HomeStreet Bank, and Agrilink court cases).  And people who get 6-figure payments from corporations for attending a few board of directors meetings a year should pay B&O taxes like any other consultant.
  • Representative Hunter’s package contained in House Bill 3176 improves on the Governor’s package. Hunter goes beyond just “fixing” Homestreet, and limits the B&O deduction financial corporations can take on their earnings on first mortgages of residential properties to $35 million per year. That brings in $78.3 million in 2011 compared to the Governor’s $8.6, while significantly reducing a tax break that is clearly benefitting corporate stockholders far more than Washington homeowners. Hunter also ends the sales tax exemption for out-of-state residents, ups the tax rate on privately owned airplanes, and equalizes the taxation of transportation within the state, whether some part of the trip is beyond state lines or not.
  • The legislature should also take a hard look at the analyses JLARC (Joint Legislative Audit Review Committee) has done over the past several years for the Citizens Commission on Tax Preferences. Tax breaks ripe for ending include the sales tax exemption on fuel and other items used in interstate commerce (taxed in at least 16 states), the B&O deduction for investment earnings of nonfinancial firms (taxed in every state with a corporate income tax), and a hodgepodge of smaller items. There’s also a sales tax exemption on coal left over from the days when Washington state produced coal and we weren’t aware of global warming. And applying sales tax to security brokers would barely effect long term investors while discouraging the kind of speculation that helped bring down the global economy.

Taxing pollution and public health hazards:

Governor proposes: $567.3 million
EOI proposes: $740.5 million

  • The Governor raises taxes on consumption we should be discouraging – petroleum products that contribute to climate change, bottled beverages that drive more petroleum use and cause litter, sugary sweets that promote obesity, tobacco. She accepts the environmental community’s proposal to triple the hazardous substance tax rate ($148 million for the General Fund, $66.5 million for environmental cleanup), the bottled water and candy taxes EOI and others have long championed, and the cigarette and tobacco tax increases Representative Cody and others have introduced.
  • An improvement on the Governor’s proposal would be to apply the 1 cent per ounce tax on bottled water to soft drinks across the board. The Governor’s proposed 5 cent per 12 oz. tax on carbonated beverages plus the pop syrup credit repeal is ok, but it leaves out the growing shift to tea, power drinks, etc. Applying the same tax to all these drinks is more equitable and raises more money for health services and early learning. We should also extend the sales tax to bakery goods sold on-site as well as to candy.

The Low-hanging Fruit:

Governor proposes: 0$
EOI proposes: $567.3 million

  • The hospital association is proposing the state assess hospitals a half billion dollars in fees that would allow them to get larger reimbursements from the federal government, a maneuver widely used in other states to raise significantly more revenue for health services.
  • The estate tax is about the only progressive tax we have. With the federal estate tax expired for now, we might as well raise our rates.

Grand Total:

Governor proposes: $671.95 million
EOI proposes: $2,201.2 million

More ways to balance Washington’s budget are featured in our “Ax It or Tax It” series here, or in this handy list complete with explanations and references.

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