Tax debate hangs heavy over Washington legislative session

Washington Democrats are preparing for a legislative session where new taxes will be a major focus to solve a multi-billion dollar state budget hole.

House Speaker Laurie Jinkins, D-Tacoma, and Senate Majority Leader Jamie Pedersen, D-Seattle, told the Standard last week that they haven’t settled on which tax legislation might be prioritized, but many ideas revolve around taxing wealthy people and companies.

The leaders say they want to “scrub” the budget for savings first. But they face a gap of around $12 billion or more between the state’s expected income and expenses over the next four years. This means new revenue will likely be necessary to maintain and expand Democrats’ priority programs in areas like education, housing and mental health care.

“We are trying to be as transparent as possible about the fact that this is not likely a budget shortfall that can be solved with cuts alone,” Pedersen said. “We are trying to get ideas out on the table soon, so we can have a discussion about them and try to figure out collectively what’s the best path forward for the state.”

Republicans see the budget situation differently. Senate Minority Leader John Braun, R-Centralia, and House Minority Leader Drew Stokesbary, R-Auburn, want to focus on trimming instead of adding new revenue.

“This is a spending problem. We are not in a recession. There’s no decrease in revenue,” Braun said. And he sharply disagreed with Jinkins past assertion that the defeat in November of a ballot initiative to repeal the state’s capital gains tax “is a mandate to go do new taxes.”

“I don’t think so,” he said.

Tax proposals

Democrats are already discussing a plethora of tax options as the Jan. 13 start date for the session nears.

Those include a “wealth tax.” Outgoing Gov. Jay Inslee’s proposed budget calls for a 1% tax on an individual’s wealth above $100 million. This would cover an array of assets, including cash, bonds and stocks. Inslee estimated the tax could apply to about 3,400 people and bring in about $10.3 billion over the next four years.

Washington’s current two-year operating budget is just shy of $70 billion, Inslee’s plan is around $79.5 billion. These totals do not include transportation programs or construction projects dealt with in separate budgets.

Inslee also proposed some increases in the business and occupation tax which would temporarily impose a surcharge for some bigger businesses through the end of 2026 and then raise the tax for all businesses beginning in 2027.

Those aren’t the only ideas on the table for Democrats, who hold wide majorities in both chambers of the Legislature.

An email that Sen. Noel Frame, D-Seattle, mistakenly sent to Republican lawmakers in late December outlined other possibilities for increasing revenue.

Those included a levy on companies with large payrolls and high-paid employees, modeled on Seattle’s JumpStart tax. There’s also an excise tax on gun and ammunition sales, a lift of the 1% cap on annual property tax increases, and a sales tax on self-storage unit rentals.

Frame is vice chair of finance on the Senate Ways and Means Committee, which handles tax policy. Pedersen emphasized that the ideas shared in the email were put forward by Frame for discussion and are not policies that necessarily have broad support among Senate Democrats.

Jinkins said it’s “way too early” to know which proposals may be the most viable or necessary this session.

“It’s very hard this far out, before we’ve scrubbed the budget, to even say what amount of revenue we think will be necessary,” Jinkins said.

Jinkins also acknowledged that tax legislation often ends up challenged in court.

“I prefer something that is pretty quick litigation, that we know we can move fairly quickly because we need the money now,” she added.

Any new tax idea will get pushback from Republicans and even some Democrats could balk.

Rent cap bill likely to reemerge

As Democratic leaders grapple with the budget shortfall, they will also be trying to balance new ideas and familiar priorities.

Expanding the supply and affordability of housing in Washington is near the top of this list.

That will likely include a proposal from last year that would have capped yearly rent increases at 7% for existing residential tenants. The push for this “rent stabilization” plan failed twice in the Senate. This year, both caucus leaders recognize many of their members would like to see it revived.

Pedersen said voters have elected a Senate that is prepared and interested in passing some form of rent stabilization. But he added the key to getting that proposal through will be passing other bills to increase housing supply and improve affordability.

Making “as much investment as we can in public schools,” maintaining access to child care and improving access to mental health services are among the other leading issues for Democrats this year, Pedersen said.

Republicans plan to focus on cost of living, public safety and education.

“Food, gas, housing, child care, health care, are all increasingly unaffordable. Nothing about the election changed that so far,” Braun said.

Preparing for Trump

One source of tension between Democrats and Republicans in Olympia could be how the state responds to the next Trump presidency.

Ferguson has already said he’s prepared for showdowns with the incoming Trump administration over issues like immigration, abortion access and LGBTQ rights.

Both Jinkins and Pedersen are also bracing for clashes.

“We’ll be paying a lot more attention to what’s coming down from the federal level and trying to anticipate those things when we can and maybe react to stop bad things from happening in Washington,” Jinkins said.

Washington State Standard is part of States Newsroom, the nation’s largest state-focused nonprofit news organization.