Democratic leaders in the Washington State Senate and House of Representatives have proposed differing biennial budgets for 2019-2021, but they do have two things in common: They are both way bigger than the previous state budget, and they both feature tax increases.
The House budget
The House-passed budget would appropriate $52.8 billion, an increase of $8.2 billion (18%) over 2017-2019 appropriations. This increase is despite $5.6 billion in new revenue growth the state has received since last year, thanks to the strong economy. Some of the larger areas of new spending include $450 million for school employee health benefits, $128 million more for higher ed, and $826 million more for the Department of Social and Health Services including increases for state hospital operations and managed care rates.
The House assumes passage of a 9.9% tax on capital gains over $100,000 for individuals and $200,000 for couples filing jointly. The tax would not apply to residential real estate sales, retirement accounts and a few other exemptions. It also assumes an increase the real estate excise tax (REET). The current rate is 1.28 percent on sales of real property. Under the bill, the rate would be cut to 0.9% for properties with selling prices less than or equal to $500,000. For properties with selling prices above $500,000, the rate would be 1.28% for the portion of the price less than or equal to $1.5 million; 2% for any portion of the price between $1.5 million and $7 million; and 3% for any portion of the price that is greater than $7 million.
The House also assumes a 20% increase in B&O taxes on many service categories including architects, engineers, attorneys, accountants, insurance and bonding firms, and more. The House would earmark this to “workforce education investments” – mainly increases to create more spots in high-demand majors at state universities and additional funds for the state need grant – that would technically be outside the state general fund.
The measure passed the House along a party-line vote of 56-38 (with 4 absent).
Click here for a Washington Research Council summary of the proposed House budget.
The Senate budget
The Senate-passed budget would appropriate $52.2 billion, an increase of $7.5 billion (16.8%). It increases funding in the same general areas as the House budget, but to a lesser degree.
The Senate budget assumes passage of a REET increase, but slightly different than the House version. Under the bill, the rate would be cut to 0.75 percent if the selling price is less than $250,000. For properties with selling prices of $250,000 or more but less than $1 million, the tax rate would stay at 1.28 percent. The rate would increase to 2.0 percent if the selling price is between $1 million and $5 million and to 2.5 percent if the selling price is $5 million or higher.
The Senate version proposes a “revenue neutral” capital gains tax. The Senate does not assume a capital gains tax as a revenue-increaser, but rather as an offset funding for a working families tax credit, a B&O tax cut for small businesses, an expansion of the property tax reduction program for senior citizens, and the elimination of the sales tax on items like diapers, feminine hygiene products and over-the-counter medications.
The Senate does not propose a broad B&O tax increase as the House does but includes an increase just on warehousing and reselling prescription drugs. Plus, unlike the House, the Senate would assume a tax increase on property and casualty insurance premiums from 2% to 2.52%.
The measure passed the Senate 31-17 with a couple of Republicans joining all Democrats in support.
Click here for a Washington Research Council summary of the proposed Senate budget.
Differences between the two budgets will now be negotiated. Some have suggested that a special session may be required to iron-out the significant differences between the proposals.
For more information, contact AGC Chief Lobbyist Jerry VanderWood, 360.352.5000.