Taxes on the table as Legislature convenes – Before the Legislature convenes January 13, significant tax increases have already been floated to attempt to balance the state’s operating budget. More on the proposed taxes in a minute, but first some explanation on the budget situation.
According to an analysis by the Washington Research Council, the state is facing a $5.1 billion budget shortfall for 2025–27. However, this is not a revenue shortfall. Biennial revenues have not declined. Instead, spending growth has outpaced revenue growth. Again, state revenues continue to increase (albeit at a slower pace), but state spending is increasing even faster.
Meanwhile, outgoing Governor Inslee has released his budget proposal for 2025-27. And it would increase state spending from $71.9 billion to $82.2 billion, which would further outpace the increasing revenues.
To make things balance, Governor Inslee’s proposal includes a $2.6 billion increase in Business and Occupation (B&O) taxes and a new wealth tax which is predicted to collect $10.3 billion in tax revenues over the 4-year period. The wealth tax would be 1% a year on residents with over $100 million in worldwide holdings.
The Inslee budget plan isn’t expected to go anywhere since he will soon be stepping down. However, incoming Governor-elect Bob Ferguson says he is considering the wealth tax idea. And, Senate Democrats recently let slip (Seattle Times article) a slate of tax ideas they feel the Legislature should consider. See the full list here; they include:
- Remove the cap on employer payroll taxes, similar to Seattle’s JumpStart payroll tax.
- Impose a B&O surcharge of an additional 1% on taxpayers with WA taxable income over $500 million on a marginal basis.
- Impose a wealth tax on individuals who reside in Washington of 1% on financial intangible assets exceeding $50 million.
- Raise the capital gains tax for gains over $1 million to 9.9%, while keeping at 7% for gains over the
current threshold ($250K) for less than $1 million. - Increase the regular property tax levy growth limit for both state and local tax districts by revising the definition of “inflation” and “limit factor,” increasing it from 1% to a maximum of 3%.
- Increase the ceiling for Tier 1 real estate excise tax (REET) from $545,000 to $750,000 and impose a new real estate transfer tax (RETT) of 1% on the value of the selling price over $3.025M.
- Define the rental of self-service storage units as a retail transaction taxable under the retailing B&O tax classification and the retail sales tax.
- Impose a new 11% tax on sales of ammunition, firearms, and parts.
- Replace the B&O tax with a margins tax. The House document states the margins tax is designed to be revenue neutral but can be dialed to be revenue positive.
The Senate Democrats also note some possible tax cuts, such as an expansion of the Working Families Tax Credit, which sends annual rebates to lower-income Washingtonians. And they’re looking at a property-tax exemption for homeowners and a tax credit for renters.
Whether and which of these tax proposals will be actually adopted remains to be seen. AGC will oppose all of these increases and believes the operating budget should be restrained to match the revenue (which is increasing without tax hikes!).