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With state budget tanking, taxes, furloughs on the table

With the state budget tanking, taxes and furloughs are on the table

State revenues will drop nearly $9 billion over the next three years, according to the Washington State Economic and Revenue Forecast Council in a recent forecast.  Revenue for the current 2019-21 biennial budget will decrease $4.5 billion, while revenues for the 2021-23 state budget would be reduced by $4.3 billion.

Revenues are now projected at approximately $47.8 billion for the current two-year state budget cycle, which began July 1, 2019. The precipitous decline in projected revenues would leave the state with a net $1.4 billion shortfall — when reserves are factored in — at the end of biennium.

Gov. Inslee directed state agencies under his authority to cancel a scheduled 3% general wage increase for many of the state’s highest-paid general government employees and to begin furloughs for most state employees.  More than 40,000 state employees will be required to take one furlough day per week from June 28 through July 25. After July, employees will be required to take one furlough day per month at least through the fall.  These measures are expected to decrease spending about $55 million over the next year. 

AGC members who routinely interact with state agencies such as WSDOT and L&I may see slower response times due to the furloughs.

Previously, the governor vetoed $235 million in new spending from the 2020 session. At the same time, the Office of Financial Management had agencies identify options to reduce fiscal year 2021 spending by about 15% to assess what the cuts could look across the public sector.

Meanwhile, when asked whether a capital gains was an option being considered by Democratic lawmakers, Sen. Christine Rolfes, chair of the Senate Ways and Committee said “everything’s on the table.”

One such proposal has already been crafted, by Rep. Frank Chopp.  Rep. Chopp’s legislation would raise $2 billion through a combination of a capital gains tax and “head tax” on employers.

The tax on corporations Chopp proposes would be aimed at employees making more than $500,000 a year.  The tax would be bifurcated into two tiers. 

In tier one, companies would be subject to a 5% tax per employee compensation exceeding $500,000. In tier two, a 10% tax would be applied per employee compensation exceeding $10 million. This would raise, according to the proposal, $500 million per year in revenue for community investments. 

The proposal doesn’t specify a capital gains rate or threshold, but it aims to raise $500 million per year through a tax on capital gains.

All in all, Chopp said the proposal would produce $2 billion per year in new revenue to be spent on specified services such as affordable housing, workforce education and a tax credit for low-income families.

Republicans immediately opposed the idea of increased taxes. Rep. Drew Stokesbary, R-Auburn, ranking Republican on the House Appropriations Committee, issued the following statement:

“Families are struggling. Small businesses are failing. It is time for Washington’s political leaders to acknowledge reality and begin containing this crisis. For weeks, Republicans have been calling for an emergency special session to jumpstart the economy, ensure benefits are actually reaching the most vulnerable, and begin balancing the budget. Unfortunately, our call has been ignored. In fact, the only specific proposal that has been put forward is a $2 billion tax increase. Instead of crossing our fingers and waiting for Congress to act or raising taxes in the middle of an economic disaster, it is time for our state’s leaders to get to work. The tough decisions ahead are only going to become more complex and challenging the longer we wait.”

For more information, contact AGC Chief Lobbyist Jerry VanderWood, 360-352-5000.

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