House set to consider tax restriction

Legislature: Senate passed bill suspending I-960 Wednesday

February 12, 2010 

The political fight over the Legislature's authority to raise taxes on a simple majority vote moves from the Senate to the House this week. A floor vote could come this weekend after a House hearing Saturday morning.

At issue is how far majority Democrats go – either to suspend voter-approved Initiative 960 for 16 months or make changes that stay in place beyond June 2011.

I-960, which voters narrowly approved in the economic good times of 2007, requires a two-thirds supermajority vote for lawmakers to pass tax increases. But House Finance Committee Chairman Rep. Ross Hunter of Medina says I-960 is not workable and that more changes are needed than what the Senate passed.

Hunter favors suspending I-960 through mid-2011, as the Senate voted to do late Wednesday night on a 26-23 vote. But he also wants to permanently redefine what a tax is.

His approach, which had been in the Senate’s original proposal, Senate Bill 6843, is to say that changes to tax incentives are not tax increases. This would let him close tax loopholes – including those created inadvertently by court rulings – with a simple majority vote on a permanent basis.

“You look at California, and California is a very clear example why a two-thirds majority is a bad idea. … It’s important to be able to govern in a way that doesn’t allow people to go out and buy votes,” Hunter said this week in an interview. He pointed to people selling votes for special benefits for their district or state.

Republicans are unified in opposition to both approaches – beginning with the Senate’s suspension of I-960. It appears the I-960 limits could become a major campaign issue for Republicans in the November elections.

“This will open Pandora’s box and unleash many taxes that the people do not want,” Republican Sen. Pam Roach of Auburn said late Wednesday in a floor speech against Engrossed Substitute Senate Bill 6130.

The tax issue is heating up this week as lawmakers get ready for today’s quarterly revenue report, which could shrink or expand the state’s $2.7 billion budget shortfall. Senate Democrats say they will follow next week with a formal budget proposal that includes a tax package, and House Democrats plan to follow during the week of Feb. 22.

But the fight over I-960 has other implications. Roach and other Republicans say Democrats have suspended I-960’s other requirements to put any tax increases on the November ballot for an advisory vote in an attempt to hide what they have done.

By suspending I-960, Democrats also get rid of “sunshine” measures that include publication of lawmakers’ names and votes on tax increases in the voters pamphlet.

The hearing about Hunter’s proposal starts at 9 a.m. Saturday, and it’s possible that some Democrats might object to his broader approach, too. Already in the Senate, Democrats such as Sens. Brian Hatfield and Jim Hargrove objected to permanent changes to I-960, which led to SB 6130.

Hatfield said suspending the initiative is a cleaner, clearer and more straightforward way to go, because it mirrors the way Democrats have suspended popular initiatives for school funding and teacher pay.

But Hunter is not giving up the fight, which could force the issue back into the Senate later.

To prove his point that permanent changes are needed, Hunter also is hearing a revenue bill, House Bill 3176, on Saturday morning in the House Finance Committee. He says the bill updates the state tax code to make it more fair and eliminate unfair advantages that some out-of-state taxpayers enjoy.

He said his proposal is simply good government, but he’d be hard pressed to get it passed this year – or in the future – with a two-thirds vote requirement.

HB 3176 also is the first piece of any House Democratic tax package. It would raise $205 million cash for the state general fund in the next fiscal year and more in future years.

Its biggest piece of revenue is $73 million from extending the business-occupations tax to out-of-state businesses that do a certain amount of commercial activity in Washington. The bill would raise an additional $62 million by repealing a business-occupation tax exemption for banks earning interest on first mortgages, and $37 million by eliminating the sales-tax exemption for Oregon residents and others that qualify.

It would raise $4.5 million by extending the 0.5 percent excise tax to privately owned airplanes, just as boats now are taxed; $12 million by changing the tax code “to keep up with tax-avoidance schemes”; $5.5 million from making banks’ foreclosure sales subject to real estate excise tax; and $4.5 million by letting revenue agents hold a business’ owners or managers liable if the firm goes out of business with unpaid taxes.

Hunter also wants to limit the exemption in the Dot Foods court case so out-of-state firms can’t escape taxation for wholesaling. That is the exemption the Supreme Court expanded in a ruling last year. The exemption was meant for those selling products door-to-door, such as Mary Kay or Avon cosmetics sellers who run businesses out of their homes, according to Hunter’s briefing materials.

House Republican Leader Richard DeBolt of Chehalis has said his caucus could support a bill to close the Dot Foods exemption. But he said it is more of a problem for Republicans if Hunter ties up that exemption with changes to other tax exemptions – or if the proposal affects Avon retailers, whom Hunter says he wants to shield.

House Speaker Frank Chopp, D-Seattle, said this week that he does not know if the House will accept the Senate approach to suspending I-960 outright. He said he prefers Hunter’s approach. A spokeswoman for the House Democratic Caucus said a vote on the I-960 bill could come as soon as Saturday, if Republicans allow an expedited vote, or Sunday.

Brad Shannon: 360-753-1688

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