State tax compromise a long way away

Legislature: Income, sales, capital gains among revenue ideas

BRAD SHANNON; Staff writerDecember 3, 2011 

One week into the Legislature’s special session needed to close a $2 billion budget gap, state lawmakers are talking about tax increases as part of their solutions.

But don’t hold your breath: Tax talk is still a cheap form of entertainment at the Capitol. Majority Democrats are weeks away from agreeing on a tax plan they could send to voters for approval in March or April.

That indecision – along with last week’s rowdy protests at the Capitol in favor of taxing the wealthy and big corporations – is giving activists time to push more than the half-cent sales tax that Democratic Gov. Chris Gregoire already wants.

“We cannot get support for a short-term sales tax referendum unless we also get commitments for long-term tax system reforms,” said freshman Democratic Rep. Chris Reykdal of Tumwater, who is working on a tax overhaul he hopes to make public in a week or two.

Reykdal, and critics such as the Washington Education Association, worry publicly about adding to a sales tax that hits the very poor as well as the wealthy.

And they are looking well beyond the other pieces of the governor’s $800 million package that calls for a luxury tax on car sales over $50,000, a higher cigarette tax, and a narrowing of tax breaks for banks and oil companies that have exceptional profits.

Among the ideas:

 • Capital gains tax: Rep. Reuven Carlyle, D-Seattle, says he’s interested in a small capital gains excise tax, which the liberal Washington State Budget and Policy Center suggested last month as a way to bring in $1 billion a year.

The policy center would tax capital-gains dividends at 5 percent (exempting the first $10,000 for a couple as well as retirement accounts and home sales). The think tank also makes a pitch for using capital gains to replace the temporary half-cent sales tax in mid-2015, which is when Gregoire proposes it expire.

Carlyle says the plan is “responsible fiscal policy” and could protect higher education and other programs by putting some of the capital gains into the state’s rainy-day savings.

 • The oft-reviled income tax: Voters overwhelmingly rejected an income tax for those earning $200,000 or more last year. Reykdal said he would try a variation this time, using some kind of income tax to replace the business and occupation tax that companies pay on gross sales, regardless of their profit margins or losses.

 • A full penny increase in the sales tax: Gregoire got the sales-tax ball rolling last month with a half-cent plan to raise almost $500 million a year. Democratic Sen. Paull Shin of Edmonds doubled down on that Thursday with a bill to temporarily add a full penny to the state’s 6.5-cent share of the sales tax, which could raise $1 billion but drive the total state and local rate over 10 cents in some jurisdictions.

 • Video slot machines: House Republicans led by Rep. Gary Alexander of Thurston County are working on a proposal to raise revenue by letting nontribal card rooms run tribal-style video slot machines.

Republicans reject other revenue proposals. Alexander and his counterparts in the Senate haven’t identified how to bridge the whole $2 billion gap but want reforms that put more of the state’s operations out to bid by private businesses, including printing and perhaps the state motor pool.

Patrick Connor, state director for the National Federation of Independent Business, said its recent survey of members found slow sales were the biggest barrier to adding jobs.

“At a time when a lack of sales is one of the biggest problems facing small business, increasing the state sales tax is absolutely the wrong thing to do,” Connor said in a column he wrote for circulation to news outlets.

Connor calls for streamlining government even further, privatizing government programs such as workers’ compensation and renegotiating tribal gambling compacts.

Meanwhile, Democrats are divided.

“We are still consulting with our members about specific proposals, but there is a strong recognition that we need additional resources in order to meet the basic needs of our people,” House Speaker Frank Chopp, D-Seattle, said Friday in a statement.

A sales tax is the cheapest and quickest way to enact a temporary tax, according to Sen. Ed Murray, the Seattle Democrat who leads the Senate’s budget writing. And Chopp told TVW’s “Inside Olympia” program that he hasn’t ruled out a sales tax if that is what can pass.

But Mary Lindquist, president of the 82,000-member Washington Education Association that represents teachers, said a sales tax puts a burden on poorer residents and might fail in areas of King County where total state and local taxes would top 10 percent.

“I think that’s kind of a psychological barrier (at 10 percent) that I’m not sure people are going to embrace. This may be an opportunity for us as a state to look ahead and create a fairer, more balanced system,’’ Lindquist said.

Rep. Laurie Jinkins, a Tacoma Democrat who pushed for a higher tax on banks last year, agrees with Reykdal on making fairer changes to the tax code. But she said a sales tax is better than nothing.

“I prefer poor people paying taxes to poor people dying,” Jinkins said. “That is the choice I think we are making.’’

Brad Shannon: 360-753-1688

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