Politics & Government

Gov. Inslee downplayed talk of taxes on the campaign trail. Then he proposed raising them by $5.5 billion.

Gov. Jay Inslee speaks at a press conference about his plan to fully fund public schools on Dec. 13 at Lincoln High School in Tacoma.
Gov. Jay Inslee speaks at a press conference about his plan to fully fund public schools on Dec. 13 at Lincoln High School in Tacoma. lwong@thenewstribune.com

Gov. Jay Inslee told voters in 2016 that fixing Washington schools would require lawmakers “to actually put meat on the bone.”

When asked where that meat would come from, the first-term Democrat talked mainly about ending tax exemptions, as well as harnessing revenue from the state’s growing economy.

“We’re going to do things like finding a way to close a loophole or two and have revenue growth, because our economy is growing to get this job done,” Inslee said at a debate in August, an answer that became routine over the next three months.

The governor gave few hints on the campaign trail that, five weeks after winning re-election, he would propose $5.5 billion in new taxes.

Yet that’s what Inslee did in December, unveiling a new two-year budget plan that would increase state spending by about 20 percent, bankrolled by new taxes on carbon pollution, service businesses and the wealthy.

Ending tax exemptions, a cornerstone of Inslee’s campaign rhetoric, accounts for about $320 million of the new revenue in his proposed 2017-19 operating and capital budgets — or about 6 percent of the governor’s total tax package.

Money from the state’s economic growth would go entirely toward maintaining existing programs under Inslee’s plan, including paying for inflation costs.

Ending tax exemptions, a cornerstone of Inslee’s campaign rhetoric, accounts for about 6 percent of his total tax package — about $320 million out of $5.5 billion.

Republicans say Inslee’s new two-year budget marks the second time he’s misled voters to win an election.

As a gubernatorial candidate in 2012, Inslee pledged on the campaign trail to veto taxes, but two years later called for $1.4 billion in new tax revenue. The governor’s new plan revives some of what he proposed in December 2014, including proposals to tax polluters and income from capital gains.

“It’s like Groundhog Day,” said Senate Majority Leader Mark Schoesler, R-Ritzville, referring to the 1993 Bill Murray film in which the main character repeats the same day over and over.

Sen. Michael Baumgartner, R-Spokane, was more direct.

“It was a straight-up campaign lie,” Baumgartner said of Inslee’s 2016 tax rhetoric, calling the governor a “disingenuous con artist.”

It was a straight-up campaign lie.

State Sen. Michael Baumgartner, R-Spokane, about the governor’s tax rhetoric on the campaign trail

Inslee spokeswoman Jaime Smith said the governor was clear throughout the 2016 campaign that complying with a Washington Supreme Court order to fully fund K-12 schools would require new revenue.

Unlike during the 2012 campaign, this time the governor was careful in debates and interviews to not rule out new tax measures.

“A lot of these things were still on the table,” Smith said of the taxes Inslee included in his budget proposal.

In the McCleary education case, the state is under a court order to correct school-funding problems by September 2018. Right now, salaries of teachers and other school employees are paid partly using local school district property tax levies, which the state Supreme Court has ruled unconstitutional.

A legislative task force is still working to pinpoint what fixing the salary problem will cost, but a recent consultant’s report suggests it could be as much as $4 billion every two years.

When asked during the campaign where he’d find that kind of money, Inslee frequently pivoted to talking about ways the Legislature has already increased education funding over the past four years, while maintaining his focus on growing the economy and ending tax breaks.

Outside of growing the state’s economy, “There might be a couple other things we’ve got to do,” Inslee at a debate in September.

A lot of these things were still on the table.

Jaime Smith, spokeswoman for Gov. Inslee

“Look, there are some corporations that have loopholes that weren’t even meant for them — they really weren’t,” Inslee said. “The oil and gas industry uses one for $65 million when that should be going to the education of our kids. … We’ve got to make some common-sense measures in that regard.”

The governor acknowledged in some interviews that he might reconsider a tax on capital gains — such as profits from the sales of stocks and bonds — if economic growth and ending tax breaks didn’t provide enough revenue. But he mostly avoided discussing that tax option during three televised debates with Republican challenger Bill Bryant, as well as in several local campaign forums.

During those public appearances, the governor didn’t proclaim support for raising taxes on service businesses or enacting a new tax on carbon emissions, either — yet all ended up in the budget plan he unveiled in December.

David Schumacher, Inslee’s budget director, said one reason the governor didn’t always get specific on the campaign trail was because he didn’t have all the numbers he would later use to craft his two-year spending plan.

A revenue forecast released after the November election didn’t end up providing substantially more revenue for the state, Schumacher said, while the McCleary consultants were still working on their financial report throughout the campaign.

The governor also had to review budget requests from state agencies and assess what he would and wouldn’t be willing to cut, Schumacher said. Much of that work occurred after the election, he said.

Inslee’s 2017-19 budget plan largely looks to taxes he’s proposed before, but this time on a larger scale.

All told, about $4.4 billion of the new taxes under Inslee’s plan would go toward the state’s operating budget, while about $1 billion would go toward capital construction projects.

The governor is proposing a 7.9 percent tax on income from capital gains, slightly higher than the 7 percent capital-gains tax he proposed in December 2014.

The tax — which would raise about $821 million per year starting in 2018 — would apply to capital gains over $25,000 per individual and $50,000 per couple, and exempt income from selling a home. An estimated 48,000 households would pay the tax, which Inslee has billed as affecting only the state’s wealthiest residents.

Starting in 2018, Inslee’s plan would also impose a carbon tax of $25 per metric ton of emissions, which would raise about $2.1 billion a year. Half of the revenue from the carbon tax would go toward the state’s operating budget and paying for schools, while the other half would fund building projects through the state’s capital budget.

The other main tax measure in Inslee’s budget is a proposal to increase the business and occupation tax on service businesses from 1.5 percent to 2.5 percent. That measure would raise $2.3 billion over two years and affect an estimated 170,000 taxpayers.

All told, about $4.4 billion of the new taxes under Inslee’s plan would go toward the state’s operating budget, while about $1.1 billion would go toward capital construction projects.

Republicans, on the other hand, have largely favored a property-tax swap to help meet the state’s McCleary obligations.

Under such a plan, the state would lower local school district property tax levies, while raising the state’s property tax levy by a proportionate amount — essentially shifting local school-district salary money to the state budget.

During the campaign, Inslee cautioned against that method, saying that while it would lower property taxes in some districts, it would raise taxes in others. Still, he said he was open to having some type of tax swap be part of a McCleary solution, while declining to provide specifics.

After all of Inslee’s proposed taxes are fully phased-in, the cost of his tax package would rise to about $8 billion every two years.

In the end, the governor’s budget would reduce local school district levies by about $250 million statewide — much less than the billions that Republicans would like to see — while making no changes to the statewide property tax.

Schoesler, the Senate majority leader, said the governor’s plan is overly expensive because it fails to incorporate the money local school districts are already spending on salaries, which the McCleary consultants’ report recently estimated at $2 billion per year.

Once all the taxes in Inslee’s plan are fully phased in during the 2019-21 budget cycle, the cost of his tax package would rise to about $8 billion every two years.

“You don’t need $8 billion if you’re going to fix McCleary with a levy swap,” Schoesler said.

The Legislature will reconvene Jan. 9 for a session that is expected to focus mainly on solving McCleary. Last year, lawmakers passed a bill promising to approve a fix in 2017.

That pledge came after the state Supreme Court issued a contempt order and fines over lawmakers’ lack of a plan to meet the case’s 2018 funding deadline.

Solving the state’s school-funding problem will involve compromise in a divided Legislature. Starting in January, Republicans will control the state Senate with the aid of one conservative Democrat, while Democrats will hold a slim majority in the state House.

Melissa Santos: 360-357-0209, @melissasantos1

INSLEE

TAX PLAN

Here are the taxes included in Inslee’s 2017-19 budget proposal and how much they would raise over the two-year budget cycle.

Capital gains tax: $821 million.

Increased tax on service businesses: $2.3 billion.

Carbon tax: $2.1 billion (half for operating budget, half for capital budget).

Closing tax exemptions: $320 million.

Total new revenue: $4.4 billion for operating budget, $1.1 billion for capital budget.

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