Democrats unveil new plan that includes beefed up capital gains, B&O and estate taxes
House and Senate Democratic leaders have unveiled an updated revenue pitch to fix Washington’s multi-billion-dollar budget shortfall, weeks after Gov. Bob Ferguson put the kibosh on their wealth-tax plan.
Some call the majority party’s plans a step in the right direction. Others remain skeptical that more taxes are necessary, arguing that they could bring unintended consequences.
Ferguson slapped down a Democrat-proposed new, untested wealth tax, which focused on individuals with more than $50 million. But lawmakers’ new plans would still target the state’s wealthiest few through a capital gains proposal.
Democratic budget leaders say that their latest package would generate close to $12 billion over four years.
State Sen. Noel Frame, a Seattle Democrat and vice chair for finance on the Senate Ways and Means Committee, said in a news release that dollars raised from taxing businesses and the wealthy would go toward community safety, public schools “and the essential services people count on from their government.”
State Rep. April Berg, chair of the House Finance Committee, emphasized the need to reform the state’s “outdated, unfair tax code.”
“The gaps between working families and the gains by the wealthiest in our state have resulted in not enough funding for our schools, a safety net that is at risk every time revenue collection drops or costs go up, and working Washingtonians struggling to make ends meet,” the Mill Creek Democrat said in the release.
Time is running out on the regular legislative session, which is scheduled to end April 27. Lawmakers will be working to pass the revenue package and budget before Sine Die.
Here are some of the Democrat-backed tax proposals announced this week.
Business and occupation tax
With House Bill 2081 and Senate Bill 5815, Democrats are upping the ante on the state’s business and occupation (B&O) tax to make it more progressive. The proposal would raise the wholesaling and manufacturing base rate to 0.5%, up from 0.484%. It would also be 0.5% for retailing, up from 0.471%. A news release notes that the rates haven’t been changed since 1993.
The base rate on services more than $1 million would jump from 1.75% to 2.1%, and there’s also a temporary 0.5% new surcharge for businesses bringing in over $250 million annually. Surcharges would spike on advanced computer services (from 1.22% to 5%) and big banks (from 1.2% to 1.5%).
HB 2081 is getting a public hearing on Friday, and SB 5815 was set to be heard the evening of Wednesday, April 16.
Capital gains and estate taxes
SB 5813 and HB 2082 would affect “the very wealthiest Washingtonians,” Democrats say, by ensuring that the state’s estate and capital gains taxes are more progressive. A tiered structure for the capital gains tax would be introduced with an added 2.9% surcharge on profits from the sale of bonds, stocks and financial assets exceeding $1 million a year.
Estates up to $3 million in value would be excluded from the estate tax, which would see higher rates on bigger estates, up to 35%. The money generated would be meant for public schools, child care, early learning and higher education.
The upper chamber’s bill was set for a hearing Wednesday, April 16.
Property tax update
Property taxes are another hotly debated topic this session.
The Democrats’ latest idea features a formerly introduced SB 5798 and the new SB 5812, which is the companion to HB 2049. Lawmakers say that together they would boost the property tax growth limit for cities, counties, special purpose districts and the state’s common school levy from 1% to the rate of population growth plus inflation — up to a 3% maximum. That’s similar to the initial plan in the House.
Democrats expect SB 5798 to be amended and for participants in the “Property Tax Exemption for Senior Citizens and People with Disabilities” program to be exempt from the state property tax, thereby slashing costs for some of Washington’s most vulnerable residents, according to a news release. Eligibility for the exemption would also be expanded.
SB 5798 and HB 2049 are set for executive session Friday in their respective committees.
Other proposals would close obsolete tax exemptions, institute a Zyn-pack tobacco tax and expand sales taxes on certain services, such as IT- and computer-related services.
Support for new taxes
Treasure Mackley, executive director of Invest in Washington Now, said in a statement that her organization is glad, overall, to see a budget that preserves key services for families, children and other vulnerable residents. Such ideas don’t make the same mistake as in 2009, Mackley said, when major cuts hurt communities.
“We are also glad that this does include revenue measures that are focused on the wealthy few, which voters overwhelmingly supported at the ballot box last year,” she said. “There is more that needs to be done to make our state’s tax code truly equitable, but we are in a much stronger position than we were just a few years ago.”
Last week hundreds of Washington Federation of State Employees members rallied at the state Capitol. Among their demands: Lawmakers should avoid implementing state-worker furloughs — like Senate Democrats and the governor had suggested — and should tax the rich.
WFSE President Mike Yestramski said Wednesday that since then, public-sector union representatives have met with the Governor’s Office to discuss the budget and progressive revenue. They want to see more of the tax burden shifted from the working class to the ultra-wealthy.
The final budget isn’t out yet, he noted. WFSE is still concerned about potential furloughs, facility closures and program cuts. But between the revenue package and conversations with the Governor’s Office, it looks to Yestramski like “we’re moving in the right direction.”
“The devil’s in the details, and we’ll have to see exactly what it looks like when the ink is dry,” he said. “But I definitely feel much more optimistic right now than I did at this time last week.”
Republicans, business groups criticize new tax plans
Sen. Chris Gildon, the upper chamber’s Republican budget lead, has been adamant that the budget can be balanced without adopting more taxes. He said the chambers’ budget negotiations are happening away from public view, and there’s no way of knowing how it will end.
“But even if the Senate majority pursues this $12 billion set of new taxes instead of the $21 billion in taxes tied to its budget, it would still amount to the largest tax increase in state history,” the Puyallup Republican said in a news release. “That raises a disturbing question: if the Democrats end up demanding $9 billion less in new taxes, wouldn’t it have been a lie when they asked for $21 billion in new taxes and justified it as being ‘necessary to keep people alive’?”
House Republican Deputy Minority Leader Chris Corry said in a phone interview that some of the suggested taxes would be felt by regular folks. The property tax increases, for instance, could prevent people from being able to afford a starter home.
“I think the B&O taxes are going to trickle down to you and I and everyday Washingtonians,” the Yakima Republican added.
Rachel Smith, president and CEO of the Seattle Metro Chamber, said her organization continues to agree with Ferguson’s results-driven, responsible-spending approach. She hopes that lawmakers will budget only based on what economists forecast, and refrain from spending one-time money on ongoing programs, before considering new taxes.
The state’s businesses, both big and small, are inextricably linked, she said. Large companies often provide the “volume of customers for many of our small businesses,” and smaller retailers offer the vibrancy that makes people want to live here.
Small business owners could feel the pinch from cost increases passed down from larger corporations and need to raise prices or cut workers’ hours, Smith said.
If there’s a big shift in taxes on the tech sector, she said, then that could mean such businesses and jobs move to places that are cheaper.
“Trying to parse and say some of these taxes will only impact this individual or that kind of company, it simply shows a fundamental misunderstanding of the business ecosystem,” Smith said.
She also cited a recent poll commissioned by the Seattle Chamber and other business groups. One finding suggested that most voters believe raising taxes to support state spending will ultimately mean that higher costs will be passed down to them.
This story was originally published April 17, 2025 at 10:32 AM.
.jpg)