As time grows short for lawmakers to reach a budget agreement, Democrats Monday released a new budget plan that comes down in spending — and preserves a proposed capital-gains tax proposal.

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OLYMPIA — As time grows short for lawmakers to reach a budget agreement, Democrats on Monday released a new budget plan that comes down in spending — and preserves a proposed tax on some capital gains.

The proposed $38.4 billion budget is, like the Republican proposal released Thursday, a step toward bringing the two parties closer to cobbling together a 2015-17 state operating budget.

Lawmakers, who are now in a second special legislative session to find a compromise, have only a few weeks before the state’s new fiscal year starts on July 1. If no new budget is agreed upon by then, some state government functions would shut down.

New Democratic budget proposal

The new Democratic House budget released Monday would raise about $550 million in new revenue — down from the $1.5 billion Democrats proposed in March.

The new plan keeps a proposed 5 percent tax on some investment income above $50,000 for couples and $25,000 for individuals. But it drops other revenue plans, including:

• An increase on the portion of the business-and-occupation tax on services that applies to architects, doctors, lawyers and others.

• The elimination of some tax exemptions, including one that benefits oil refineries and another that prevents a sales tax on bottled water.

Source: The Seattle Times archives, Proposed Second Substitute House Bill 1106

House Majority Leader Rep. Pat Sullivan, D-Covington, called the new proposal “a substantial compromise.”

“We reduce our spending substantially,” said Sullivan. “We reduce our revenue package by two-thirds.”

As it stood Monday, the new Democratic House plan cut spending by about $450 million compared to the original proposal released in March.

Included in that is a reduction in spending on health benefits for K-12 school employees. But in removing that funding, “I got a lot of blowback from my caucus,” said Rep. Ross Hunter, D-Medina, and chief Democratic budget writer.

Because of that, changes in the health-benefits proposal will likely be introduced before the bill is voted on Wednesday in the House Appropriations Committee, Hunter said. The bill will get a public hearing in the committee on Tuesday.

In the new budget, Democrats removed other revenue proposals they had earlier proposed, including an increase in part of the state business-and-occupation tax, the closing of some tax exemptions and a plan to collect more money in online sales taxes.

The only part remaining from the original revenue package is a capital-gains tax, which would bring in an estimated $550 million in fiscal 2017. The plan would institute a 5 percent tax on certain investment income above $50,000 for couples and $25,000 for individuals.

Recent forecasts projecting more revenue from existing taxes, as well as unexpected federal money, have bridged some of the differences between the budget plans.

But even with that revenue, Sullivan said an additional $500 million to $600 million is needed to adequately fund government.

“We believe that a modest capital-gains tax is the right way to move the state forward,” Sullivan said.

While he described the Democrats’ proposal as “definitely a positive step,” Sen. Andy Hill, R-Redmond, and chief GOP budget writer, criticized the capital-gains tax proposal.

“We still think those taxes are unnecessary,” Hill said.

Like its earlier version, the GOP plan released last week doesn’t raise any new revenue but uses the new projected money to bring spending closer to what Democrats are seeking.

On Monday morning, lawmakers from both parties gathered for about an hour in Gov. Jay Inslee’s office for the first in what will be daily budget meetings hosted by Inslee.

“I think that everyone is feeling the pressure of getting the budget done,” said Rep. Bruce Chandler, R-Granger, as he walked out of the meeting.

The new Democratic budget is “not the final one,” added Chandler, who is the ranking Republican on the House Appropriations Committee. “But, you know, I think they made some positive movement in it.”