House Democrats in the state Legislature say their budget plan would satisfy the state Supreme Court’s McCleary education-funding order by enacting a new tax on capital gains and restructuring the state’s business taxes.
OLYMPIA — Washington House Democrats on Monday released a budget plan that aims to satisfy court-ordered K-12 education funding by enacting a new tax on capital gains and restructuring the state’s business taxes.
The Democratic proposal, a $44.6 billion 2017-19 state operating budget, would raise about $3 billion in new taxes. It would institute a 7 percent tax on capital-gains earnings above $25,000 for single filers and $50,000 for joint filers.
That would affect about 48,000 tax returns, according to Rep. Kristine Lytton, D-Anacortes, chair of the House Finance Committee.
It also would raise the state’s business-and-occupation tax rates 20 percent — but exempt businesses with less than $250,000 in annual gross revenue from paying the tax.
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The proposal also seeks to raise revenue by rolling back a handful of tax exemptions.
The proposal would spend $7.1 billion over four years to fund changes necessary to comply with the state Supreme Court’s McCleary decision.
The court ruled in 2012 that Washington was violating its state constitution by underfunding K-12 schools. The justices since 2014 have held the state in contempt for failing to make enough progress on a school-funding plan.
The Democratic budget “lays out a plan of how it’s going to be implemented, of how we’re going to provide a great education for kids and compensate our teachers,” said Lytton.
“And we have the revenue mechanism to do it,” she added.
The Democratic plan would also freeze tuition at the state’s colleges for residents, fully fund new state-employee contracts and put about $153 million more into Washington’s mental-health system through 2019.
The Democratic plan also includes a handful of other ideas to raise more revenue, including a proposal to collect sales tax from purchases made over the internet and a restructuring of the state’s real estate excise tax.
Right now, people selling homes all pay the same rate of the excise tax: 1.28 percent of the sale price. The Democratic proposal would put in a place graduated system. If a person’s home sells for under $250,000, the rate would be reduced to .75 percent. Between $250,000 and $1 million, the rate would stay at 1.28 percent.
And then the rate rises for homes between $1 million and $5 million (2 percent) and homes above $5 million (2.5 percent).
Republicans quickly pushed back against the proposal, with Sen. John Braun, R-Centralia, slamming the idea of a capital-gains tax.
“We believe it is not consistent with either the constitution or the will of the people,” said Braun, the chief Republican budget writer. “We don’t think it’s viable.”
Braun said he doesn’t want to see negotiations start until Democrats have voted their tax proposals out of the state House.
“As we’ve said all along, they need to bring a complete proposal,” he said, “one that they can show political support for, in order to have real negotiations.”
Lawmakers are wrestling with complying with the last big piece of McCleary: deciding how Washington will pay for teacher and school-worker salaries. The justices ruled that the state must pay those costs. Right now, school districts use local property-tax levies to fund a big chunk of the salaries.
Republicans have been resistant to most ideas for new revenue.
Senate Republicans last week released their proposed budget, a $43 billion proposal that seeks to satisfy the McCleary decision with what’s known as a “property-tax swap,” replacing local tax levies with a statewide property tax for basic education costs.
That plan would raise property taxes in “property-rich” places like Seattle and Bellevue, and spend most of the money to lower property taxes in “property-poor” places, including many rural school districts.
The Republican plan wouldn’t raise new revenue otherwise, and would fund the school system by rejecting the state-worker contracts, cutting government managers and reducing or eliminating some state programs.
Instead of the property-tax swap, the Democratic plan uses a chunk of its new revenue to reduce the amount of property-tax money school districts could collect locally.
Gov. Jay Inslee in December released his own spending plan, a $46.7 billion document that included new taxes on capital gains and carbon, with an increase in part of the business-and-occupation tax.
That would pay for a McCleary solution, fund other K-12 education programs and bolster the state’s mental-health system.
In a statement, Inslee praised the House budget plan, saying it “fully and amply funds education while protecting critical services for our families and communities.”