House Democrats propose to raise $1.5 billion in new revenue over the next two years to pay for the state’s education and social-service spending. A capital-gains tax is included in their budget plan — but not the governor’s proposed tax on big carbon polluters.
OLYMPIA — Seeking to tackle court mandates to spend more on K-12 education and improve mental-health services, state House Democrats proposed Friday to raise about $1.5 billion in new revenue.
To do that, the proposed state House budget for the 2015-17 budget cycle would raise parts of the state business-and-occupation tax and includes a new capital-gains tax — but not the governor’s proposed tax on carbon emissions of big polluters.
The $38.8 billion, two-year budget would spend $1.4 billion toward fulfilling state Supreme Court-mandated K-12 education funding. It would also freeze college tuition, increase college grants to students and invest more in early learning.
“This budget keeps our promises to a million Washington kids,” said Rep. Ross Hunter, D-Medina, and chief budget writer in the House, during a news conference.
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With the proposal released, the Democratic-controlled House and GOP-controlled Senate now shift their attention toward negotiating a budget agreement that satisfies the parties’ divergent philosophies. Senate Republicans — expected to release their budget proposal next week — have argued that the projected $3 billion in new revenue from existing taxes should be enough to pay for education, mental-health services and other programs.
Although state Sen. Andy Hill, the GOP’s chief budget writer, didn’t offer specifics Friday, he promised that the Republican budget would make a “fairly stark contrast” to the Democratic proposal.
“From our point of view, taxes should really be the last resort,” said Hill, R-Redmond, in his own news conference after the release of the Democratic budget.
Democrats, however, describe their plan as a corrective to spending cuts made during the Great Recession and a tonic to Washington state’s current tax system, which has been ranked as the most unfair in the country.
“For us to talk about how seriously unfair our tax system is requires us to step forward with a different kind of conversation,” said Rep. Reuven Carlyle, D-Seattle, in the budget news conference.
About $550 million in new revenue would come in fiscal 2017 from a 5 percent tax on capital gains on investment income above $50,000 for couples and $25,000 for individuals, according to the tax bill that accompanied the proposal. That tax, which would exempt profits from retirement funds, sales of permanent residences, and agriculture and timber producers, would affect about 31,500 Washingtonians.
Carlyle noted Friday morning that the proposal calls for one of the lowest rates among states with a capital-gains tax. Washington is one of nine states that do not tax capital gains, according to the governor’s budget office.
Gov. Jay Inslee’s proposed budget had recommended a capital-gains tax with a 7 percent rate that would have raised about $800 million in the 2017 fiscal year.
The House proposal would also increase the business-and-occupation tax on services — which applies to architects, doctors, lawyers and others — to raise about $530 million. At the same time, the Democrats also propose doubling the business-and-occupation tax exemption for small businesses.
It also calls for collecting taxes on purchases made on the Internet, raising $85 million.
And Democrats propose to end some tax exemptions — including one that benefits oil refineries and another that prevents a sales tax on bottled water.
Changes to Initiative 1351
To deal with some of the huge demands for education spending, the Democrats would alter Initiative 1351, the unfunded measure voters passed in November to reduce K-12 class sizes.
In the House proposal, I-1351 — which had been estimated to cost at least $2 billion this budget cycle — would cover only K-3 class sizes. That change would require a two-thirds majority vote from lawmakers.
The Legislature years ago approved a K-3 class-size reduction, but failed to fund it — as noted in the state Supreme Court’s McCleary decision.
“This is unacceptable,” said Mary Howes, executive director of Class Size Counts, a group that ran a campaign supporting I-1351 last fall. “Voters expect smaller class sizes at every level, and our students deserve it,” she said in an email.
Other requirements of the court’s McCleary funding order — including all-day kindergarten and materials and operating costs — would be completely funded in the Democrats’ budget, as would $440 million in negotiated or arbitrated contracts for state-employee raises.
And the House proposal provides $385 million to give Washington teachers their first cost-of-living pay adjustments in six years.
Despite that proposed salary increase, the state’s largest teachers union said the budget proposal doesn’t go far enough to provide Washington teachers with competitive salaries.
Not included in the budget is the proposed carbon-polluter plan championed by Inslee, nor his recommendations for a 50 cents-per-pack cigarette tax increase and taxing of e-cigarettes.
The carbon-polluter plan was part of Inslee’s proposal to fund education and a transportation package. The current transportation package separately making its way through the Legislature is funded instead by an increase in the state gas tax and other fees.
Carlyle praised the governor’s carbon-polluter plan, but said it was too new an idea in the Legislature to be immediately acted upon.
“We feel that it needs more time … for the House and the Senate and the governor to come to a consensus to include this,” he said.
In a statement, Inslee praised the inclusion of the capital-gains tax and called the House proposal “responsible, sustainable and fair.”
But he called the Democrats’ decision to exclude his carbon charge “disappointing.”
The state approved a $33.8 billion budget for the 2013-15 cycle. Earlier this year, lawmakers and the governor approved about $220 million in supplemental funding to that budget to fund unexpected costs due to wildfires and the Oso landslide, as well as social-services and mental-health costs.
The Democratic proposal would continue that last investment, adding, among other things, tens of millions for more community and state hospital mental-health beds.
Hill, the Republican budget writer, did praise the Democratic proposal for its priorities.
“They’re prioritizing education as well, we like that,” said Hill. “They’re big on early learning, we like that. They’re big on mental health, that will be a big priority in our budget.”