Democratic lawmakers and Gov. Jay Inslee say they have taken their capital-gains tax proposal off the table in budget talks, but insist the GOP agree to raise revenue by closing some tax loopholes.
OLYMPIA — As the state closes in on the deadline for averting a government shutdown, Democratic lawmakers and Gov. Jay Inslee announced Friday they had removed a proposed capital-gains tax from talks over the state’s 2015-17 operating budget.
But in return, Democrats are pressing Republicans to raise revenue by ending some tax breaks. Republicans on Friday afternoon signaled they would be open to such a move.
The day’s public pronouncements come more than two-thirds through a second special session without lawmakers having reached a budget agreement. If there’s no new budget before July 1, parts of the state government will shut down.
In a news conference Friday, Inslee said ending some tax breaks to raise $300 million to $350 million would get both parties to a budget that would support the priorities of each side.
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As he discussed the withdrawal of capital-gains-tax proposals, Inslee said he wanted to make clear that “negotiations are not about a fight about any new tax.”
Inslee said he wasn’t going to dictate which tax breaks to end, but suggested two — an exemption on the sales tax for nonresidents, and another that benefits oil refineries — that could work.
Rep. Reuven Carlyle, D-Seattle, suggested closing the tax exemptions House Democrats mentioned in their budget proposal, which among others include the two named by Inslee and another that prevents a sales tax on bottled water.
In a news conference, Republican leaders sounded upbeat and no longer as concerned about a government shutdown. GOP leaders suggested that to find revenue, closing some tax loopholes and moving money from other funds both were options.
Rep. Bruce Chandler, R-Granger, said he believed “prospects are excellent” for getting a budget agreement next week.
Republicans stressed the increased spending on education and other programs that would come with any agreement.
“There’s going to be a great budget at the end of the day,” said Sen. Andy Hill, R-Redmond and chief GOP budget writer.
Democrats sounded less happy. House Majority Leader Pat Sullivan said further compromise from his party would mean forgoing some funding for mental health, early learning and higher-education programs.
“That’s difficult for us,” said Sullivan, adding later: “But that’s what compromise is all about.”
Earlier this week, Democrats halted separate negotiations on a proposed statewide transportation package because they said budget talks were going poorly.
Lawmakers have been meeting daily in the governor’s conference room for budget talks, but both Sullivan and Inslee said little progress had been made over the past week.
“Folks need to know that negotiations on the operating budget have not gotten us to where we should be today,” Inslee said.
Lawmakers are confronting several issues, first and foremost the fact that the state is being held in contempt by the state Supreme Court as not doing enough to fully plan for more K-12 school funding per the court’s McCleary order.
Other courts have ruled that the state’s treatment of psychiatric patients and defendants in need of mental-competency evaluations needs to be corrected, which means more funding for those programs.
Lawmakers also are seeking to give cost-of-living pay raises to state employees and teachers and to freeze or reduce college tuition.
Republicans have argued that new revenue from existing taxes should be enough to cover all of that. Fortune appears to have smiled on that argument, with two state revenue forecasts this year projecting more money for state coffers.
Legislators and the governor still must also wrestle with Initiative 1351, the K-12 class-size-reduction measure voters approved in November. Lawmakers and Inslee have all concluded I-1351 is too expensive to fund this budget cycle and have proposed limiting reductions to K-3 class sizes.
It normally requires a two-thirds majority vote by lawmakers to alter an initiative within two years, a hard goal to reach. Democrats have said that vote threshold is necessary to alter I-1351.
But Republicans have proposed sending the altered version back to voters in the fall, which they say would require only a regular majority vote in the Legislature.
Said Inslee: “I don’t believe there is a clear agreement about 1351 at the moment.”