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Governor offers Realistic, Responsible Approach to State Budget

Posted by Kim Justice at Dec 19, 2014 12:01 AM |

By Kim Justice and Andy Nicholas

Governor Inslee proposes to invest in Washingtonians and our economy over the next two years through a healthy balance of revenue, cuts, fund shifts, and reserves (see graph). Over half of the budget solution (59 percent) would come from tax increases that will make our revenue system more equitable and sustainable over time – a much-needed response after years of deep budget cuts undermining progress for workers, families, businesses, and the economy.

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A Budget that Invests in Washingtonians

While the Governor’s proposal does include some cuts, on balance it invests in the most important needs of our state, including:

  • $2.3 billion in new investments in education from birth to career, including resources targeted to closing the opportunity gap;
  • Increased space to treat people in need of mental health services;
  • First wage increase for state workers in seven years;
  • Increased funding for state parks; and
  • Additional staff to respond to reports of child abuse or neglect.

New Revenue Plan Brings Greater Equity and Sustainability to the Budget

The Governor’s sustainable revenue plan would raise $1.6 billion during the upcoming two-year budget cycle. These new resources would be generated by:

  • Adopting a new capital gains excise tax that would be paid by less than 1 percent of Washingtonians, almost exclusively those at the very top of the income scale. For more information see this “frequently asked questions” document about taxing capital gains;
  • Closing ineffective tax breaks for nonresident shoppers, oil refineries, and other products and industries;
  • Dedicating revenues from proposed efforts to reduce carbon pollution; and
  • Increasing taxes on cigarettes and e-cigarettes.

The Governor also proposes to enact about $94 million per two-year budget cycle in new tax breaks, which will be examined in future schmudget posts. Details on each of these actions are included below.

The Governor’s proposal represents a realistic, responsible approach to meeting the educational needs of our children, keeping families safe and secure, and improving our economy. Lawmakers should take the Governor’s lead and raise new revenue. Doing otherwise would be impractical and irresponsible.


Appendix: Tax Action details.

Enacting a new 7 percent excise tax on high-end capital gains ($798 million): Capital gains are profits from the sale of financial assets, mostly corporate stocks and bonds. Similar to the Budget & Policy Center’s proposal, the Governor proposes to tax capital gains in excess of $50,000 per year for a married couple ($25,000 for singles). Less than one percent of Washingtonians have capital gains above this amount. 

Dedicating revenues from proposed efforts to reduce carbon pollution ($508 million): A portion of proceeds from the sale of carbon allowances – part of the Governor’s proposals to reduce carbon pollution and address climate change  – would be dedicated to education programs. Some of these revenues would also be used to fund the Working Families Tax Rebate (link), which is a Washington state version of the federal Earned Income Tax Credit that would reduce taxes for some 435,000 households from Aberdeen to Spokane.

Increasing the cigarette tax by 50-cents per pack ($38 million): The proposed change would increase the cigarette tax to $3.525 per pack from $3.025 per pack.

Enact a new excise tax on “e-cigarettes” and vapor products ($18.1 million): Under current law, e-cigarettes are subject to the general retail sales tax, but not the cigarette tax or the Other Tobacco Products (OTP) tax. The governor proposes to apply a new  excise tax to e-cigarettes equal to 95 percent of their sales price; the same rate applied to cigars, pipe tobacco, and chewing tobacco..

Applying the sales tax to the trade-in value of cars worth over $10,000 ($105.3 million): Under current law, when a used car is traded-in as part of the purchase of new car, the value of trade in is exempt from the state sales tax. The governor proposes to apply the sales tax to trade-ins to the extent the trade-in value exceeds $10,000. The average value of a traded-in vehicle is $7,500 in Washington state, according to the Department of Revenue, meaning the majority of consumers would not be impacted by this change.

Repealing a use tax break for oil refineries ($51 million): A sales tax break originally intended for manufacturers and sawmills is now almost exclusively claimed by oil refineries (link). The governor proposes to eliminate the break for oil refineries but leave the tax break in place for sawmills.

Modifying a sales tax break for nonresident shoppers ($51.5 million): Under current law, residents of other states that have low or no state sales tax are exempt from Washington state’s sales tax (e.g., Oregon). The governor proposes to turn the exemption into an annual rebate program, in which. nonresident shoppers would be able to file for a refund if their total annual state sales tax payments are $25 or more.

Repeal the sales tax exemption on bottled water ($44 million): Until 2004, the state sales tax applied to purchases of bottled water. However, when policymakers enacted a law designed to harmonize Washington state’s sales tax with those in other states, bottled water became exempt. Since then, the agreement between states to harmonize their sales taxes – the Streamlined Sales and Use Tax Agreement (SSUTA) – has been modified to allow states to collect sales taxes on bottled water. Although, specifics are not yet available, it is likely the proposal would maintain the exemption for people that do not have access to potable water.

Repeal the preferential B&O tax rate on royalty payments ($44 million): As of 1998, royalty income – payments from licensing brand names, software, and other intangible property – are subject to a preferential business and occupation (B&O) tax rate of 0.484 percent. In 2010, as part of an effort to prohibit businesses from avoiding paying B&O taxes on royalties altogether, policymakers allowed businesses to pay the tax only on the portion of income that occurred in Washington state, rather than all of their royalty income, as had been the case previously. The governor proposes to continue to allow businesses to pay B&O taxes only on royalty income tied to Washington state, but to eliminate the preferential rate and tax royalties at the 1.5 percent rate paid by other finance-related businesses.


FAQs: Taxing Capital Gains To Build An Economy That Works For All Washingtonians

Posted by Elena Hernandez at Dec 18, 2014 11:56 PM |
Filed under: State Revenue

By Andy Nicholas

This morning, Governor Inslee proposed a new excise tax on capital gains as part of a responsible approach to improving schools in Washington state without harming other investments kids need in order to succeed in the classroom, such as health care, child care, and opportunities to pursue higher education at a community college or university. Washingtonians will certainly have many questions about how this tax would work and who would pay it. Answers to a number of key questions are included in the “Frequently Asked Questions” document below.

It is important to note that the Governor’s proposal differs from the Budget & Policy Center’s most recent capital gains tax proposal. However, most of the questions answered in the document below are applicable to both proposals.

(Click to view the full pdf document)


The most significant differences are the proposed tax rates and exemption thresholds. The Budget & Policy Center proposed a 6.5 percent tax on capital gains over $20,000 per year for a married couple ($10,000 for singles). Under those parameters the tax would generate nearly $900 million per year and would be paid by less than 2 percent of Washingtonians, almost exclusively those at the top of the income scale.

Governor Inslee proposes to tax capital gains in excess of $50,000 per year ($25,000 for singles) at a rate of 7 percent. Under his proposal, the tax would generate about $800 million per year in new resources and would be paid by less than 1 percent of Washingtonians.

Both approaches are sound and would greatly improve Washington state’s flawed, 1930s-era tax system while providing much needed resources for schools and other investments that help create jobs and build a strong economy.  


Working Families Tax Rebate Will Help All Washingtonians Participate in the Low-Carbon Economy

The importance of funding the Working Families Tax Rebate (WFTR), a Washington state version of the Federal Earned Income Tax Credit (EITC), should not be overlooked. As one of the many new investments for communities with lower incomes included in Governor Inslee’s proposals to reduce carbon pollution, the benefits of the WFTR would be widespread throughout Washington state, but would be most pronounced in rural communities and communities of color (see map below).

Going forward, it is critical that policymakers ensure all Washingtonians are able to thrive in the low-carbon economy of the future. Without investments like the WFTR, people with lower incomes will continue to shoulder growing economic and health costs associated with climate change. And, they be will not be able to afford the clean energy infrastructure needed to reduce their consumption of costly, carbon-intensive gasoline and electricity sources.

Governor Inslee proposes to fund the WFTR, which was enacted in 2008, but never funded, at 10 percent of the federal EITC. This would result in tax rebates of up to $624 per year for more than 435,000 households with lower incomes. The map below displays the number and share of households eligible to receive the WFTR, the average WFTR per household, and the total amount of WFTR and EITC dollars that would be distributed to each legislative district in Washington state (1).  Click here for a printable listing by legislative district.


We support the governor’s proposal. It is a bold step toward building a healthy environment and an economy that works for all Washingtonians and a good start to a much needed conversation around climate change. As members of the state legislature examine his proposal in the coming year, legislators must consider increasing the WFTR to as much as 30 percent of the federal EITC to ensure that no is left behind as Washingtonians transition to the low-carbon economy of the future.

(1) Share of households eligible refers to share of households filing a federal tax return and claiming the EITC and therefore eligible to receive the WFTR.

Governor’s Carbon Pollution Proposal Ensures All Washingtonians Would Prosper In Low-Carbon Future

Posted by Elena Hernandez at Dec 17, 2014 08:45 PM |

Updated graphic as of Thursday, December 18, 2014.

This morning, Governor Inslee released a bold proposal that would lower carbon pollution and spur the creation of a new, low-carbon economy that works for all Washingtonians – including people with lower incomes and from communities of color who have been hardest hit by the impact of climate change. 

By requiring polluters to purchase carbon allowances (permits), the Governor’s plan would catalyze an economic shift toward renewable energy technologies and investments in good-paying jobs needed to develop, deploy, and maintain those technologies. His proposal would also generate about $974 million per year from allowance sales beginning in July 2016, which would be reinvested in important priorities like schools and transportation infrastructure (see graph below). 


It is important to note that a significant share of these investments will directly help people with lower incomes – a disproportionate share of whom are from rural communities and communities of color – transition to and prosper in the low-carbon economy of the future.

For example, the Governor’s proposal would invest:

  • $400 million annually in transportation investments including public transit and low carbon transportation options;
  • $380 million annually in education investments that target the opportunity gap, from early childhood to higher education;
  • $15 million annually to provide affordable housing; and
  • $108 million annually to fund the Working Families Tax Rebate (WFTR).

Two out of three families in Washington state struggle to make ends meet.  These communities are the first and worst hit by the impacts of a changing climate and also the least equipped to adapt to climate disruption.  That is what makes investments like those outlined in the governor’s proposal so essential; if we are going to address climate change in our state, we must do so in the most just way possible.  The governor's proposal is a good start, and we look forward to working with policymakers and community members to strengthen it in the coming months.


Statement: Governor’s Carbon Pollution Bill Protects Washingtonians

Posted by Elena Hernandez at Dec 17, 2014 07:00 PM |

Statement from Executive Director, Remy Trupin, on Governor Inslee's proposal to address carbon pollution in Washington state.

“The governor’s proposal to address carbon pollution in Washington state will ensure that those hardest hit by the impacts of a changing climate and those least equipped to adapt to climate disruption – such as communities of color, families with low and moderate incomes, and rural Washingtonians – will not be asked to bear more responsibility than the polluters.”

Two major challenges pose the biggest threat to Washington state’s ability to deliver on the promise of a better future for our kids and grandkids: climate change and income inequality. At the intersection of climate change and income inequality are the resources that everyone needs to live – clean air, adequate food, safe water, abundant land, and energy – and the ability to access to them. The consequences of climate change will dramatically affect the quality and availability of these resources; and income inequality impacts how people are protected from and adapt to those consequences.

Governor Inslee’s plan will reduce Washington state’s carbon footprint, while also ensuring that all Washingtonians can support and participate in the low carbon economy.  The governor's proposal has several key elements that will get us there, including:

  • Much needed investments towards low carbon transportation options and public transit, including pass discounts for riders with low incomes.
  • Key investments in education that will help close the opportunity gap, from early childhood to higher education
  • Funding for the Working Families Tax Rebate (WFTR) which will help to offset transportation and energy costs for over 450,000 households with low and moderate incomes in Washington state
  • Strong accountability measures to ensure the voices of those most heavily impacted by climate change continue to be front and center, with the establishment of an oversight board and implementation of a statewide environmental justice “hotspots” study to better understand and address the disproportionate impact on communities with lower incomes.


Governor Proposes $2.3 Billion for Education from Birth to Career

Posted by Kim Justice at Dec 16, 2014 07:16 PM |

Governor Inslee kicked off his week of budget roll-outs by unveiling his plan to invest an additional $2.3 billion in education (see graph). These investments would nearly double the state’s early learning spending, fully fund most education reforms, and make college more accessible for students from low- income backgrounds.(1) Many aspects of the proposal target resources to students with low incomes, a disproportionate share of whom are students of color- helping to narrow the opportunity gap.

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Early Learning- $156 million

The most critical time of learning begins at birth. The Governor’s boost to early learning would allow 6,358 more three- and four-year olds from low-income backgrounds to attend preschool. The quality of child care would be improved through an increase in funding to implement a quality rating and improvement system and training in effective teaching strategies. Additionally, more families would receive home visiting, which provides families with the resources and skills they need to raise healthy children; and 1,500 more children with special needs would receive intervention services. These investments are a strong start to providing all kids with the foundation they need to be successful adults.

K-12 public schools - $2 billion (2)

Lawmakers are on the hook by the State Supreme Court’s McCleary ruling to fully fund basic education reforms by 2018. Governor Inslee proposes to fulfill the majority of that obligation ahead of schedule in the upcoming budget cycle. Under his plan, in the 2016-17 school year, class sizes in kindergarten through third grade would shrink to no more than 17 students per class and all students would receive full-day kindergarten. Funding enhancements that cover the cost of maintenance, supplies, and operating costs (MSOC) at schools would also be fully funded. The Governor’s plan does not, however, fund lower class sizes above third grade, as required by Initiative 1351.

Increasing teacher pay is an important component of fully funding basic education, and an area that the court specifically called out. While bringing teacher salaries in-line with the labor market is likely to require a sizable investment, Governor Inslee proposes a small start by giving teachers a raise above the cost-of-living increases required by law. Teachers would receive a three percent increase in pay in the 2015-16 school year and a 1.8 percent increase in the 2016-17 school year.

Beyond these required enhancements, the Governor proposes investments that increase opportunity for students from low-income backgrounds who don’t currently have the resources to succeed. Targeted resources to high-poverty schools would provide more family engagement in learning, increased mentorship, nutritious meals, services to keep kids in school and reduce suspensions, and wrap around services to support the entire family.

College and beyond- $156 million

In today’s world, a degree or certificate is necessary to succeed in the job market. But too often students find college to be a distant, unaffordable dream. By continuing the freeze on tuition increases for the next two years, the Governor’s plan puts the brakes on increased tuition costs for students. Additional funding will allow more high school students with low incomes and students pursuing a degree in health care or STEM to get the financial aid they need. These are important investments, but more is needed to reduce tuition costs that have skyrocketed in the last few years- which has resulted in Washington state students experiencing the second largest tuition increase in the nation.

To get more people back to work, an increase in our state’s I-BEST program- which integrates basic education with job training- will help 800 individuals get the skills they need to get a job.

Click here to read the Governor’s full education plan.

Much of the Governor’s plan targets funding across the education pipeline towards investments that will have to the most bang-for-the-buck and go to students who need it the most. This approach would begin to close the inequities that children face depending on their race, ethnicity, income, and where they live- exactly what’s needed to put Washingtonians on a solid foundation and make our economy strong again.

Stay tuned for more analysis, including the Governor’s full budget and revenue plan which is scheduled to be released on Thursday, December 18th.

(1)    Nearly doubles state funding for early learning in the Department of Early Learning

(2)    Includes $236 million for I-732 teacher COLA’s which are required by law and included in the maintenance level and the state’s share of pension ($200 million) which is included in the maintenance level. The investments in MSOC ($750 million) are required by current law.

Revenue Forecast Shows it’s Time to Get Real: We Can’t Cut our Way to McCleary

Posted by Kim Justice at Nov 19, 2014 03:20 PM |

Updated 11/24/2014 to reflect most recent McCleary cost estimates. Costs are down slightly from projected JTFEF estimates due to lower inflation and minor policy changes.

Washington state tax resources will fall $4.5 billion short of the amount needed to adequately fund schools, health care, child care, and other important investments in the next two years, according to new projections from the state Economic and Revenue Forecast Committee.

Some say we can cut non-education investments in order to free-up resources for basic education. In reality, policymakers must find new sources of revenue to make all the investments we need to support a strong economy in Washington state.

Today’s revenue forecast, which Governor Inslee will use to build his upcoming budget proposal, shows available tax resources will be $115 million higher than previously forecasted during the current 2013-15 budget cycle, and $272 million higher in the 2015-17 cycle. 

While the growth in revenues is good news, the new resources are negligible in comparison to the additional spending needs required in the next two years. These include (see graph):

  • Maintaining schools, health care, public safety, and other services ($1.9 billion): The cost to continue providing the same level of services grows year after year due to inflation, rising fuel and energy costs, increases in the number of kids in our schools, and changing demographics such as the aging of baby boomers. 
  • Legal obligations ($1 billion): The state is legally required to pay pensions, debt we owe on bonds that support infrastructure improvements, increases in health care costs for state employees, and cost-of-living increases for teachers (I-732), which were suspended in previous years, but are required by law going forward.
  • Critical policy needs ($1 billion): Some policy decisions, which are at the discretion of the legislature, will be difficult to forego. For example, earlier this year the State Supreme Court ruled that detaining patients with mental illness in hospital emergency rooms is unconstitutional. In order to comply with the order, the legislature will need to increase capacity in treatment facilities. Additionally, collectively bargained agreements between the executive branch and employees will likely be on the table for lawmakers to consider. State employees have gone six years without a pay increase. Delaying any longer will adversely impact retention and the ability to attract workers.
  • McCleary education investments ($1.7 billion): Lawmakers must invest billions more in K-12 education to comply with the State Supreme Court’s ruling in the McCleary v Washington case. According to estimates by the Joint Task Force on Education Funding, lawmakers should invest an additional $1.7 billion in the next two years to remain on-track to meet the 2018 full funding deadline.(1)
  • Initiative 1351 ($1.6 billion): Voters approved Initiative 1351 in November that will ultimately add over 25,000 school staff, including teachers, principals, counselors, librarians, grounds-keepers. There is some overlap with the already-enacted education reforms to lower class sizes in K-3, as part of complying with McCleary. Assuming lawmakers continue to phase-in McCleary investments, an additional $1.6 billion will be needed for I-1351. 

outlook nov 24

All told, the state will fall about $4.5 billion short of the revenue needed to make these investments. While some claim we can cut our way to McCleary compliance, reality says otherwise.

Two-thirds of the budget is protected by either the state Constitution or federal laws and cannot be cut. The remaining third of the budget includes funding for community colleges and universities, public safety, nutritional assistance, help for people with disabilities, childcare, housing, services for foster children, and supports that help people find jobs. Severe cuts to these investments would do great damage to the state economy and would impose devastating costs on struggling families from Sequim to Spokane.

Rather than being distracted by math games that don’t add up, lawmakers should get serious about raising revenue.

 1. Estimates have been updated to include cost-projections for the 2015-17 biennium from the Office of Program Research;

Document Actions

2015-17 Legislative Agenda

Our 2015-17 Legislative Agenda calls for an equitable and sustainable revenue system in addition to state investments that will promote a world-class education system, sustain a strong, inclusive middle class, produce high quality, living wage jobs, and ensure equal opportunity to live healthy and productive lives.  Take a closer look here.

Budget Matters 2014

Thank you to those who made Budget Matters 2014 a success! Stay tuned for pictures, video clips and PowerPoints from this year's conference.

Legislative Testimony

Senior Budget Analyst Kim Justice recently testified before Senate Ways and Means against a bill that would fund education at the expense of other budget investments. Watch it here. 

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