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New House Budget Nixes Best Plan for Sustainable, Equitable Revenue

Posted by Kim Justice at Jun 22, 2015 06:50 PM |
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By Kim Justice, Senior Budget Analyst, and Andy Nicholas, Senior Fiscal Analyst
Updated June 23rd, with corrected ECEAP slot figures

Today the House released its third iteration of a spending plan for the next two years, attempting once again to reach a compromise with the Senate. The plan nixes Washington state's best chance for a sustainable budget and equitable tax system: the capital gains tax.

In lieu of a capital gains tax proposal, the House put out a budget with no additional revenue alongside a proposal (House Bill 2269) to close or narrow six tax breaks, raising $356 million. The new revenue from HB 2269 is specifically dedicated to education and other services. 

House Bill 2269 would:

  • Close or narrow six wasteful tax breaks – including a sales tax exemption on bottled water ($40.5 million); a sales tax exemption for nonresident shoppers; a preferential business and occupation (B&O) tax rate for prescription drug wholesalers ($33.2 million); a sales tax exemption on fuel used by oil refineries ($29 million); a preferential B&O tax rate on royalties from software licenses ($31.3 million); and a real estate excise tax  exemption claimed by banks when selling foreclosed properties ($73.9 million).
  • Create a more level playing field for Washington-based businesses: Small businesses located in Washington state can’t avoid paying state sales and B&O taxes. Too often large multistate businesses are off the hook for these taxes, however. HB 2269 would make progress on correcting this disparity by applying “economic nexus” standards, which are described more fully here, to wholesalers located outside of Washington state ($45 million). It would also require some large internet retailers to collect sales taxes on purchases made by Washingtonians ($28.3 million). 
  • Increase penalties and administrative actions: HB 2269 would increase penalties for businesses that fail to pay their taxes on time ($17.2 million) and make other administrative changes to help reduce tax evasion ($8.2 million).
  • Invest the revenue in education and other services: Under the bill, the revenue generated would fund a number of state priorities. Some of the investments include $152 million for an additional cost-of-living increase for teachers, $53 million to freeze tuition at public colleges and universities, and $24 million to add slots for early learning preschool. 

The new budget, combined with the additional investments in HB 2269, invests about $300 million less than the budget put forward by the House several weeks ago. 

Compared to the budget proposed on June 1st, the new proposals backslide on important investments. Under the new plans:

  • Fewer children will be able to attend preschool. Additional funding will support about half the number of preschool slots, shrinking from 6,358 to 1,600;
  • Fewer students will get financial aid to go to college. The House backtracks on a $53 million investment to allow more students to access financial aid through the State Need Grant;
  • Adults and children will have a harder time accessing health care through Medicaid and the Children’s Health Insurance Program because investments in customer service and eligibility staff have been pared down;
  • People with lower incomes will lose access to telephone and voicemail services under the elimination of the Washington Telephone Assistance Program, a program that ensures those Washingtonians can use the phone to access vital resources and emergency services;
  • Fewer staff will be added to reduce foster care caseloads and respond to reports of child abuse and neglect within a timely manner;
  • Students in K-12 public schools will not benefit from much-needed additional support from guidance counselors and other staff who advocate for children’s health, wellness, and engagement;
  • English Language learners in K-12 public schools will not receive the additional instructional hours that our school system has identified that they need in order to participate fully in the classroom.

The revised plan continues to make it clear that new revenue is a must for making the budget sustainable and responsible. While the House has moved closer to the Senate’s version of the budget, the Senate remains rigidly opposed to new revenue.

The new House proposal to close wasteful tax breaks demonstrates the need to prioritize state resources for our kids and students.  Without a capital gains tax, however, we can only get so far. Lawmakers should not abandon a capital gains tax, as it is a sensible and much-needed tool to raise long-term revenue and begin to even out our unbalanced tax system.


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