Budget compromise leaves unfinished business on tax reform

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Budget compromise leaves unfinished business on tax reform

Statement: Budget can’t support community priorities without fixing the tax code

By - April 27, 2019

Leaders in the state House and Senate have released a budget and revenue package that includes some modest, but important, improvements to the state tax code and new investments in key areas like schools and mental health services. But the investments they’ll provide are nowhere near what would be required to pull communities out of the funding holes left by the Great Recession.

The current agreement includes some positive changes to the state tax code, such as changing the real estate excise tax (or REET) into a graduated tax with higher rates for the highest-valued properties and lower rates for properties valued under $500,000; expanding a property tax exemption program for seniors, veterans, and people with disabilities; increasing business and occupation (B&O) taxes on financial institutions with income above a billion dollars; and closing a few outdated tax exemptions.

But decades of reliance on inequitable and inadequate revenue sources, especially sales taxes, mean more significant structural changes are needed to make a dent in our upside-down, unsustainable tax code. The bottom line is that what lawmakers have agreed to in this budget – which takes small steps in the right direction – simply doesn’t go far enough toward creating a tax code that amply funds the investments needed to keep our communities strong for generations to come.

Even though many parts of our state economy have recovered since the Recession, community investments have still not rebounded when compared to economic growth – which impacts access to the programs and services that all our communities need.

Here’s what lawmakers could do to improve this budget:

  • Close the tax break on capital gains. A tax on capital gains would be paid by the very wealthiest 14,000 households (0.4% of the state population), generating billions of dollars that could be used to fund critical priorities. That revenue could strengthen this budget by making investments in schools, health care, housing and homelessness, and even tax breaks for working families. As we’ve written previously, doing so would help flip Washington’s tax code right-side up while helping to address systemic racism in our state economy.
  • Reject unrealistic savings assumptions and artificial austerity. This budget plan still includes hundreds of millions of dollars in unrealistic savings assumptions from across-the-board state agency reductions and assumed savings in our state Medicaid program. We’ve learned from experience that these savings won’t materialize, and budget writers will have to fill the hole once again next year.

For the good of our state, lawmakers should take the time to keep working to improve this proposal – including providing time for review and feedback from the public. And they should enact a budget and revenue plan that would go further toward adequately meeting the needs of all communities and ensuring everyone pays their fair share for investments that benefit us all.

About Misha Werschkul, Executive Director

As the leader of the Budget & Policy Center, Misha guides the organization’s strategic vision and ensures its position as a leading voice shaping the debate around budget priorities.

Read more about Misha