Bill would suspend limits on tax hikes

OLYMPIA — Majority Democrats moved Wednesday to dump strict voter-imposed controls on raising taxes and begin work on their first package of tax hikes for individuals and businesses.

Senate Democrats put forth a bill that drives a dagger through Initiative 960 by suspending its requirement for a two-thirds vote of the Legislature or a vote of the people for new or higher taxes and fees.

With that barrier knocked down, Democrats would need only a simple majority to carry out their goal of raising revenue to erase some of the state’s $2.6 billion budget deficit while preserving education, health care and human service programs.

House Democrats got started Wednesday, introducing the first — but not likely the last — tax bill of the 2010 session, a $363 million package that closes loopholes, eliminates exemptions and expands the universe of taxpayers well beyond the borders of the state.

Wednesday’s actions are no surprise as Democratic leaders announced before the session they wanted to get rid of the two-thirds requirement they view as a straitjacket on their legislative abilities.

“We’re in a very difficult budget situation,” Senate Majority Leader Lisa Brown, D-Spokane, said. “We feel (the initiative) puts an unfair limitation on the process in a situation where we have a short time to solve a big problem, and we want to be able to have a simple majority be able to respond quickly and effectively.”

Tim Eyman of Mukilteo, author of Initiative 960, blasted the Senate action.

“Everybody knew it was coming, but it is literally galling to watch them do it,” he said.

Voters passed the measure in 2007 by a margin of 51.2 percent to 48.8 percent. Under state law, it could not be revised by the Legislature for two years, and that waiting period is over.

Since Democrats vowed to set aside the measure, Eyman launched an initiative that, if successful, would re-impose the two-thirds vote requirement in 2011. He got his petition forms Wednesday and could start gathering signatures.

“All this does is throw gasoline on the fire of enthusiasm for this year’s Initiative 1053,” he said.

For Republican leaders, it’s the moment they’ve been anticipating and may prove defining in elections later this year.

“I am incredulous that Democrats are setting the stage for raising taxes in this economy,” Senate Minority Leader Mike Hewitt said in a prepared statement. “Working people and employers are just trying to survive in this economy. They should not be asked to bail out poor state spending decisions through higher taxes.”

As a matter of procedure, the Legislature must deal with Initiative 960 before tackling any tax increases.

This afternoon, the Senate Ways and Means Committee is expected to hold a public hearing on the bill. If it survives unchanged through the Senate and House, it will take at least a week and likely longer to reach the governor’s desk.

As proposed, the two-thirds requirement for general tax increases would expire at the end of the budget in mid-2011.

The bill would repeal the requirement permanently if the purpose of the increase is to pay for an unfunded voter-backed initiative such as those boosting teacher pay and keeping class sizes small.

And it would eliminate provisions such as the initiative’s requirement for nonbinding advisory votes on any tax increase approved by the Legislature that was not subject to referendum.

As debate begins on the Senate bill, so too will it start on the 89-page tax bill.

Among its provisions is one to end an exemption that now allows residents of Oregon and other states without a sales tax to avoid paying sales tax on purchases in Washington.

Another revision would hit owners of private aircraft. They would go from paying a flat fee as low as $20 to being charged an annual excise tax based on plane’s value, as boat owners now are taxed.

A big chunk of the $363 million would come from requiring some out-of-state companies to pay a business-and-occupation tax for the first time. These firms have no physical presence in the state, but conduct business through online and phone sales.

Some exemptions are being rewritten as a result of lawsuits. Several companies won their respective legal fights for exemptions to which the state didn’t think they were entitled. That’s resulted in a loss of as much as $150 million in anticipated revenue in this budget.

Rep. Ross Hunter, D-Medina, chairman of the House Finance Committee and the bill’s sponsor, considered most of the bill to be fixes and updates to the state’s tax code that cannot be done swiftly because of Initiative 960.

It is an “impenetrable roadblock to reasoned government,” he said in a statement.

“It’s hard to get two-thirds of our Legislature to agree on when to adjourn for dinner, let alone agree to end a bad tax exemption that has outlived its usefulness,” he said. “We’re proposing careful changes to I-960 that maintains its intent, but allow legislators to do their jobs.”

Learn more

Read Senate Bill 6843, which would suspend Initiative 960, and House Bill 3176, which would raise taxes, at www.leg.wa.gov.

Highlights of the tax package:

Tax proposals and their estimated revenues through June 30, 2011:

Eliminate sales-tax exemption for nonresidents: $37 million

Repeal of public utility tax deduction for out-of-state trucking firms: $6 million

Levy excise tax on privately owned aircraft: $4.5 million

Extend business tax to certain out-of-state firms: $73 million

Cap allowable deductions by banks for interest on first mortgage loans: $62 million

Target tax avoidance schemes: $12 million

Revise tax code in response to lawsuits: $105 million

Source: House Finance Committee

Reporter Jerry Cornfield: 360-352-8623; jcornfield@heraldnet.com

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