Close gap with capital gains tax

With little to show after one special session, legislators in Olympia have started the second by at least making their latest budget proposals public. And House Democrats and Senate Republicans have shown an understanding of compromise, with the Republicans coming up a bit in spending and Democrats cutting back from the earlier proposals.

It also helps that, under the direction of Gov. Jay Inslee, House and Senate leaders are meeting daily with the governor to further negotiations.

What separates them now are about $500 million in spending and whether to include a new tax in the revenue mix.

House Democrats, in their budget proposal released Monday, came down several hundred million in spending and have also whacked back their tax package from $1.47 billion to $570 million, dropping all but a capital gains tax on investment income.

The capital gains tax proposal, which is unchanged from the Democrats’ earlier budget, would levy a 5 percent tax on the capital gains from investment income above $25,000 for individuals and $50,000 for couples filing jointly. The tax, which would apply to about 32,000 state residents, would exempt profits from retirement accounts and the sales of primary residences and would exempt agricultural and timber producers.

The tax often is criticized as being prone to fluctuations of the economy and markets, but the Democrats say they have planned for that volatility by putting the tax’s first $400 million of anticipated revenue toward K-12 education, leaving the remaining revenue for a dedicated higher education fund that can better absorb fluctuations.

Senate Republicans have maintained from the start that the budget could be balanced without new tax revenue or increases, even in the face of the mandate to fully fund K-12 education. Their position was only galvanized when the latest revenue report in May showed a $415 million windfall.

But a closer look at the Senate Republicans’ budget reveals some decisions that shift money from necessary programs and some optimistic revenue assumptions. Among the Republicans’ rosier — or is that greener? — predictions is that the state can expect $88.5 million in revenue from the sale of marijuana for the 2015-17 biennium, almost double the $45.4 million projected for the current 2013-15 biennium. More money from marijuana sales may be likely as more business shifts from medical cannabis to recreational, but the Democrats’ projection of $41.1 million seems better grounded in reality.

The Senate Republicans also rely on shifting money from various programs in the operating and capital budgets. The House Democrats’ budget uses transfers, too: $96.7 million. But the Senate Republicans move around more than $290 million, almost half of which would be a hit that cities would have to absorb. It transfers $24 million in liquor excise tax distributions that won’t go to cities and again empties out $100 million from a public works assistance account from which cities in the past have obtained low-interest loans on short notice for street repairs and other utility work.

The Senate Republicans also are seeking to divert $29 million in tax revenue charged on insurance bought on the state’s health insurance exchange. That revenue now supports operation of the exchange. With its diversion, the costs for administration would be passed on to the consumer.

The Republicans may have been correct that a $1.5 million tax package wasn’t necessary, but in resisting any tax, a tax on 32,000 who can afford it, they are passing on hidden costs to more of us.

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