House Democrats unveil $52.6 billion budget with new taxes

OLYMPIA — House Democrats on Monday unveiled a two-year $52.6 billion budget plan which aims to transform the mental health system, solidify funding of public schools, provide financial aid to more college students and boost state worker pay.

It counts on $1.4 billion in new and higher taxes, most of it coming from a capital gains tax targeting wealthy individuals and a hike in the rate paid by professional service businesses.

Under the proposal, the state would put another $206 million in behavioral health to increase staffing and improve safety at Western State Hospital while also helping add treatment beds in communities around the state.

In education, there’s an increase of $70 million for special education and additional money for levy equalization as Democrats look to give school districts greater flexibility on local levies. There’s also $453 million earmarked for the state share of a new statewide school employee health insurance program.

Other investments include $38 million to add 1,464 slots in the early childhood education program, $5 million for clean energy programs, and $438 million for state worker pay hikes. A cost-of-living increase for teachers is also embedded in the spending plan.

Democrats defended the level of spending and need for additional taxes during one of the strongest economic periods in state history.

“I don’t think the proposals that we’re funding here are an excess,” said Rep. June Robinson, D-Everett, vice chairwoman of the House Appropriations Committee. “They are basic functions of state government.”

Republican lawmakers have said new taxes are unnecessary because revenue collections in the next budget are now projected to be $4.5 billion more than the current budget.

“Despite our $2.8 billion budget surplus, by far the Legislature’s best starting position since the Great Recession, the majority Democrats have unfortunately chosen to double-down on their promise to raise taxes,” said Rep. Drew Stokesbary, R-Auburn, the ranking Republican on the House budget committee, in a statement. “We can easily write a budget that funds all of our state priorities without raising any new taxes.”

House Majority Leader Pat Sullivan, D-Covington, countered those dollars are all going to carry out the state’s obligations under the McCleary school funding case. Decisions made two years ago to drive more dollars into schools for salaries and operations are coming due in this budget, he said.

“Don’t be fooled when they say we have $4.5 billion to spend on new things,” he said. “It is absolutely not true.”

The controversial centerpiece of the House tax package is the capital gains tax which Republican lawmakers argue is not allowed by the state constitution.

“Our experts believe it will withstand a challenge,” Sullivan told reporters.

Under the Democrats’ plan, a 9.9 percent capital gains tax would be levied on earnings from the sale of stocks, bonds and other assets above $100,000 for individuals and $200,000 for those who file jointly. About 13,400 people would be affected by the new tax, said Rep. Gael Tarleton, D-Seattle, chairwoman of the House Finance Committee.

Earnings from retirement accounts and sales of primary residences, farms and private businesses would be exempt, she said.

The new tax would take effect July 1, 2020, and bring in $780.7 million in the second year of the budget cycle.

Budget writers say those dollars would be used to ensure the state keeps its commitment to amply fund K-12 education. A portion also will shore up the state’s funding of special education and early learning programs, she said.

House Democrats are proposing a 0.3 percent increase in the business-and-occupation tax rate paid by doctors, lawyers, accountants, and other professional services that have a certain percentage of employees with college degrees. And there will be a slightly higher increase, possibly 0.5 percent, levied on a handful of high-tech firms including Microsoft Corp. and Amazon, Tarleton said.

Collectively, this would bring in an estimated $427 million. It would be deposited in a new Workforce Education Investment account and used to support additional enrollment slots, expansion of the State Need Grant program to cover more students in lower-income families, and career-connected learning programs.

House Democrats also are proposing to replace the flat rate of 1.28 percent imposed on each sale of property with a four-tier graduated real estate excise tax rate.

Under the plan, a lower rate of 0.9 percent would be levied on sales of properties up to $500,000. It would apply the 1.28 percent rate on sales between $500,000 and $1.5 million, 2 percent on those between $1.5 million and $7 million and 3 percent on those above $7 million. This will bring in an estimated $130 million.

An additional $68.4 million would come from the repeal of three tax exemptions, including the sales tax exemption for nonresidents. Under the plan, those residents would be able to apply for a refund.

The House Appropriations Committee held a hearing on the proposal Monday afternoon. It could be voted on as early as Friday.

But Democratic leaders are still deciding whether the tax bills will be voted on at all. A hearing on the capital gains tax is slated for Friday.

In the Senate, majority Democrats are expected to release their proposed spending plan later this week. Once it is acted on, budget writers in the two chambers negotiate a final plan before the legislative session’s scheduled end on April 28.

Also Monday, House Democrats issued proposed transportation and capital budgets.

All documents can be viewed online at leap.leg.wa.gov

Jerry Cornfield: 360-352-8623; jcornfield@herald net.com. Twitter: @dospueblos.