Senate moves to increase sales tax to erase budget gap

OLYMPIA — Senate Democrats on Tuesday called for increasing the sales tax statewide for the first time in three decades to help erase a budget deficit and ease spending cuts for public schools, college students and services for the poor.

They also want to beef up the cigarette tax, slash tax preferences and tap airplane owners and out-of-state residents for more money in their package of measures to fill about a third of the $2.8 billion hole in the state budget.

In all, Democrats’ proposed budget issued Tuesday raises $940 million toward covering the shortfall. To bridge the rest of the gap, they make $838 million in spending cuts, tap reserves, make transfers from various funds and count on federal aid that isn’t assured.

Senate Majority Leader Lisa Brown, D-Spokane, said it is a “balanced and responsible” budget that prevents a further “dismantling of the public institutions” serving the state’s residents.

Soon after senators rolled out their tax and spending plans, House Democrats released their budget proposal that involves fewer program cuts, more yet-to-be approved federal aid, reserves and $857 million in new money from taxes.

Both House and Senate Democrats use the new dollars to maintain funding for subsidized health insurance for children and low-income adults, school levy equalization, all-day kindergarten and state need grants for college students.

Precisely how the House will generate its revenues was not disclosed Tuesday. Details are expected out today

Rep. Kelli Linville, D-Bellingham, the lead House budget writer, said House Democrats are divided on whether its best to target taxes on items like candy and soda pop as the governor suggested last week or follow the Senate’s approach of boosting the sales.

Republican lawmakers and business leaders think either path leads to a worse, not better, recovery for the state’s fragile economy.

GOP leaders said Democrats have blown through a nearly $2 billion surplus in less than four years and plying their thirst for revenue won’t stabilize state budgets.

“Raising taxes, relying on federal bailout money and robbing state funds to balance the budget will only prolong our state spending problem and slow our economic recovery,” said Rep. Barbara Bailey, R-Oak Harbor, a member of the House budget panel.

The largest chunk of the Senate’s revenue package, $518 million, would come from two dozen tax law changes.

These include ending an allowance for vehicle trade-ins which can save a new car buyer hundreds of dollars, requiring residents from Oregon to pay the sales tax before seeking a refund and levying an excise tax on privately owned airplanes. Owners now pay a small annual fee.

“The majority party says it wants to remove these tax exemptions in order to help children. I find that ironic, since removing these exemptions will hurt the very companies who employ these children’s fathers and mothers,” said state Sen. Val Stevens, R-Arlington.

The most political heat may be ignited by temporarily raising the state’s portion of the sales tax by three-tenths of one cent from 6.5 cents to 6.8 cents on every $1 purchase. The rate charged in stores is usually higher, because cities, counties and other agencies collect a portion as well

If enacted, the increase would take effect June 1 and last until June 30, 2013 and would be the first increase statewide since 1983.

Senate Democrats are counting on the increase to bring in $336 million they say will be steered into education programs. To soften the blow on the working poor, the state would offer a tax rebate to those who qualify for the federal Earned Income Tax Credit.

Democrats wary about the taxes are weary of seeing programs they support get starved for cash.

“I don’t support any of these taxes but I can’t support cutting any deeper into education,” said state Sen. Rosemary McAuliffe, D-Bothell, chairman of the Senate education committee.

Sen. Steve Hobbs, D-Lake Stevens, a member of the Senate Ways and Means Committee, said he’s not ready to back what came out Tuesday.

“What we need to do is peel out some of the tax loopholes and exemptions and look at some other opportunities,” said Hobbs, who sat through a two-hour public hearing on the bill Tuesday afternoon.

Brown said the plan released Tuesday is a starting point and she is not “dug in” to defending the approach. There are many opposed including Gov. Chris Gregoire.

“I continue to be concerned about the revenue being the sales tax,” Gregoire said Tuesday. She said she’s glad to see budgets are getting out so she can sit down with House and Senate leaders and begin negotiating.

Last week, Gregoire put forth a $605 million package of taxes which, like the Senate, puts another $1 in tax on each pack of cigarettes and revise tax laws to narrow exemptions for out-of-state businesses and door-to-door vendors which have been broadened due to recent court cases.

Gregoire also wants to triple the fee paid by handlers of hazardous substance and poach some of the estimated $225 million in annual revenue into the general fund. The Senate budget proposal does not count on this revenue.

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

Tax time

Here’s how Senate Democrats raise $940 million to cover about a third of the projected $2.8 billion state budget deficit.

$336 million – Increase in sales tax* of three-tenths of 1 cent

$86 million – Increase cigarette tax by $1 per pack

$518 million – Other new taxes and revisions and closure of tax loopholes

Changes in the last category include:

$169.4 million – Changing tax codes based on court cases

$24.4 million – Requiring Oregon residents to ask for refund on sales tax instead of giving them an exemption at the counter

$6.3 million – Levying excise tax of 0.5 percent of value on airplanes

$300,000 – Ending business and occupation tax break for bullion

*Sales tax revenues would pay for a Working Families Tax Credit program under Senate proposal