Democrats advanced controversial income tax legislation out of a key Washington state Senate committee on Monday after pledging more proceeds to local public defender costs and increasing a tax break for small businesses.
Senate Bill 6346 passed the Senate Ways and Means Committee on a voice vote. This marked the first legislative test of what is arguably the most divisive tax bill this session. Dubbed the “millionaires’ tax” by backers, it would impose a 9.9% levy on personal income over $1 million.
Republicans remained united in opposition. One Democrat, Sen. Drew Hansen, of Bainbridge Island, voted against the bill, saying he wants to see greater tax breaks for small businesses and individuals in the final version.
The bill will be sent to the Senate Rules Committee, where it is expected to be teed up for a vote by the full Senate in the next week.
Republicans said the legislation would have a chilling effect on the economy and not rebalance a tax code that Democrats argue unfairly favors wealthy individuals at the expense of lower-income families. Nor will it help families struggling financially today because it doesn’t take effect until 2028, they noted.
“Nothing in this bill right now makes Washington state (more) affordable,” said Sen. Perry Dozier, R-Waitsburg.
While it might feel good to “stick it to the guy” making money, he said, many residents “don’t have money to pay for food tomorrow” as they face the effects of inflation and billions of dollars in new taxes that Democrats passed last session.
Republicans also contend the tax could be expanded in the future to cover those making less than a million dollars.
“It is a ruse,” said Sen. Chris Gildon, R-Puyallup, the lead Republican on the Ways and Means Committee. “They know an income tax on anyone will be an income tax on everyone eventually.”
Collections of the tax would start in 2029 and could total nearly $2.6 billion for the next budget, according to a fiscal analysis released Saturday. When fully up and running, this income tax is expected to generate $3.6 billion a year.
The tax applies to household income above $1 million. Meaning married couples and registered domestic partners with combined earnings over that amount would pay.
Rewriting begins
On Monday, the version of the bill passed by the committee differed from the original bill introduced last week by Senate Majority Leader Jamie Pedersen, D-Seattle, and co-sponsored by 25 other Democrats.
The tax rate and income threshold at which it applies did not change. And the bill continues to use a portion of the tax revenue for expansion of the state’s Working Families Tax Credit, which provides some relief for lower-income families.
But the amended version would hike the percentage of revenue for public defense services to 7% from 5%. That could produce more than $200 million annually to support local public defense systems across the state, if income tax receipts achieve the projections.
This part of the bill follows Supreme Court-ordered reductions in caseloads of public defenders, a move that will require hiring not only more lawyers but also judges and other court employees.
Other new wording would earmark 10% of the public defense money for cities and modify how dollars would be distributed to local governments with an emphasis on assisting rural counties where the challenge of providing counsel for those who cannot afford a lawyer is greatest.
These revisions in the income tax bill are intended to align with House Bill 1592, which establishes a framework for funding public defense services in Washington.
That House bill was unanimously passed by the House Appropriations Committee on Monday, moving it closer to a floor vote.
Another change in the income tax bill is the increased tax break for smaller businesses.
Originally, the legislation called for exempting companies grossing less than $250,000 a year from paying the state’s main business tax. That’s double the current threshold. Pedersen’s amendment would boost the level of the full exemption to $300,000, with companies enjoying partially reduced tax liability up to $600,000.
The charitable deduction would also increase — to $100,000 from $50,000.
Additionally, the state Department of Revenue is directed to keep working on setting up the tax during any legal challenge that might arise.
GOP amendments blocked
On Monday, Democrats rejected all 11 Republican-sponsored amendments.
These included ones to delay when the bill goes into effect, double the income threshold to $2 million for couples filing jointly and completely exempt any income earned by businesses in another state.
One amendment would have nullified the legislation unless voters, by the end of the year, approve amending the state constitution to allow the income tax. Another sought to remove a clause that would prevent a referendum on the bill.
The lengthiest debate occurred on an amendment from Sen. Nikki Torres, R-Pasco, to stop charging the state’s retail sales tax on diapers.
The original bill would remove the sales tax on grooming and hygiene products, like soap and toothpaste. While Democrats were not willing to add diapers on Monday, they did not close the door to doing so at a later stage in the process.
This story was originally published by the Washington State Standard.
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