State House passes bill to expand tax exemption for working families
The Washington state House of Representatives on Tuesday approved a bill that would expand the state’s Working Families Tax Exemption. If it were to become law in its current form, the proposal also would ensure the exemption is available to eligible taxpayers for the first time.
After passing on a broadly bipartisan, 94-2 vote, House Bill 1297 now heads to the Senate for further consideration.
An unfunded, decade-old exemption
The state tax exemption is modeled in part after the federal Earned Income Tax Credit for low-income individuals and families. It uses income qualifications from that program and is meant to offset the state sales tax. The aim is to help residents who end up paying a disproportionate amount of their income in taxes.
“Working families are the backbones that keep our communities strong,” bill sponsor Rep. My-Linh Thai, D-Bellevue, said in floor debate. “Our economy must support them the way they support us.”
Lawmakers created the program in 2008, but it’s never been funded.
Under current law, the Legislature has to approve the exemption in its two-year budgets before taxpayers can claim it. An amendment from Rep. Drew Stokesbary, R-Auburn, removed that requirement Tuesday, aligning it with other tax exemptions.
Stokesbary, who serves as ranking member on the House Appropriations Committee, has advocated for funding the exemption and included it in a Republican operating budget proposal unveiled last month.
“It’s been a long journey — I’ve been in the Legislature for about half of the existence of the underlying program — but unfortunately it’s not once been funded,” Stokesbary said on the floor.
There had been some trepidation among Republicans about “expanding the promise before funding the promise,” Stokesbary told McClatchy in a phone interview. He sees the amendment as “converting that promise into payments.”
How the bill changes it
If passed into law as is, the bipartisan House bill would expand the rebate and who’s eligible to apply for it. It also aims to make the program simpler to administer, Thai said.
Under current law, the amount of the state benefit is 10 percent of a person’s credit from the federal program or $50, whichever is greater.
Thai’s bill replaces that with a base amount ranging from $500 to $950, depending on the number of children a taxpayer has. The base amount phases out as income levels increase, with a minimum credit of $50.
For tax year 2020, a single taxpayer with no kids could have earned up to $15,820 and still be eligible for the minimum $50 rebate. For a married couple with more than two kids, that maximum qualifying income would’ve been $56,844 in 2020, according to a nonpartisan analysis.
To be eligible for the state-level rebate, a person has to have been a Washington resident for at least 180 days of the year, paid state and local sales and use taxes, and received a federal Earned Income Tax Credit benefit. A person who’s eligible for the federal program but hasn’t yet received benefits would also be eligible under Thai’s bill.
Her proposal also expands eligibility to include people who file their federal income taxes using an Individual Taxpayer Identification Number — a number the IRS issues to people who are required to have a taxpayer ID number, regardless of immigration status, but aren’t eligible for a Social Security number.
That piece of the bill is personal to sponsor Rep. Thai, who came to Washington state as a Vietnamese refugee with her family when she was a teenager.
“I still remember the first time that my parents got to file the federal income tax,” Thai said in a phone interview. “The pride in their eyes that, finally, they can do what an individual with integrity would do. But that was way before we were naturalized.”
On the floor Tuesday, Thai gave emotional remarks that included some of that personal history. Her father, once a first lieutenant of the Army of South Vietnam, took a job maintaining parks for the city of Federal Way, she said. Her mother, once the vice president of a national bank, became a barista at St. Francis Hospital.
“The Working Families Tax Credit is our promise to the people of Washington,” Thai said. “A promise to people like my parents that, if they work hard, they can achieve their dream, build better lives for their children and ... the community will rise up to support them.”
If the exemption in current law were funded, the Department of Revenue estimates it would pay out $83 million through mid-2023. With the changes the House passed, that estimate rises to $250 million. A fiscal note from the department assumes it would impact 420,000 taxpayers. The note estimates costs at roughly $18 million for administering the program in the 2021-23 biennium.
Thai said she’s “beyond thrilled and happy,” while she also realizes the proposal is only halfway through the process.
“I’m not breaking out the champagne bottle yet, but I sincerely hope our senators will do what’s right for the people of Washington,” she said. “Because this is the right thing to do.”
Broad support, budget discussions
Gov. Jay Inslee had proposed funding the exemption with money from his cap-and-invest proposal. However, a spokesperson for his office has said he’s flexible on how it’s paid for.
A capital gains tax proposal the Senate approved last weekend specifies that some revenue would go into an account to offset existing tax burdens, naming the exemption for working families as an example of such a policy.
Senate Majority Leader Andy Billig, D-Spokane, said Wednesday the more comprehensive House bill will get “lots of consideration in the Senate.”
“That’s also a discussion that will happen as we move forward with our budget process,” Rep. Pat Sullivan, D-Covington, said. “All tax exemptions are considered when we do our budgets, so I assume we’ll be having conversations during that time frame as well.”
Bills passed out of the House will be in the House budget, typically, Billig said, and vice versa in the Senate. Then, the last few weeks of session involve negotiations and marrying up the two proposals.
Rep. Timm Ormsby, D-Spokane and lead budget writer in the House, said he’s confident it will be part of his chamber’s budget proposal. The “resources and wherewithal” to pay for it is “still in the developing stages,” he said.
An updated state revenue forecast is due next week, and the state awaits an influx of one-time money from the new federal pandemic relief package. But the source of funding for the exemption will need to be ongoing since it’s an ongoing obligation, Ormsby said.
At a virtual press conference Wednesday, Majority Leader Sen. John Braun, R-Centralia, said he believes his caucus also broadly supports the exemption. And he’s confident it could be paid for without requiring new revenue.
“I don’t think the issue is being able to fund key investments like that,” Braun said. “The issue is making sure we choose them wisely, so that they don’t create a bow wave we can’t afford in the future. This is one I think we can afford.”
This story was originally published March 11, 2021 at 5:45 AM.
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