Rushed income tax bill threatens massive holes in county, city budgets | Opinion
Washington’s state legislature completed its short session last week, but I have a prediction about the state income tax bill it sent to the governor’s desk. What was done in the 60-day session will create complications for years.
That’s not to say I think the mere existence of a state income tax will summon the apocalypse, as some opponents seem to warn. There’s nothing inherently bad about adding a new method of taxing to the mix.
But the policy wasn’t planned out meticulously over months, and it shows. Most pressing to your everyday life is this: the new tax model is on track to create budget holes going into the multi-millions in county and city budgets. The state set aside $200 million from the new income tax to address the problem, but local officials don’t think that will go far enough.
This seems to be the result of a mad rush to pass a tax in a short time span, turning the policymaking process into a pie fight. It was chaotic. The participants seemed to make up and change the rules along the way. And it left a giant mess to clean up.
Or as Tacoma mayor Anders Ibsen put it, “That’s the problem with making gigantic shifts in short sessions.”
Ibsen supports moving away from regressive taxes like sales tax, but doesn’t want the state to “rob Peter to pay Paul.” The good news, he said, is there’s still time to make a course correction.
“We’re enthusiastic about a thoughtful discussion” with lawmakers, he said.
Washington Speaker of the House of Representatives Laurie Jinkins said the exact impact on local budgets isn’t clear yet. But, she knows that’s going to be an important conversation.
“I don’t think that the $200 million that’s coming from millionaires to tax is thought necessarily to be covering all of that,” she conceded. “I’m open to hearing as we go through all of this that it’s a net revenue loss.”
State law, local policies
So how does a state tax law affect local coffers?
The bill exempts a wide range of things from sales and business taxes starting in 2029. That includes hygiene products, diapers and over-the-counter drugs, as well as a huge class of services that just became subject to taxes in 2025. The exemptions don’t just apply to statewide sales tax, which is charged at 6.5%. They’ll also apply to taxes approved by local voters and councils in order to fund local programs.
It’s also complicated. Jinkins pointed out that some local sales taxes already exempt products like over-the-counter drugs and hygiene products, like the county’s Maureen Howard affordable housing tax. But they’ll still bring in less money because of the repealed taxes on services.
Other local sales taxes include the public safety taxes for cities like Tacoma, Lakewood and Ruston, as well the Sound Transit sales tax. Tacoma levies 1.4% in total sales taxes, and that will go up slightly in April when the city’s criminal justice and public safety tax goes into effect.
Pierce County executive Ryan Mello projects the county’s shortfall will be more than $11 million in 2029. The state’s plan to set aside $200 million to help replace the lost money doesn’t sound like enough to make up the loss to Mello.
So he’s planning for a near future without the funds. That changes how the county can spend the sales tax money it will receive until then, he said.
“I need to treat those more like one-time revenues,” Mello said. “And do one-time kinds of investments, not make ongoing commitments that I can’t afford to maintain.”
Mello and other counties in the region are especially concerned about these shortfalls in light of other financial pressures they’re facing. That includes the tax bill’s lack of funding for constitutionally mandated public defender services that counties have to provide.
Moving away from relying on sales taxes
You might be surprised that the state can change how a local government charges sales tax. Derek Young, executive director of the Washington State Association of Counties, said local governments had to fight to make sure state lawmakers knew about the impact on the local taxes.
“We were scrambling to try to meet with legislators,” he said. “Many of them expressed surprise or even pushed back, and didn’t think we were right.”
He doesn’t fault the legislators though. It’s the result of squishing a lawmaking process into a time frame shorter than a season of 90-day fiance.
“I’m not saying that they’re not out there working hard,” Young said. “It’s just when you move very fast, not everyone can be brought along.”
