How to raise Washington taxes during COVID-19 pandemic: very cautiously or not at all
COVID-19 has reoriented our priorities and flipped life upside down in Washington state, but some things never change. Partisan division over tax policy is one of them.
Two examples help illustrate the point. A pair of proposals simmer on medium heat near the midpoint of this year’s legislative session: a tax on capital gains and a tax on sweetened beverages.
What an odd couple. Taxing gains from the sale of investment assets, while quite possibly unconstitutional, would at least make progress toward tax fairness in Washington, where we’ve long worn the label as America’s most regressive state. Taxing sugary drinks, however, would do the opposite, as so-called “sin taxes” typically hit lower-income people hardest.
On these and other tax schemes, Democrats and Republicans are as far apart philosophically as Tacoma and Tonasket are geographically.
Democrats who control the Legislature and the governor’s office see the pandemic as an opportunity to be bold, expand revenue sources and make generous investments to help people in need. GOP leaders want to mirror the budgetary caution that Washington households have exercised for the last year, holding down spending and tapping the rainy day fund to get by.
This year, as in every session, there’s room for negotiation. But in our view, discretion is the better part of valor — especially at an unprecedented time when Washington unemployment rolls are bursting, thousands of businesses have closed or are at risk of closing, and the virus is still in charge.
There are several reasons why prudence and patience should be guiding principles in Olympia right now, such as:
* A big injection of federal aid is coming. President Biden is pushing a $1.9 trillion rescue plan, and a Democrat-controlled Congress is likely to give him much of what he wants. State and local governments stand to gain more than in the previous two pandemic stimulus packages signed by President Trump.
* State revenue is growing without new taxes. A growth rate of 3.2 to 4.9 % each of the next three years, estimated by state forecasters, far surpasses projected population growth. More good news is expected at the March 17 revenue forecast.
* A top-to-bottom evaluation of the state’s tax structure is under way. A legislatively commissioned work group will study reform options and hold public hearings across the state over the next two years.
Meantime, Washingtonians will see tax proposals handled in the usual piecemeal fashion, with a familiar mix of retreads possibly headed to a vote in the coming days.
A big one that’s being watched closely is a capital gains proposal in the Senate. On Friday it sat in the Rules Committee but could be advanced to a floor vote soon.
The bill’s sponsor, Rep. June Robinson, D-Everett, recently softened the potential blow by lowering the proposed tax rate on stocks, bonds and other assets to 7%, compared to Gov. Jay Inslee’s 9% request. She also raised the earnings threshold to $250,000, much higher than Inslee’s $25,000. And she exempted all real estate sales.
Kudos to her for shifting more of the tax load to the wealthiest Washingtonians. But this feels like rebuilding a 787 midflight.
No matter how constructed, a capital gains tax is arguably an unconstitutional income tax in disguise and may not survive the inevitable court challenge.
We’re also concerned that the bill has an emergency clause that would block a citizen referendum. Why shouldn’t Washington voters, who’ve rejected income tax proposals 10 times previously, have a direct voice in a major course correction in tax policy?
The proposed 1.75-cent-per-ounce sweetened beverage tax had a public hearing last week and received more criticism than support. There’s no question it would pay for good things — foundational public health services and an equity fund for communities prone to food insecurity and poor nutrition.
But there’s no sugar coating that the cash register rings loudest for people who can least afford it. (Conveniently, a milk product loophole offers relief to the higher-income Starbucks crowd.)
Sure, the tax might deter unhealthy choices and chip away at obesity and diabetes rates. But we can’t muster much excitement for another regressive tax in a state that already tops the list.
Moving to a more progressive tax structure is what Democrats have been preaching for years. We respect the tenacity of veteran legislators like Rep. Laurie Jinkins, D-Tacoma, for whom the broken record has spun since she was first elected in 2010.
“It’s hard to argue that we’ve been trying to move toward tax fairness too fast in our state,” Jinkins, now the Speaker of the House, told reporters last week. “That’s an argument that just doesn’t hold water.”
She won’t hear that argument from us. The fight for tax fairness is a worthy cause too long deferred. But the unexpected fight against COVID-19, and the urgent need to contain the damage and secure economic recovery, must be priority No. 1 this year.