Newfangled taxes in the governor’s new budget

Washingtonians traditionally argue about four breeds of taxes – sales, business, property and income. Gov. Jay Inslee changed the debate last week, giving the state two more options to quarrel over: a capital gains tax and carbon-emission fees.

His newly released budget proposal would squeeze $1 billion a year from greenhouse-gas polluters and $800 million a year from wealthy folks who pocket more than $25,000 from the sale of stocks and other investments.

The threshold question: Is any tax increase needed?

Most Republicans – who won the state Senate and picked up seats in the House in November – are likely to say no. But they’re going to have to get very creative to write a biennial budget that meets the state Supreme Court’s McCleary mandate for education funding while also doing justice to other state priorities – all without new taxes.

By other priorities, we don’t mean trivialities. We mean keeping kids in college, violent criminals behind bars, and people with schizophrenia from filling the jails and emergency rooms. We mean protecting toddlers from vicious abusers, feeding hungry families, and giving foster children and runaways a chance in life.

The challenge is to do that and come up with the necessary $1 billion-plus a year to satisfy the court’s order to fully fund the public schools.

In a sense, Inslee has already met the Republicans part way. He’s decided not to even try to fund the ludicrous demands of Initiative 1351, which insists that the Legislature spend more than $1.5 billion on additional school staffing above and beyond what McCleary mandates. If House Democrats close ranks with him, they will keep a deep fiscal pit from getting a lot deeper.

As it is, Inslee’s budgeteers figure the state faces a $2.35 billion shortfall in the 2015-2017 biennium. Hence the need – as he sees it – for the new taxes and emissions fees.

The capital gains tax is simple. You cash in a lot of chips, you pay 7 percent. Unlike an income tax, it doesn’t nick paychecks or operational profits. If the state can’t pay for essential services and education without new revenue, it’s a reasonable place to look.

The emission fee system – commonly called cap-and-trade – is more complex and interesting.

Europe, California and Northeastern states already have similar plans in place. They work like this:

The government establishes an overall cap on air pollution, in this case emissions of carbon dioxide and other greenhouse gases. The limit is progressively lowered in future years. Industry as a whole must stay under it.

Polluters start out with a fixed amount of credits, or allowances, corresponding to the volume of their emissions. Some companies are more successful than others at cutting their emissions; they can sell their unused credits to companies that can’t cut as easily. Pollution reductions thus become valuable; as credits, they can literally be sold to the highest bidder.

Inslee wants to collect fees as part of the deal. Of the proceeds, $380 million a year would go to public schools and $400 million a year would pay for transportation improvements (in place of a gas tax).

An estimated 130 businesses would be affected statewide. As the fees ripple through petroleum industries, the price of fuel will rise. Inslee says the bump at most will run about 12 cents a gallon, no greater than the gas tax increase lawmakers were already contemplating. Critics hotly debate his assumptions.

The numbers will be all important. Faced with the need to find more billions for education, the 2015 Legislature will be doing a lot of wrangling with arithmetic. Inslee says his unorthodox plan to raise revenues is just the start of a conversation. It promises to be a lively one.