WA Democrats propose new taxes to balance budget as legislative session nears finish line

OLYMPIA, Wash. - Legislative Democrats in Washington state have released a new set of tax proposals as they race to pass a balanced budget by the end of the month.

Democratic lawmakers in charge of both the House and Senate unveiled new revenue options back in March to close a projected multi-billion-dollar shortfall. But they had to make some reconsiderations after Governor Bob Ferguson criticized the proposals as having "far too much in taxes" and precariously relying on a wealth tax.

Senate budget leader Noel Frame, D-Seattle, said Democrats in both chambers have come up with options that, paired with proposed budget cuts, "follow the same spirit" of the previous tax package.

"We are still asking some of the wealthiest individuals in the state to do their part and pay what they owe in taxes," she said.

Senate Bill 5815 would increase business taxes on sectors like manufacturing, retail and gambling. It would also increase surcharges on banks with net income of at least $1 billion and advanced computing businesses. A surcharge on businesses earning more than $250 million a year would be in place until the end of 2030. The bill is scheduled for a vote out of the Senate Ways and Means committee on Friday, while companion legislation in the House will get a public hearing on the same day.

Also scheduled for a vote Friday, Senate Bill 5813 would increase rates on the state’s capital gains tax. Gains of $1 million or less would be taxed at 7.2%, while gains above $1 million would face a 9.9% tax. Additionally, the bill raises estate tax rates with an exclusion amount increased to $3 million dollars and adjusted for inflation. A companion bill in the House has yet to be scheduled for a hearing.

Senate Bill 5814 would extend sales taxes to previously exempt computer-related services like IT consulting and training, website design and software development. The bill also expands the definition of tobacco products to include nicotine products, natural or synthetic, and subject them to a tobacco tax. Also included in the legislation is a one-time prepayment of sales tax in June 2027 for businesses with at least $3 million in retail sales. That bill is slated for a committee vote on Friday.

Senate Democrats are still proposing the removal of tax exemptions deemed by auditors to be ineffective or obsolete through Senate Bill 5794. The bill is scheduled for a vote out of Ways and Means on Friday.

They are also still looking to lift the 1% property tax revenue growth cap to account for population growth and inflation. Senate Bill 5812 does that with a growth limit capped at 3%. While the 3% cap is new in the Senate, they are still looking to expand property tax exemptions for seniors and people with disabilities. Both bills are slated for a committee vote Friday.

Frame said the property tax increase is crucial to funding education and public safety.

"In the place I grew up, Battle Ground, you’re looking at maybe an increase of 16, 17 dollars more per year," she said. "Up in Seattle, where I represent today with a higher median home price, you’re maybe looking at a little bit like $25 more a year. So, these are reasonable increases to fund our core public services here in Washington state."

According to Frame, the proposals would bring in about $12 billion over the next four years.

Governor Ferguson’s office did not immediately respond to a request for comment Wednesday about the new proposals. Frame said budget leaders have been in communication with the governor’s team about what revenue options are at their disposal.

"We’re all in conversation about the realities of the tax code that we have today and trying to be in conversation about the modifications that we can make today to make it a little bit better for the working people of Washington state," she said.

On the other side of the aisle, Republicans are sharply critical of the Democratic proposals.

Senate Republican budget writer Chris Gildon, R-Puyallup, said with the tax plans coming out less than two weeks before the legislature has to adjourn, he is concerned they could head into a special session.

"All in all, things in Olympia are a mess right now," Gildon said. 

Republicans have reiterated their stance against increasing the cap on property tax revenues, arguing it would make renting or buying a home more unaffordable. Gildon called property taxes "one of the most regressive taxes" in the state.

"It is incredibly surprising to me that Senate Democrats who rail against regressivity in our tax system continue to propose this very regressive tax," he said.

Gildon also argued tax increases on businesses will ultimately be passed down to consumers through higher prices.

"Anytime that someone tells you that they want to tax business, what they really mean is they want to tax you, they just don’t want you to know that they’re taxing you," he said.

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