What’s the rush to pass a flawed capital gains tax bill in the state Senate? That’s the question at the heart of a second Seattle Times editorial calling on lawmakers to hit the brakes. (Here’s the early editorial.) In the more recent editorial, the ST says,
Slow way down. This bill is oddly being rushed to a floor vote ahead of a promising new revenue forecast report.
Senate Bill 5096 offers no specific use for the estimated $550 million money it would raise each year. Its vague promises to steer some money toward education and other funds toward undefined “taxpayer relief” are not clear justifications for levying new taxes. The bill would tax investment profits of $250,000 and up within a year at a 7% rate, taking aim at a plump political target while exempting real estate and retirement account income. But this proposal lacks coherent evidence of how it would make the state better off.
If taxation treats people with lower incomes unfairly, shifting the burden could be a solution. Simply adding to one side of the scale is not.
Oddly, for all the talk of the need for “tax reform,” there’s little discussion of tax relief, just a lot of emphasis on raising more money. This is despite the fact that there’s no budget shortfall and revenues continue to pour into the state treasury ahead of forecast. As the editorial states, a new forecast is expected in a few weeks; it’s likely to show again an upward revision.
Not incidentally, Congress will soon act on another major stimulus package, providing billions in relief to state and local governments. According to Jared Walczak at the Tax Foundation, the money more (there should be a stronger word) than offsets any revenue loss from the COVID recession.
Preliminary data suggest that states closed out calendar year 2020 with only $1.7 billion less revenue than they generated in 2019 (a decline of less than 0.2 percent), not counting federal assistance, while municipal governments actually experienced substantial revenue growth due to rising property values. Yet the American Rescue Plan Act sets aside $350 billion in additional state and local aid. Increasingly, federal proposals to provide a cash infusion for state and local governments has become a solution in search of a problem.
Later, he does the math for us.
These adjustments yield an aggregate $1.7 billion decline in state revenues. Under the American Rescue Plan Act, states would receive $195.3 billion in aid, divided according to each state’s share of national unemployed workers. While some conservative lawmakers have criticized this allocation model (which benefits states with steeper job losses) on the grounds that different state policies and approaches may yield some of this variation and that the federal government should be neutral to these decisions, we have argued previouslythat using the change in unemployment is a more efficient targeting method than allocating aid per capita. Far less defensible, however, is the notion that aid to states should be 116 times the decline in state revenues—especially since the federal government has already provided over $200 billion in fungible aid to subnational governments.
In a table in his post, he provides the state-by-state estimates. Washington, he reports, would get $4.3 billion in state aid, with local governments in the state receiving $2.4 billion, for a total of $6.7 billion.
Returning to the editorial.
This proposal would collect hundreds of millions of tax dollars for purposes only vaguely described. SB 5096 itself is only half-baked, but the scheme to rush it into law without a full vetting … is shrewdly calculating. This haste fails to address tax burdens for lower- and middle-income Washingtonians, while negating a competitive advantage for attracting and retaining wealth.
Writing an equitable tax code is hard work. It deserves to be treated with diligence, not hustled through piecemeal with thin justification. The Senate has SB 5096 queued for an imminent vote. It should not pass.
Again, we share the ST question: What’s the rush to pass an unnecessary tax to solve a nonexistent budget problem?