House budget relies on new capital gains tax, reduces property taxes and does not accelerate teacher salary funding

The House budget released yesterday (more links) differs in two key respects from the Senate proposal: It relies on a new (and likely illegal) capital gains tax and does not attempt to satisfy the state Supreme Court’s demand that lawmakers accelerate full funding of teacher salaries. 

The Seattle Times reports,

Washington House Democrats want to take a big bite out of the new state property-tax increases — and they want a capital-gains tax to help fund it.

…But in their budget plan released Tuesday, House Democrats decided to skip the $1 billion suggested by the court to fully bring the state into compliance on K-12 funding.

Democrats in the state House released a 2018 supplemental budget proposal Tuesday that would ignore a court order to speed up reform of how K-12 teachers are paid and would cut property taxes in 2019 and 2020 using a surge of unexpected cash reserves.

The budget plan would reduce property taxes even further starting in 2021 but would replace the lost revenue with a tax on capital gains — money made on the sale of stocks, bonds and other financial assets.

The proposal reveals big differences between how House and Senate leaders hope to tweak the two-year budget approved in 2017 before the 60-day session ends on March 8.

Reconciling the two approaches will be the focus of the final weeks of the session. There are clear challenges.

“We feel confident we have the votes out of our chamber,” [House Finance chair Kristine] Lytton said. “So we plan on passing it out of the House.”

Previously, Senate Majority Leader Sharon Nelson has said she didn’t have the votes in her caucus to pass a capital gains tax. Senate Democrats did not include the tax in their budget proposal that was released on Monday. However, that budget did include a more modest one-time property tax cut of approximately $400 million.

The Seattle Times story suggests the governor, who still wants a carbon tax, does not appear to be banking the capital gains tax revenues yet.

Gov. Jay Inslee appreciates the House capital-gains proposal, an approach the governor has previously proposed, said Inslee spokeswoman Tara Lee.

But, “I think he recognizes that politically it may be a tough sell,” Lee said.

The tax will get an early test, reports the Spokesman-Review.

House Democrats have proposed a capital gains tax in the past, but have not passed it out of the chamber. House Majority Leader Pat Sullivan, D-Covington, said it would be brought to the floor Friday along with the budget.

Lytton said the new tax would be “revenue neutral”, meaning the total property taxes collected in the state would be reduced by the amount of money the capital gains tax raised.

But Republicans are opposed to the tax, calling it a capital gains income tax that would lead to an overall income tax eventually.

And on the spending side, from The News Tribune story it appears the divide is wide as well,

House Majority Leader Pat Sullivan, D-Covington, told reporters Tuesday that speeding up the salary overhaul could strain school districts already implementing large changes. Sullivan said the phase-in was set up to prepare schools for complex reform…

Justices have also threatened further sanctions for not complying with deadlines.

But Sullivan — and many in the GOP — have said keeping the existing salary phase-in is worth the risk.

Sen. John Braun, R-Centralia, echoed Sullivan on Tuesday, telling reporters that state money can be spent in more effective ways than speeding up an overhaul of teacher salaries.

There are always a number of issues that have to be resolved to reach budget agreement. As more analysis comes available, we share it. But the keys right now appear to be the timing and amount of property tax relief, teacher compensation as directed by the court, and the capital gains tax. We still anticipate an on-time adjournment.