State budgets advance: House passes budget Friday; Senate Democrats release their proposal.

The next state budget is likely to contain new taxes and a substantial boost in spending. That’s one conclusion that can be drawn from looking at the budget the House adopted Friday and the proposal released by Senate Democrats earlier that day.

The Associated Press reports,

Budget discussions advanced in the state Capitol Friday, with Senate Democrats unveiling a two-year budget the same day House Democrats passed their own proposal — and both proposing versions of a new capital gains tax.

Along with new funds for behavioral and mental health care, both budgets include increases for K-12 and higher education and long-term care for the developmentally disabled.

The House passed its budget on a 56-38 vote Friday evening. The Senate is expected to pass its budget plan next week.

The Senate spends less and does not boost taxes as much as the House.

Overall, the House budget includes about $2.3 billion in new spending, while the Senate budget proposes about $1.6 billion, according to nonpartisan budget estimates.

Democrats in the House and Senate also unveiled capital gains tax proposals alongside their budgets. While proceeds from the House version are incorporated into its overall budget, the Senate version was offered as a stand-alone option that would pay for various tax cuts.

Jerry Cornfield reports in the Everett Herald,

Senate Democrats put forth a $52.2 billion spending blueprint to bolster behavioral health services, transform the mental health system, boost special education funding and provide pay hikes for state workers.

It counts on $518 million of added revenue, most of it from a new way of taxing property sales and ending the ability of nonresidents to avoid paying sales tax on their purchases.

As the Herald reports, the House has not yet voted on its tax proposals.

Meanwhile, on Friday, House Democrats brought their $52.6 billion budget to the floor for a vote. It counts on $1.4 billion from new and higher taxes — including a capital gains tax — a higher business tax rate and a rejiggering of the real estate excise tax rates. But those tax bills were not to be voted on.

In a Friday blog post, the Washington Research Council says the Senate will hold a hearing on its budget proposal today. Emily Makings writes,

Today the Senate Ways and Means Committee Chair proposed a 2019–21 operating budget that would appropriate $52.172 billion from funds subject to the outlook (NGFO). This is an increase of $7.5 billion over enacted 2017–19 appropriations. It is $687.9 million less than the budget proposal that was passed by the House Appropriations Committee on Wednesday.

The proposal would increase revenues by $421.1 million by making the real estate excise tax graduated (SB 5991). It would also increase revenues by $63.6 million by changing the nonresident sales tax exemption to a refund program and increasing business and occupation taxes for travel agents. It would increase revenues by $38.5 million by increasing business and occupation taxes for prescription drug resellers.

The proposal would transfer $74.6 million from other funds to the general fund, including $52.6 million from the disaster response account. No funds would be transferred from the public works assistance account.

Outside of the NGFO, the budget would increase revenues by $90.6 million by increasing property and casualty insurance premiums for a new dedicated account for wildfire prevention and suppression.

In the Seattle Times Joseph O’Sullivan reports,

The Senate plan would raise $518 million in new revenue over two years, mostly through changes to the real-estate excise tax. That is a smaller amount than proposals offered by Gov. Jay Inslee and House Democrats.

Unlike the budget plans from Inslee and House Democrats, the Senate’s $52.2 billion proposal doesn’t rely on a capital-gains tax for funding — but it does propose one.

The Senate capital-gains tax — applying an 8.9 percent tax on profits of capital-gains earnings above $250,000 for individuals and joint filers — would instead offset tax cuts and other reductions.

…The revenue from that would pay for a property-tax cut for some seniors and would ease the burden for about 400,000 low-income households by funding the Working Families Tax Credit. The Legislature passed that creditmore than a decade ago but never funded it.

Capital-gains revenue also would allow tax reductions for small-business owners who earn less than $2.5 million in annual gross revenue. And it would help get rid of the sales tax on diapers, feminine-hygiene products, over-the-counter medications and medical and mobility equipment.

“Our tax code is broken, and we’re trying to … put forward a thoughtful proposal that will help fix our state’s upside-down tax code,” said Senate Majority Leader Andy Billig, D-Spokane.

The News Tribune reports that, if adopted, the capital gains tax would face a legal challenge.

The Freedom Foundation, an Olympia-based free-market think tank, vowed to file a legal challenge if the final version of the budget includes a capital-gains tax.

Jason Mercier, with the Washington Policy Center, writes in a Seattle Times op-ed that the capital gains tax is an income tax, not an excise tax as some supporters bill it.
 
Reporting for the Northwest News Network, Austin Jenkins writes that Senate Democrats may not have the votes to pass the tax. 

While the idea of a capital gains tax appears to be gaining traction among Democrats in Olympia, passage this year remains uncertain. House Democrats planned to approve their budget proposal in a floor vote Friday, but are expected to hold off on any tax votes until a final budget deal is forged with the Senate.

In the Senate, Democratic leaders said they are unsure if they have the votes to pass their own capital gains proposal. Democratic state Sen. Mark Mullet, for one, confirmed Friday that he’s a “no” vote.

Jenkins also identifies challenges lawmakers will face in reconciling their two budgets.

As the House and Senate begin to negotiate a final budget, sticking points could come as the two chambers work out differences over local school levy caps, higher education funding and special education funding. 

“There’s a just a lot more conversation to have about special education and how we fund it appropriately,” Rofles said. 

Agreeing on a tax package could also prove tricky as House Democrats seem more determined to raise new and higher taxes than Senate Democrats who emphasized their lack of a reliance on the capital gains tax to make their budget balance. 

See also coverage in the Spokesman-Review.