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Washington Governor Proposes To End Several Tax Breaks To Fund Schools

Office of Governor Jay Inslee

OLYMPIA, Wash - Oregon shoppers in Washington would pay sales tax and bottled water would be taxed under a proposal from Governor Jay Inslee to raise $1.2B in additional money for public schools.

Inslee, a Democrat, proposed Thursday to end or modify a dozen tax exemptions, extend two expiring tax hikes, and cut back by 25-percent a favorable tax rate that many businesses enjoy.

The two expiring tax increase that Inslee proposes to make permanent are a 0.3 percent increase in the Business and Occupation tax  paid by doctors, lawyers, accountants and other providers of professional services. He would also extend a current 50-cent-per-gallon surcharge on beer and expand it to include small brewers. Combined those two tax extensions would likely bring in $660M over the next two years.

Another $565M in new revenues would come from repealing or modifying what Inslee often calls tax "loopholes." On the chopping block is the longstanding sales tax exemption for shoppers from non-sales tax states like Oregon. That's worth nearly $64M every two years. Also proposed for elimination is the current sales tax exemption for bottled water valued at $52M a biennium.

Topping Inslee's target list - and worth nearly $95M over two years - is a tax exemption on the value of a trade-in vehicle. Inslee would limit that exemption to the first $10-thousand of value on the trade-in. Any value after that would be taxed under his proposal.

The Governor is also embracing what appears to be an emerging bipartisan consensus plan to repeal a long-standing sales tax exemption for local residential telephone service. Support for this particular proposal has been building in Olympia because wireless carriers have started to demand that their customers also qualify for the exemption - a move that could cost state coffers hundreds of millions of dollars.  

Other tax break repeals or modifications on the governor's list include:

  • Charge sales tax for custom computer software
  • Reduce by 25% the preferential Business and Occupation rate for most industries
  • Repeal the use tax exemption on extracted (recycled) fuel used by oil refineries
  • Repeal the Business and Occupation tax exemption on long-term commercial rentals

Combined, Inslee's revenue plan would raise more than $1B over the next two years - money that would be used as a "down payment" on the Supreme Court's ruling that found Washington is not meeting its constitutional duty to amply fund public education. Specifically the money would be earmarked for priorities like full-day kindergarten, reducing kindergarten and first grade class sizes and providing local districts more money to support their basic maintenance and operations.
In a statement, Governor Inslee said, "Today, I choose education over tax breaks. I choose fulfilling our constitutional and moral duty to ensure high-quality schools for our children."

Republicans though quickly shot down Inslee's approach. Senate Republican Leader Mark Schoesler called it a "kick in the teeth to job creators." State Rep. Gary Alexander, the ranking Republican on the House budget committee, praised Inslee's investment in education, but not the funding mechanism. "His proposal to raise taxes on families, individuals and small businesses could adversely impact our economic recovery," Alexander said in a statement.

Inslee's proposed budget would suspend a voter-approved teacher cost-of-living increase saving $321M in the next two year budget.  

Big picture, the Governor's proposed two-year spending plan aims to close a projected $1.2B to $1.3B budget shortfall while still funding collective bargaining agreements for unionized state employees, rescinding a 3 percent pay cut for state workers from the last budget and providing more money to the state's cash-strapped 100-year old parks system.

Inslee's budget also calls for an expansion of Medicaid under the federal Affordable Care Act and counts on nearly $300M in savings from doing so.

The Governor's budget rollout kicks off budget writing season in Olympia. Close on Inslee's heels, the Republican-dominated Majority Coalition in the Washington Senate is tentatively scheduled to release its own budget next week. Republicans have vowed not to rely on new revenue to balance the budget and fund education. The Senate's unveiling will be followed by House Democrats.  Lawmakers and the Governor have until April 28th to hammer out and pass a final budget deal.