NPI's Cascadia Advocate

Offering commentary and analysis from Washington, Oregon, and Idaho, The Cascadia Advocate is the Northwest Progressive Institute's unconventional perspective on world, national, and local politics.

Friday, March 29th, 2019

Senate Democrats unveil their own capital gains tax plan, but it doesn’t fund our schools

Four days after the House Democ­rats unveiled a pro­pos­al to levy a cap­i­tal gains tax on extra­or­di­nary prof­its, the Sen­ate Democ­rats have intro­duced their own cap­i­tal gains tax pro­pos­al… but it does­n’t fund edu­ca­tion like the House plan would. Instead, the rev­enue would be used to reduce oth­er tax­es.

Specif­i­cal­ly, accord­ing to the cau­cus:

Under the bill, expect­ed rev­enues of $780 mil­lion start­ing in 2021 would fund:

  • Work­ing Fam­i­lies Tax Cred­it ($220 mil­lion): A tax break for 400,000 of the state’s most under­priv­i­leged fam­i­lies – phase-outs begin when income is greater than $19,000 per year.
  • Small busi­ness­es tax cut ($260 mil­lion): Up to $3,000 in B&O tax [reduc­tions] for busi­ness­es gross­ing less than $2.5 mil­lion in rev­enue annu­al­ly. This would apply to approx­i­mate­ly 350,000 – or 90 per­cent – of Wash­ing­ton small busi­ness­es.
  • Senior prop­er­ty tax reduc­tion ($15 mil­lion): A prop­er­ty tax reduc­tion for approx­i­mate­ly 21,000 house­holds to help senior cit­i­zens with eco­nom­ic and hous­ing sta­bil­i­ty.
  • Elim­i­nate sales tax on cer­tain prod­ucts ($235 mil­liom): Sales tax end­ed on dia­pers, med­ical and mobil­i­ty equip­ment, fem­i­nine hygiene prod­ucts and over-the-counter med­ica­tions.

“Tax­es are an invest­ment we make togeth­er to pay for good schools, clean air and water, safe neigh­bor­hoods and count­less oth­er neces­si­ties every sin­gle one of us needs. It’s a good deal but we are not pay­ing for it in a smart or bal­anced way,” said Sen­ate Major­i­ty Leader Andy Bil­lig. “Those that can least afford it are asked to car­ry an out­sized share. This plan will help fix our bro­ken tax struc­ture.”

But the Sen­ate Democ­rats’ pro­pos­al would­n’t help us meet our para­mount duty as a state, which is to amply pro­vide for the edu­ca­tion of all youth resid­ing with­in Wash­ing­ton’s bor­ders, as the House plan does. We strong­ly pre­fer the House plan (devel­oped by State Rep­re­sen­ta­tive Gael Tar­leton, a mem­ber of NPI’s board).

Our research is clear: vot­ers sup­port levy­ing a cap­i­tal gains tax and using the rev­enue to fund our K‑12 schools, col­leges, and uni­ver­si­ties.

58% of like­ly 2018 Wash­ing­ton vot­ers sur­veyed by Pub­lic Pol­i­cy Polling last May told us they sup­port a cap­i­tal gains tax to fund edu­ca­tion, up from 57% in 2017.

37% said they opposed it, down by four points from 2017.

Respon­dents were asked:

Do you strong­ly sup­port, some­what sup­port, some­what oppose or strong­ly oppose tax­ing the cap­i­tal gains of wealthy indi­vid­u­als to help pay for pub­lic schools, col­leges and uni­ver­si­ties?

Answers were as fol­lows:

  • Sup­port: 58%
    • Strong­ly sup­port: 40%
    • Some­what sup­port: 18%
  • Oppose: 37%
    • Some­what oppose: 10%
    • Strong­ly oppose: 27%
  • Not sure: 5%

Our sur­vey of six hun­dred and sev­en­ty-five like­ly 2018 Wash­ing­ton State vot­ers was in the field May 22nd-23rd, 2018. The sur­vey used a blend­ed method­ol­o­gy with auto­mat­ed phone calls to land­lines and online inter­views of cell phone only respon­dents. The poll was con­duct­ed by Pub­lic Pol­i­cy Polling for NPI, and has a mar­gin of error of +/- 3.8% at the 95% con­fi­dence lev­el.

Our sur­vey also found that vot­ers across the state con­tin­ue to believe new rev­enue is need­ed to sup­port pub­lic edu­ca­tion. The McCleary case has been dis­missed, but that does­n’t mean our schools are ful­ly fund­ed… and Wash­ing­to­ni­ans know it.

We asked the fol­low­ing ques­tion after the McCleary case had been dis­missed (word­ed iden­ti­cal­ly to a ques­tion we asked in 2017, when the case was still active):

Do you strong­ly agree, some­what agree, some­what dis­agree or strong­ly dis­agree with the fol­low­ing state­ment: Washington’s pub­lic schools are under­fund­ed, and we need to raise state rev­enue to ful­ly fund them?

61% of respon­dents said they agreed with that state­ment, while only 37% dis­agreed. Answers in each cat­e­go­ry were as fol­lows:

  • Agree: 61%
    • Strong­ly agree: 37%
    • Some­what agree: 24%
  • Dis­agree: 34%
    • Some­what dis­agree: 18%
    • Strong­ly dis­agree: 16%
  • Not sure: 5%

It’s worth not­ing that tax swaps have gone 0 for 2 at the bal­lot in Wash­ing­ton with­in the past twen­ty years. We’re talk­ing big swings and miss­es.

In 2004, manip­u­la­tive ini­tia­tive pro­mot­er Tim Eyman pro­posed fund­ing a prop­er­ty tax cut by expand­ing gam­bling with Ini­tia­tive 891. Vot­ers over­whelm­ing­ly said no.

More recent­ly, in 2016, Car­bon­WA pro­posed levy­ing a pol­lu­tion tax and using the pro­ceeds to reduce the sales tax, cut the busi­ness and occu­pa­tion tax, and fund the Work­ing Fam­i­lies Tax Cred­it. Car­bon­WA’s I‑732 was over­whelm­ing­ly reject­ed.

We agree that address­ing the inequity of our cur­rent tax code is extreme­ly impor­tant. But we can­not con­tin­ue to neglect our para­mount duty.

The House Democ­rats’ pro­pos­al would address both the inequity in our tax code and raise vital­ly need­ed rev­enue for schools through a cap­i­tal gains tax on extra­or­di­nary prof­its of 9.9%, with the pro­ceeds com­mit­ted to the Edu­ca­tion Lega­cy Trust.

That’s the approach that our polling shows vot­ers sup­port.

Elec­toral his­to­ry also sug­gests it’s the way to go.

In the mid-2000s, the Leg­is­la­ture and Gov­er­nor Gre­goire suc­cess­ful­ly restored the estate tax, tying it to the Edu­ca­tion Lega­cy Trust, after a court chal­lenge from the right wing. The right wing then tried to over­turn the restored estate tax at the bal­lot with Ini­tia­tive 920. They failed mis­er­ably. Vot­ers over­whelm­ing­ly vot­ed to keep the estate tax flow­ing to the Edu­ca­tion Lega­cy Trust.

We urge the House to pass its cap­i­tal gains tax pro­pos­al and for the Sen­ate to take up that pro­pos­al in lieu of the one float­ed by the Sen­ate Demo­c­ra­t­ic cau­cus today.

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