Inslee Proposes Carbon, Capital Gains Taxes For Education

Dec 13, 2016

As a court deadline looms, Gov. Jay Inslee on Tuesday proposed that the state spend $2.7 billion over the next two years to fully fund the state's basic education obligations and to increase salaries for teachers.

While releasing his K-12 education funding proposal at an event at Lincoln High School in Tacoma, Inslee announced he is seeking more than $4 billion in new revenue, with a majority of it — about $3.9 billion — dedicated to education-related costs. The proposal also increases spending on health benefits for school instructional and administrative staff, teacher mentoring and paraeducator training.

"For the first time in over three decades, K-12 spending will top 50 percent of state spending," he said. "This is big, this is bold. This is the right thing to do."

Inslee is set to release his full two-year budget proposal in Olympia on Wednesday.

The new revenue he seeks includes:

—An increase in the business and occupation tax on services provided by accountants, attorneys, real estate agents and others from 1.5 percent to 2.5 percent, which would raise $2.3 billion in the 2017-2019 budget. An increase in the tax filing threshold means that thousands of small businesses will get tax breaks under the plan.

—A carbon tax that would charge the state's emitters $25 per metric ton starting in 2018, raising $2 billion, of which $1 billion would go toward the education plan, with the remainder going to clean energy and transportation projects.

—A 7.9 percent capital gains tax on earnings from the sale of stocks, bonds and other assets above $25,000 for individuals and $50,000 for those who file jointly. The levy would begin in the second year of the biennium and would raise about $821 million in fiscal year 2019. Retirement accounts, homes, farms and forestry would be exempt.

Lawmakers are working to comply with a 2012 state Supreme Court ruling — known as the McCleary case — requiring them to fully fund the state's basic education system, but are currently being held in contempt by the court. Lawmakers have already put more than $2 billion toward the issue since the ruling, but the biggest piece remaining of the court order is figuring out how much the state must provide for teacher salaries. School districts currently pay a substantial chunk of those salaries with local property-tax levies. Under the governor's proposal, the state pays its part of that salary obligation.

The court has said that the state has until Sept. 1, 2018 to fully fund education, but that the details of how to do that — as well as how lawmakers will pay for it — must be in place before the Legislature adjourns next year.

David Schumacher, director of the Office of Financial Management, said Tuesday the plan goes above and beyond what the court has required of the state.

"You should think of this as a K-12 education package and not a McCleary get out of jail package," he said. "We did not swap a few dollars and call it good."

Under the governor's proposed plan, there is a $250 million a year property tax cut that would benefit more than 100 school districts — affecting 75 percent of residents and businesses around the state. The remainder would not see a property tax change.

"It takes new money to be able to give every school district more money and cut the taxes for some people," Schumacher said. "It's not magic."

Under the plan, the minimum state portion of a starting teacher's salary would increase from $35,700 to $54,587 by the second year of the plan.

The governor's plan also seeks to close or modify a handful of tax exemptions to help pay for the plan:

—Repeal a use tax exemption for extracted fuel used by oil refineries, expected to save the state $52 million in the 2017-2019 biennium.

—Require nonresidents from states with no sales tax, like Oregon, to apply for sales tax refunds when they make purchases in Washington, instead of getting them automatically. That would save the state nearly $49 million in the upcoming two-year budget.

—Repeal the sales tax exemption on bottled water, saving the state $57 million over the next two years.

—Limit the real estate excise tax exemption for banks, saving the state $59 million in the next two-year budget.

The governor's budget is just the first of three to be released in the coming months. After the next legislative session begins Jan. 9, the Senate and House will also release proposals in hopes of negotiating a compromise during the 105-day session.