House Passes $690 Million Tax Increase - WRC Releases Comparison of Legislative Tax Packages

Working into the early morning, House members passed tax legislation to close - or nearly close - the gap between state spending and revenues. As Jerry Cornfield writes in the Herald's Petri Dish blog, reconciling the differences between House and Senate budget plans will be challenging.

This morning's vote ended days of internal divide among Democrats and sets the stage for potentially rough and tumble talks with their colleagues in the Senate – a conversation that could push the Legislature into a special session.

One reason is the House plan doesn't contain an increase in the sales tax which is the centerpiece of a much large revenue package passed by the Senate Sunday. That $890 million proposal gets more than a third of its revenue from a three-tenths-of-a-penny boost in the sales tax.

Cornfield also notes that some Senate Democrats also object to the sales tax and that liberals in both chambers want to spend and tax more.

The Washington Research Council released last night a three-page policy brief comparing and contrasting the House and Senate tax plans. The final package will be largely an amalgam of plans adopted by the two chambers. The WRC brief highlights the major areas of agreement.

Twelve elements are substantially common to the two packages. These 12 elements would together raise about $385 million. Eleven elements, which would raise $365 million, are unique to the House package, while six elements, which would raise $505 million, are unique to the Senate package.

The largest common element is the prospective repeal of the direct sellers B&O tax exemption and the retroactive narrowing of the exemption to consumer goods. This is a response to the Dot Foods case ... and is expected to provide $155 million. The second largest common element is a $1 hike in the tax on a pack of cigarettes, from $2.025 to $3.025.

The third largest element involves the treatment of multistate service and royalty transactions under the B&O tax. Nexus for such activities would be based on economic rather than physical presence in the state and revenue would be apportioned based on sales. The fourth largest element extends the sales tax to bottled water.This is expected to yield $30 million over the remainder of this biennium.Both packages contain the controversial element regarding “abusive” taxavoidance transactions originally suggested by Governor Gregoire.

As AP's Curt  Woodward reports, there were a few changes made last night.

The House's tax plan shrunk significantly from the size originally penciled out in the chamber's budget plan. Left out were a tax increase on the investment earnings of nonfinancial firms and a business tax hike on janitorial services.

The News Tribune editorial board thinks the sales tax increase should be left out of the final bill.

It now seems too much to expect that the Democrats who control both House and Senate will squeeze more out of their core constituents – for example, by reopening state workers’ contracts, canceling scheduled raises and requiring them to pay what their private-sector counterparts do for health insurance.

...But the three-tenths percent sales tax increase in the Senate’s newly passed budget is one of the worst ways to balance a budget in a downturn this severe.

Let your legislators know you expect them to put job creation first. These tax hikes will cost Washingtonians jobs.