WashACE Blog

House Passes Governor's Tax Package

The headline over Brad Shannon's story in the Olympian nicely captures the ongoing story of the special session in Olympia: House passes Gregoire tax package; Senate balks. This is a contest that can be won if you take two out of three, but it has to be the right two. The House and the governor don't win it.

Yesterday, I thought that when the Senate passed its revised plan, it signaled that the two chambers had reached some agreement on a tax plan that included a reduced sales tax. Surely they wouldn't go through this charade at the  of the week unless a deal had been cut, would they?

Yep. They would and they did. Andrew Garber's Seattle Times story identifies some small indicators of progress made in Week 1 of the special.

Although the split over the sales tax remains, there has been movement. Both sides have agreed to raise roughly $800 million through taxes to help close a $2.8 billion budget shortfall. And they've even agreed on certain steps, such as boosting the cigarette tax.

In other words, not much. Garber quotes Sen. Ed Murray on the game of tax bill ping pong.

"It indicates where the strength is here, and what they send over to us indicates what the strength is there," he said. "The dynamics are eventually going to have to change, somewhere."

In another Garber story, Rep. Lynn Kessler identifies one way to change the dynamics, instantly.

...given the special-session stalemate, Kessler, D-Hoquiam, wants to know, "Would she veto a sales tax? That's a question that needs to be asked.

It's been asked, as Garber reports. Will it be answered?

Marty Brown, Gregoire's legislative director, said he didn't know what the governor plans to do.

Shannon has details on the tax plan that passed the House 53-42. A lot of it will be familiar to those who have followed the debate this year: It addresses the direct marketers (Dot Foods) exemption, includes the "economic nexus" standard, limits banks' interest earnings on first mortgages (for a good explanation of why that's a bad idea, read Washington Banking Association Jim Pishue's op-ed in the Herald of Everett), increases the B&O tax on service businesses, repeals the sales-tax exemption for out-of-state shoppers, adds a sales tax to custom software sales, and more.

Budget negotiators will work over the weekend. The rest of the crowd comes back Monday.

On this, the first day of spring, I'm thankful to Scott at the Power Line blog for posting the perfect song link: Spring Can Really Hang You Up the Most. Classic Ella and, in Olympia, paradigmatic politics.

Senate Revenue Legislation Passes 25-18

Again mustering the bare minimum, the Senate passed it's revised revenue package, lowering the sales tax increase from 0.3 percentage points to 0.2 and extending the B&O increase to more businesses. Jordan Schrader of The News Tribune has a brief blog post up. Niki Reading has some quotes from floor speeches on TVW's Capitol Record blog.

No real surprises in this, as most of the legislation had been foreshadowed this morning. The increases will hamper job creation and increase the drag on families, as we've said all along. The House will take the bill up tomorrow. If the negotiators did their jobs, it should pass.

And then, they go home and the postmortems begin.

Tax Scramble Continues

While waiting for the Senate to bring its tax legislation to the floor, consider these news reports. The Olympia highlights an ad campaign by labor and health care groups seeking higher taxes. Attempting to capitalize on some public sentiment against the financial stimulus package, the ad targets the banking industry. The target is a tax exemption for some of the banks' interest earnings on first mortgages. Far from punishing banks, repealing the exemption will increase the cost of capital.

"Our opposition is primarily based upon the impact it would have on consumers," contract lobbyist Dave Fisher said on behalf of the bankers. "It's inevitably going to make mortgages harder to get and more expensive."

So far, it looks like a majority in the Senate understands that, but in the revenue scramble anything can happen, which is why these are dangerous hours in Olympia.

Another example reported in the Washington State Wire: a large tax hike to fund the billion dollar jobs package passed by the House. 

[the] plan would ask voters this fall to approve an $861 million bond issue. The money would be used to retrofit and repair schools and other public buildings, and in the process [prime sponsor Rep. Hans] Dunshee says the state would put 38,000 people to work.

It would have to go to a vote because the bond issue would take the state over the constitutional debt threshold. The billed stalled in the Senate during the regular session for good reason: It's a ton of new debt not backed by a dedicated revenue stream and the jobs and energy efficiency benefits are not proven. Having resurrected the bill in special session, supporters are contemplating a sizeable bump in utility taxes, increasing costs for consumers and businesses.

They don't need to do this. As The News Tribune editorial board writes, the 6,000 jobs a year claimed by the sponsor won't start being created until after 2012, when the economy will already be in recovery. And, with Washington already carrying twice the national average per capita debt burden, the increased debt load could sabatoge the state credit rating. Yet, the editorial points out.

But determined to pass something, they are looking for a new revenue source to pay off the bonds. A bump in the state utility tax is reportedly one of the options.

Another tax increase isn’t the way to convince voters that the Legislature did something for them this year. Nor is it likely to encourage growth in employment sectors that were responsible for the rest of the 190,000 jobs lost in Washington this recession.

Right.

Tax Package Shaping Up - And It's Too Big

With the Senate poised to vote on tax legislation today, we're finally getting reports on what the compromise revenue plan looks like: a smaller sales tax increase, higher B&O taxes for more service businesses, and total new taxes of $800 million.

Here's Jerry Cornfield's blog post for the Everett Herald, which outlines the trade-offs.

The AP's Curt Woodward also reports on the negotiations. Although the compromise appears to be within reach, Woodward writes that Sen. Ed Murray still believes the session will extend to next week. The governor disagrees.

If this is what they end up with, the tax increases are too high, hit struggling families and employers too hard, and will make it harder for Washington businesses to put people back to work.

Lawmakers Ready for a Weekend Off? That's Special

Austin Jenkins reports at his blog, the Washington Ledge, that the special session will likely spill over into a second week.

Today, day four of the special session, the likelihood that majority Democrats in the House and Senate will strike a deal on a budget and taxes and be done by Sunday appears a pipe dream.

In fact this morning I ran into Senator Ken Jacobsen, D-Seattle, who told me the Senate has been told it can go home this weekend. Senate Democratic Caucus Chair Ed Murray, also of Seattle, has said all along he thinks it could take ten days to wrap-up business.

Murray appeared on TVW's "The Impact" yesterday, saying what everyone's saying: They can't agree on a tax package.

Might be a long weekend.

UPDATE  Jim Brunner reports that the governor is frustrated with the lack of progress.

"We've got to get out no later than Sunday. The talk about going another week to me is inexcusable," Gregoire said.

While the threat of a sales tax veto might take one of the sticking points off the table, Brunner writes that the governor is concerned that the tactic might backfire. So, no threat yet.

... Gregoire refused to say whether she'd use a veto threat on a sales tax to move negotiations along.

Gregoire said she has made no veto threats except to say "Dadgumit, get it done."

Dagnabit, that's good advice.

Hazardous Substance Tax Hike Puts Good Jobs at Risk

The social services lobby does it all the time. Bring a bunch of people to the legislature, fill hearing rooms with folks who rely on public spending, put a face on the policy decisions being made. Rarely, though, do lawmakers see the faces of workers whose jobs are being placed at risk.

Yesterday, that changed. Thirty refinery workers showed up in blue coveralls to let lawmakers know that a proposed increase in the hazardous substance tax could cost them their jobs. Read Jason Hagey's post at Olympia Business Watch for more, and follow the link to Erik Smith's story telling how often lawmakers raid the supposedly dedicated account.

Real people. Real jobs placed at risk by an unnecessary tax hike. Bad idea.

Tax and Spending Continue to Divide Democrats, Prolong Special Session

I like Andrew Garber's description of the special legislative session in the Seattle Times.

The special session has come down to a game of chicken, in slow motion.

Although Democratic leaders have agreed to increase taxes by $800 million, they remain split on what taxes to raise. The Senate wants the 0.3 percentage point increase in the sales tax; the House doesn't want the sales tax bump.

And, most taxpayers oppose raising taxes by nearly a billion dollars on a recession-wracked economy with unemployment approach 10 percent.

Gov. Chris Gregoire is meeting with leaders and urging a compromise. The governor has said she doesn't like the idea of sales tax but so far hasn't been willing to threaten a veto to move lawmakers off center.

According to AP, the veto threat may yet be hauled out.

Gregoire said she hasn't used the threat of a veto to nix a sales tax during revenue negotiations. But the second-term Democrat made clear that she's keeping the veto pen at hand if needed.

"That's an option that I'm holding right now," Gregoire said Monday. "I'm just trying to work both sides, so that they can work together and come to a resolution. So, what they have before them is a way to raise sufficient revenue without a sales tax."

Although the governor has apparently put together a tax package, she's not sharing it publicly.

Gregoire declined to reveal any additional details of her revenue proposal, which was presented to tax negotiators Wednesday. Legislative leaders also refused to talk about the offer, saying their caucus membership needed to be briefed.

While this has been a year of legislative sleight-of-hand, with title-only bills and hurry up hearings, I think the public would like to know the governor's tax preferences.

Speaking of tax preferences, Publicola gives Budget and Policy Center president Remy Trupin a guest op-ed to praise legislation that would sunset tax exemptions after five years.

The legislation should be buried rather than praised. What business investors look for is tax certainty, a stable environment that's conducive to long-range planning. Introducing five-year windows of uncertainty makes no sense. 

Neither, of course, does a billion dollar tax increase.

Good Reasons Not to Raise the Hazardous Substance Tax

Don't miss this op-ed in the Herald of Everett by Don Sorensen on the Hazardous Substance Tax. We've written previously on it (see here and here). Sorensen writes:

First, increasing the tax will increase the price Washington consumers pay for gas and diesel at the pump. This will hit low-income families, already struggling with the recession, extra hard. These increases will also hit many other businesses, from truckers to farmers to retailers...

Second, increasing the tax puts good, family-wage jobs at risk. Proponents are touting the new jobs that could be created by the tax...But they conveniently fail to talk about the existing good jobs threatened by this major tax increase. The Tesoro Anacortes refinery that I manage is a prime example. These are tough times for the refining industry and our continued viability would be put at risk by this massive tax increase.

Read the op-ed. This potential tax increase has long-term negative consequences for families and businesses in the state.

Everett Chamber Leaders Warn of Consequences of Higher Taxes

In an unusually sharp op-ed in today's Herald of Everett, the leaders of the Everett Chamber of Commerce speak for many Main Street employers.

Grappling with the means to close the state budget deficit, the Legislature has proposed several ideas, including additional consumer and business taxes. These measures are troubling because they would raise the cost of living and doing business in our state, thwarting efforts to give Washingtonians what they need most — job creation and preservation, and a break from the burden of increased taxes.

They acknowledge the difficult situation legislators confront, and share concern for preserving and strengthening essential services. And, like many of us, they wonder when we'll see the overdue structural reforms.

Businesses are already fearfully anticipating another round of unemployment insurance and workers’ compensation increases next year and citizens will not be able to afford another sales tax increase...

After the budget and revenue packages are passed this year and the special session ends, we hope that efforts will be focused on finding long-term solutions to fix this crisis once and for all so that we are not facing the same issue next year.

The Chamber leaders mention the sales tax increase. It's not clear to me that we'll see one this year. But George Howland, Jr., reports in Olympia Newswire that the governor has said she will not veto a sales tax should the legislature send it to her. He also details the Democrats' negotiating process and players, with Sen. Rodney Tom apparently not sidelined despite his budget apostasy.

Economy Still Sputtering as Joblessness Rises in February

In today's Seattle Times, Drew DeSilver reports that February was a cruel month, with job losses offsetting the gains posted in January.

Employers in the state cut 8,300 payroll jobs in February, following an 11,100-job gain in January that itself was revised down from the figure first reported two weeks ago.

The state's unemployment rate rose to a seasonally adjusted 9.5 percent in February, from 9.3 percent in March — only slightly better than the 9.7 percent national jobless rate.

Here's the Employment Security Department report.

And TNT reporter Peter Callaghan notes that the March revenue report showed a slight decline.

We're still in a tough environment. With lawmakers planning an $800 million tax hike, it's about to get worse. Minor jobs bills, particularly those that rely on massive increases in state spending, won't undo the damage.

The Yakima Herald-Tribune editorial board is fed up, and speaks for many.

Instead of making systemic reforms to how this state is run and pays for its priorities, the Legislature, led by the Democratic majority, has stuck to spending models that have remained unaltered despite coming into this session with a $2.8 billion shortfall.

...Don't expect lawmakers to suddenly mend their ways during this special session. Taxes will rise, spending will increase and the next budget shortfall will be set in motion.

Don't make it easy for them. Call your lawmakers now, or take action through the WashACE website.