We all know the pandemic continues to wreak havoc on our bodies and to decimate large parts of the economy. We also know the state's choice to close down some businesses while leaving others open and more vulnerable is distributing the pain and death and loss unequally. And though Washington is handling COVID-19 much better than Florida, still the rich are getting richer while the poor are getting poorer and sicker.
Democrats in Olympia, who have exercised total control over state government for four years now, can now help the state recover from this devastation in one of two ways. They can pass tax laws to make the rich pay their fair share, or they can coat-check their spines yet again and continue to build the recovery on the backs of the poor, whose ranks include a disproportionally high number of Black and brown people.
In the last few weeks and months, some Democrats have stepped up with progressive tax proposals that would help create a less racist and less classist tax code. These proposals include:
I'll get to those proposals in detail in just a second, but before I dive in: If you believe that Washington should not perpetuate a racist and classist tax code, then you should read up on these bills, find one (or a few) that you'd like to support, and then virtually knock on the virtual door of your representative to make sure these proposals make their way to Jay Inslee's desk.
Otherwise, the Joe Manchins (or the Joes Manchin?) of Washington might spike those proposals to keep their well-off constituents happy, or they might water down the bills to keep their lobbying prospects open.
Uncertainty over the potential for more Federal assistance combined with the uncertainty over the results of the state's upcoming revenue forecast might account for some trepidation among politicians, but lawmakers shouldn't be thinking about any of that shit. If we get federal money, then great. If the forecast is better or worse than it is now, then fine. What matters is fixing our tax structure, which ranks as the most regressive code in the country.
What we need
We need to boost the economy and get people back to work. The best way to do all that is to tax the rich and use that money to fund services to help parents care for kids, to help teachers teach kids, to help people secure housing, and to help manage any of the dozen other crises the pandemic has only exacerbated. (Hunger, for instance, was a statewide problem before the pandemic—now it runs rampant. Nearly 200,000 people in Washington are behind on rent. Immigrants have been hit hardest by the pandemic, but all federal relief funding completely excludes them. I could go on, but I'd get too sad.)
At the very least we need to patch a $3.3 billion revenue shortfall in the next two-year budget. Republicans will quibble over this point, and argue we need a budget that's only as big as the last one. But that argument ignores the fact that the state's baseline costs have gone up since two years ago, and it also ignores the need to address the aforementioned dozen other crises the pandemic has only exacerbated. Why they continue pushing this austerity nonsense long after the results of Kansas' failed experiment is beyond me, but I guess we can't expect a party to embrace math when they spend so much time rejecting science.
A Washington State Budget and Policy Center analysis of a new REMI model found $3 billion in "equitable new revenue for community investment" would create tens of thousands of jobs in the public and private sectors, whereas cuts to social services, education, or state employees would "eliminate jobs and deepen the recession" just like they did back in 2008. This investment in Washingtonians would pump consumer spending by nearly $4 billion a year, which would come as welcome news to the state's struggling small businesses. Just ask people like Aaron Verzosa, chef and owner of Archipelago in Hillman City, or Karla Esquivel, owner of Andaluz in Columbia City.
Earlier this month, Civic Ventures and a couple dozen groups released the Washington Recovery Agenda, which calls for the state to pass "$2.5 billion in new progressive revenue" as a "minimum down payment" to meet the need for GDP growth, and that figure assumes over $2 billion in more aide from the Feds.
Though we need to raise state revenues in order to juice the economy, doing so without fixing our backward-ass tax code will only make our problems worse.
The bad tax code
Though we rank in the middle of the pack compared to other states, our property taxes ~feel~ high for some due to high home values. The state's business and occupation tax hits gross receipts rather than profit, which forces businesses to pay up even when they don’t make money in a given year, which builds a resentment so intense that it's difficult to describe.
But it's our high sales tax rate combined with our lack of an income tax that renders Washington's tax code the most regressive in the nation. This structure forces poor people in Washington to pay nearly 18 percent of their income in taxes while the rich pay only 3 percent. And because this is America, where discriminatory policies systematically rob Black and brown people of wealth, those communities end up paying a higher percentage of their incomes in taxes than white communities.
In their analysis of a new report from the Institute on Taxation and Economic Policy, the Budget and Policy Center showed that the effective state and local tax rate for Black, Hispanic, Indigenous, and Pacific Islanders is between half a point and one point higher than it is for white people. "While these differences may seem small, they can amount to hundreds of dollars per year that would otherwise be spent on meeting basic necessities, like food, child care, and transportation," the analysts wrote.
In essence, our state's tax code makes rich white people richer, and it makes Black, Indigenous, Hispanic, and Pacific Islanders poorer. That's what institutional racism looks like, and if you live here and you're not screaming at your representatives to back progressive taxation, then you're perpetuating the problem.
The good bills needed to fix the bad tax code
The good news is that forcing poor people to use more of their money than rich people to fund state services is a choice, and this year a few Democratic lawmakers proposed several bills to help us make a different choice.
• One of the most exciting bills is Seattle Rep. Noel Frame's wealth tax proposal, which would levy a 1% tax on wealth (e.g. stocks and bonds) over $1 billion, and raise nearly $5 billion over the next two years. As many people noted during testimony on the bill last week, which drew over 1,300 supporters, that kind of money would fill the budget gap and leave enough left over to fund a tax credit for the state's low-income earners. The tax would really only hit 14 people, which gives you a sense of how much more the ultra-rich could be contributing from their vast hoards. If the Governor signs the bill, Washington would be the first to pass such a tax, which would be cool, but it would also mean we'd be the first state to have to figure out how to administer the tax, which would be challenging, and which may end up causing Dems to ~raise enough questions~ to slow down the bill. Meanwhile, as they always do, conservatives raised legal questions and argued the rich will flee if we tax them. For the millionth time: tax flight is mostly a myth. As for the legal question, Frame has persuasively argued the 1% tax on wealth aligns with the state's 1% property tax rule, and so it should be fine.
• The Legislature will also consider an excise tax on capital gains for the 8th time now. This tax would skim a small percentage of the profits from the sale of highly valued assets over a certain amount. "Highly valued assets" are things such as stocks and third homes and the like. A new striking amendment on the capital gains tax bill Sen. June Robinson proposed at the request of the Governor would tax the profits on the sale of stocks and bonds over $250,000 at 7%. The bill would exempt "the sale of a home, commercial real estate and other properties, a family-owned small business, retirement accounts, and agricultural and timber lands," and only hit "2% of the wealthiest Washingtonians." The first $350 million in revenues would funnel into the education legacy trust account, and the rest would dump into "a new taxpayer relief account." Meanwhile, Rep. Tana Senn carries the House version, which has a higher threshold for joint filers, a higher rate (9.9%) for non-property assets, and a lower rate for property sales. A staff report shows that bill would raise $1.8 billion between 2023 and 2025. Half of that would go to fund child care programs, and most of the rest would end up in the general fund.
• Seattle Rep. Nicole Macri is working on a statewide payroll tax. The bill structures the tax like the one the Seattle City Council passed over the summer, but its rates are much smaller. The tax would touch two different sizes of businesses; those with payrolls between $7 million and $100 million would see a 0.25% tax on high salaries, and those with payrolls over $100 million would see a 0.5% tax on high salaries. (In Seattle, those rates run from 0.7% to 2.4%.) The statewide tax would impact less than 2.5% of all businesses in the state and "generally exempt our smaller businesses," Macri said. Lawmakers haven't created a specific spending plan for the money yet, but they could use it to pay for any of the dozen crises the state needs to address. Crosscut reported on the state of play last month, and things are more or less the same. Negotiations remain slow-going, mostly because lawmakers want to avoid the horrible sin of taxing Seattle companies at the state level and at the local level. This aversion sets up a hard choice. Lawmakers could either exclude Seattle from the tax or issue a full rebate, which would drastically lower the amount of revenue the tax would generate for the state. (Right now, with Seattle included, that amount would be $175 million in the first year.) They could also issue a partial rebate to Seattle. Or they could just do both taxes, which would likely lead to a lack of support for the bill for reasons I understand but dismiss out of hand. I know it was three whole years ago, but Trump's tax cuts slashed the corporate tax rate by 14 points. Big biz can swing it, you cowards. Though Seattle City Councilmember Kshama Sawant remains concerned that the state might preempt Seattle's ability to levy the tax now or in the future, Macri said she "wouldn't want to see that happen," and added that Seattle government has been "generally firmer on that position because they've already booked the revenue for the tax."
• Rep Tina Orwall dropped a bill to make the estate tax more progressive. When rich people die, instead of redistributing all their accumulated wealth to the society that created the conditions for those riches to increase in the first place, the state issues a tax on the right to transfer property at the time of death. That tax is called an estate tax. Orwall's bill would raise the lowest threshold for payment to $2.5 million, reduce rates for "medium-sized estates," and then raise rates at the upper end of the threshold. This change would raise nearly $106 million in the next two years, according to an analysis from the Office of Financial Management.
Is any of this going to pass?
Uncertainty surrounding federal action on more stimulus and the results of the state's next revenue forecast, which is due out in mid-March, makes it difficult to gauge the chances of these bills passing.
Over the phone, Rep. Macri said another federal stimulus in March might "take the pressure off" to find progressive revenue to fill budget holes. That said, Congress was slow to pass the last relief bill, and it wouldn't be surprising if they dragged their feet again this time, even though Pelosi now promises a deal by March. Moreover, Macri argued, these federal packages are one-offs, and "people are going to need support for longer than a one-time payment" from federally-backed relief funds. And, of course, the motivation driving this need for progressive revenue isn't just filling budget holes, it's balancing our tax code in a way that doesn't perpetuate racism and poverty.
At a press conference last week, House Speaker Laurie Jinkins said she supports the capital gains tax, which makes sense given the fact that she introduced it eight long years ago. As for the wealth tax? "I'm very supportive of us looking at legislation and at taxes and revenue that changes our completely upside-down tax structure. Both of these bills have the chance to do that," she said, referring to the wealth tax and the capital gains tax.
In an interview, Sen. Joe Nguyen said he was "optimistic" about the capital gains tax passing.
"We're looking at what the bill's path looks like coming out of the Senate, not whether we should pass it. We're talking about what version, what's the plan, how do we spend this," he added.
On Monday morning, Senate Democrats scheduled their version of a capital gains tax for a possible committee vote on Tuesday.
The last time a capital gains tax came went through the Senate, Sens Mark Mullet, Steve Hobbs, Dean Takko, and Guy Palumbo opposed it, and Seattle Sen. Reuven Carlyle voiced support for taxing capital gains at 5%. Capital gains supporters can lose four Dem Senators, but they can't lose five.
Both Palumbo and Takko are gone now, and the Democrats maintained their majority in the Senate last year, so that should mean no problems, right? Well, it's hard to say when the Senators won't say themselves. Both Sen Kevin Van De Wege and Annette Cleveland declined a request for comment. Sen. Hobbs and Mullet didn't respond to a request for comment. Carlyle said he's "open to both capital gains and wealth tax as part of meaningful progressive reform that lowers taxes on low- and middle-income residents." If you want to know where your Senator stands, fuck around and find out.
This post has been updated with new information on the Senate's version of the capital gains tax.