The liberals (and freshmen for that matter) are swinging for the fences as the legislative session in Olympia begins.
Yesterday, Seattle freshman Sen. David Frockt (D-46, N. Seattle) and freshman Rep. Chris Reykdal (D-22, Olympia, Lacey) proposed doing away with the state’s B&O tax (a weird tax on biz revenues instead of profits) and scaling back the regressive sales tax—and offsetting the revenue loss with a tax on high income earners.
Today, freshman Rep. Laurie Jinkins (D-27, Tacoma) tells PubliCola she’s going to propose a capital gains tax next week. She says the legislation would impose a 5 percent tax on income from capital gains as reported on people’s federal income tax returns. She would exempt earnings under $5,000 for an individual and $10,000 for a couple. She also wants to exempt income from the sale of a primary residence.
Jinkins frets that, like the sales tax, capital gains taxes are volatile. She said, for example, that the state would have made $620 million on a capital gains tax in 2008 (before the recession fully clobbered the economy), but just $210 million in 2010. She says it does show a quicker recovery time than sales tax revenues, though.
She says she’s basing the proposal on a white paper by the lefty Washington State Budget & Policy Center. Jinkins says she hasn’t lined up any co-sponsors yet; the bill would require a two-thirds vote as all tax increases do, and Jinkins also acknowledges she hasn’t talked to any Republicans. But she says she’s gotten a positive reaction from budget committee heavies Rep. Ross Hunter (D-48, Medina), the chair, and Rep. Reuven Carlyle (D-36, Queen Anne Ballard)—and from Rep. Frank Chopp (D-43, Wallingford), the speaker of the house.
She says Chopp has divvied up revenue solutions into “short-term” “medium” and “long-term” and that her capital gains tax idea falls into the “medium” category. She’s still working out the mechanics, but says it’s likely the state would have to set aside the money for a while to build up a stable account.
During the overtime special session last May, Jinkins sponsored legislation repealing the infamous first mortgage bank tax loophole and using the money to pay for K-3 class size funding. The bill made it to the house floor, but didn’t get the two-thirds vote that tax increases need. (Repealing a loophole is considered a tax increase. It lost 52-42 in a straight party-line vote, Democrats for, Republicans against. Coincidentally, the vote was also part of the Democrats’ strategy to challenge the two-thirds rule in court.)
Gov. Chris Gregoire has proposed a number of items on the lefty wish list this session—such as closing a few corporate loopholes, including the break for big banks on first mortgages for $18 million and a B&O tax on windfall profits for oil companies—but she explicitly rejected the capital gains tax idea, saying simply that the state didn’t have the infrastructure to make it happen quickly enough.
