Democrats in Olympia Pursue Sweeping Agenda to Reverse Regressive Tax Structure

On the docket this year: A carbon tax, plus a wealth tax, changes to the estate tax, and a sweetened beverage tax.

by Leo Brine

Progressive legislators have been unleashing a slew of tax legislation this session, with bills like the capital gains tax (SB 5096) and the working families tax exemption (HB 1297) grabbing headlines after historic floor votes on both earlier month.

And they have more cued up. Legislators typically pass tax and revenue bills late in the session as a means of funding the budget, but this year Democrats have a much bigger agenda: They want to pass tax legislation that reforms how the budget is actually funded. They plan to create new taxes on carbon-dioxide emissions, extreme wealth, data collection, and more this year.

Ingeniously flipping the script on Republicans who say that sudden rosy revenue forecasts prove our tax system doesn’t need reform, progressives say the latest revenue forecast actually highlights the volatility of Washington’s current tax structure. In June, the state forecast a nearly $9 billion revenue shortfall. However, a sequence of higher forecasts based on an uptick in retail sales tax revenue between September and March nearly re-balanced the budget.

Ingeniously flipping the script on Republicans who say sudden rosy revenue forecasts prove our tax system doesn’t need reform, progressives say the budget turnaround is being funded on the backs of low-income residents who pay a disproportionate amount of their incomes in regressive sales taxes.

Seizing on the volatility argument, and noting that the turnaround is being funded largely on the backs of low-income residents who pay a disproportionate amount of their incomes in regressive sales taxes, Democrats are pushing a sweeping tax reform agenda.

At the March 17 revenue forecast meeting, House Appropriations Committee chair Rep. Timm Ormsby (D-3, Spokane) said the revenue increase was not a reason to change course on new progressive tax legislation. “I think we have to be quite concerned about ongoing stability of our revenue system. I think that today’s forecast and other economic news will affect our discussion, but I don’t see a wholesale change in discussion [around tax legislation] in the legislature,” he said.

Wealth Tax

One of the most daring pieces of progressive legislation is the wealth tax bill (HB 1406). Sponsored by House Finance Committee chair Rep. Noel Frame (D-36, Seattle), the bill proposes a 1 percent tax on worldwide “intangible financial assets of more than $1 billion.” Intangible assets include cash, stocks, bonds, pension funds and ownership in revenue-generating partnerships such as businesses. (In contrast, tangible and intangible personal property includes things like as homes, farm equipment and federal and state bonds.) The bill is currently in the house finance committee, where it is awaiting an executive session.

The Department of Revenue estimates the tax will generate an additional $2.5 billion in annual revenue for the state.

Rep. Frame surmises Bezos is already claiming residency in a different state.

One of the main critiques of the bill, along with other bills aimed at taxing the rich, is that people like Jeff Bezos or Bill Gates  could just leave the state and live elsewhere. Rep. Frame said she is not worried about this. Frame told GeekWire in February that based on the DOR revenue predictions, she believes Bezos is already claiming residency in a different state. As for Gates, whose father campaigned for an income tax a decade ago, Frame believes he is too invested in his home state to leave.

Carbon Tax

The legislature is working on several environmental bills this session, including two bills aimed at curbing carbon emissions and greenhouse gases. The Senate Ways and Means committee currently has SB 5126 scheduled for executive committee hearings, while SB 5373 remains in the Environment, Energy & Technology committee waiting for an executive session.

SB 5126 is a cap-and-trade bill requested by Governor Jay Inslee and sponsored by Sen. Reuven Carlyle (D-36, Seattle). Carlyle chairs the Environment, Energy & Technology committee, which passed the bill in late February. According to Washington Environmental Council lobbyist Clifford Traisman, this bill is moving along quicker than other climate legislation because of Inslee’s backing and Carlyle’s veteran status in the legislature.

The bill sets up long term carbon-emissions goals for Washington, directs funding to clean transit, clean energy, and climate resiliency, and requires the governor to create and implement a comprehensive program to meet the state’s climate commitment.

The bill also creates new Environmental Justice and Equity Advisory panels that will help develop a cap-and-invest program, a type of cap-and-trade. Cap-and-trade works by setting a limit or “cap” on the amount of greenhouse gases the state can produce annually and issues or sells permits to companies that emit greenhouse gases. This, in theory, creates an incentive for companies to hold on to these “carbon credits,” which leads to lower emissions.

Meanwhile, SB 5373, sponsored by Sen. Liz Lovelett (D-40, Anacortes), would impose a new tax of $25 per ton of greenhouse gas emissions generated by fossil fuels in the state. The tax would be imposed on the sale of fossil fuels, and would exempt fossil fuels used to generate electricity. The rate would increase with inflation, plus an additional 5 percent on July 1, 2023.

The bill proposes using the tax revenue to fund programs that reduce carbon emissions, including public transportation, broadband access, and energy efficiency, plus programs to help fossil fuel industry workers transition to new green-energy jobs

Soda Tax

Sen. June Robinson’s (D-38, Everett) sweetened beverage tax bill (SB 5371) is modeled after a Seattle program that directs revenue for public health programs and a “health equity account” for communities of color. Seattle’s version of the tax generated roughly $22 million in 2018.

Anticipating that the tax would have a disproportionate impact on lower-income areas and communities of color with less access to healthy foods, the Seattle City Council directed revenue from the tax toward increasing funding for healthy food programs in those communities. Under Sen. Robinson’s proposal, sugary drinks would be taxed at 1.75 cents an ounce, increasing the price of a 12-ounce can of soda by 21 cents.

Estate Tax

The House Finance Committee is working on a bill (HB 1465) sponsored by Rep. Tina Orwall (D-33, Kent), that will make adjustments to Washington’s estate tax by exempting estates with less than $1 million from the tax and increasing the rate on estates with more than $3 million. The estate tax is a tax on how much of a person’s wealth can be passed on to their heirs when they die. The tax rate is progressive—the larger the estate, the larger the tax—topping out at 40 percent for estates worth more than $1 billion.

By taxing large estates, money is redistributed back into the state rather than perpetuating intergenerational wealth. Revenue from the bill would go into the Equity Housing Account and be used to address homelessness.

Business and Occupation Tax

On March 16, the House Finance Committee held a hearing on HB 1111, legislation that would adjust the business and occupation (B&O) tax. Rep. Eileen Cody (D-34, Seattle, Vashon Island) is the primary sponsor of the bill, which will prevent businesses with large revenues from getting deductions on their B&O taxes because they invest some of their capital elsewhere.

Data Collection Tax

HB 1303, sponsored by Rep. Shelley Kloba (D-1, Bothell), creates a new tax on data collection companies. The bill is scheduled for a public hearing in the House Finance committee on March 23. The bill proposes a tax of 1.8 percent of the gross income of the data collector or reseller.

Data collectors have long profited from collecting people’s personal information by selling it to advertisers and other companies without consent or without providing any remuneration. The bill taxes data collectors and invests some of their profits back into the state.