When the Legislature convened in January, the battle lines were clearly drawn. Gov. Jay Inslee said a budget based solely on existing taxes would be “devastating” when he proposed new taxes in his December budget proposal. Senate Republican budget chair Andy Hill said at the start of session that the state would be just fine with the $3 billion more expected to come in over the next two years without raising taxes.
For months, the two sides were set in stone. Senate Republicans said no to new taxes. House Democrats and Inslee insisted about a billion and a half in new taxes were necessary. The regular session ended in stalemate, and Inslee called lawmakers back for a special session.
Turns out, a strong state revenue forecast is changing the calculus in Olympia. Calling it a “string of good fortune,” Inslee said last week that $1.4 billion in new taxes won’t be necessary after all. In a special session where not much is happening on the surface, it may not count as an earthquake of an announcement, but certainly a noticeable tremor.
Between this new revenue forecast and the last one three months ago, almost a billion dollars have been added to the state revenue picture since legislators opened session in January.
But hold the phone
That’s not to say the session is likely to wrap up quickly with a no-new-taxes “go home” budget deal.
Inslee said new taxes are still needed, just not as much as he previously wanted. So how much is needed according to the governor? “I don’t have a clear number for you,” Inslee told the press.
Hill said of the new revenue projections last week, “Our job is even easier than it was in January. At some point you have to say, ‘Holy cow! We’ve got a lot of money.’”
House Democratic budget chair Ross Hunter sounded less sanguine. “We have a lot of work to do,” he said.
WHAT DO YOU THINK?
If you’re like most people, you probably don’t spend a lot of time carefully reading over your monthly phone bills. Especially if your service is set to auto-pay, it’s probably “out of sight, out of mind.”
It’s not a bad idea to give it a little closer look next month. You may be shocked by the amount of various taxes on your bill.
Federal, state, and local governments collect taxes on fees on wireline and wireless phone service. Once in place, these taxes can really stick around, even when they’re “temporary.” The federal government first enacted a telephone tax in 1898, the federal telephone excise tax, to help pay for the Spanish-American War. That tax was repealed and reinstated several times before eventually becoming permanent. It was finally repealed for good 108 years later.
Washington earns a dubious distinction
The number of landlines continues to shrink, with more and more customers choosing to rely solely on mobile phones. So how does Washington state stack up for mobile phone taxes?
Unfortunately, with another dubious #1 ranking. No state charges more state and local taxes on mobile phone service. Almost a quarter of the average Washington cell bill is taxes and fees.
That national average is 17.05%. The federal rate paid by everyone is 5.82%, and on average state and local governments tack on 11.23%
Washington customers pay a lot more, though. In addition to the 5.82% federal tax, the average Washingtonian is charged another 18.6% in state and local taxes. That combines for a whopping 24.42% tax rate.
WHAT DO YOU THINK?
One of the few true surprises of the 2015 session came at the end of March when House Democrats released their budget proposal. Despite Gov. Inslee’s call for a cap-and-trade carbon tax, and a House version of it pushed by Rep. Joe Fitzgibbon (D-34), House Democrats didn’t include cap-and-trade in their budget.
Democrats have 51 members in the 98-member House, but they couldn’t find 50 votes for the proposal.
Now Democrats have rolled out a new version of their cap-and-trade bill with inducements to pick up more yes votes and “mollify businesses worried about higher energy costs, as well as sweetening the pot with new tax incentives for rural timber communities,” according to the Seattle Times.
“This new draft proposal advances our goal to reduce carbon emissions so we can have a safe environment while at the same time addressing the major concerns raised by impacted businesses,” Fitzgibbon said in a release. “This new draft is a win-win.”
Some are pointing out the irony of the new incentives: the party that castigates tax “loopholes” at every opportunity is adding many more in hopes of getting their bill passed.
The new version puts more of the tax revenue toward schools and eliminates transportation funding. It puts $108 million toward a Working Families Tax Credit for low-income families and $70 million for the Interagency Council on Health Disparities to spend on “cumulative environmental impacts and social and economic disparities.”
Will the new version get to 50 votes in the House? With no Republicans likely to vote yes, the new inducements suggest House leadership thinks they’re close to 50. Until House Democrats show they have the votes for cap-and-trade or their capital gains income tax proposal, their negotiating position with Senate Republicans will continue to be weaker.
The biggest topic of conversation by far in Olympia over the last few years – in fact, the issue hanging over almost every decision the Legislature makes – is the state Supreme Court’s decision on education funding known as the McCleary case.
The court said the Legislature must “amply” fund K-12 education, that funding must be “stable,” and that it must be “uniform” in school districts around the state.
While the focus has been on the full-funding portion of the case, the uniform provision is the tougher one for legislators to deal with. The court said the heavy reliance on local levies is unconstitutional. The vexing question now is, which proposal fits into Olympia’s all-important math equation: 50 House votes + 25 Senate votes + 1 governor’s signature.
Line drawn in 2012’s sand
Since the court ruled that too much schools funding comes from local levies and that funding is unequal, many believe the simplest solution is a revenue-neutral “levy swap.” Local property tax rates would be lowered, while the state property tax would be raised to make up the difference. Legislators in both parties have proposed this idea.
One problem: Gov. Inslee campaigned against it in 2012.
Inslee not only rejected the idea, who used it in ads against Rob McKenna, saying the Republican wanted to raise voters’ property taxes. Editorial boards slammed Inslee’s ads, but he didn’t back down.
In fact, he’s still not backing down. While some observers expected Inslee to quietly acquiesce to the proposal once in office, Inslee criticized the idea again just a few weeks ago.
What’s the alternative?
Inslee and some legislative Democrats are still pushing for a capital gains tax, saying the revenue could be used to replace local levies. Many have pointed out that capital gains taxes are notoriously volatile, making it difficult to rely on the tax for important schools funding. That could pose problems for the “stable” leg of McCleary’s three-legged stool.
Inslee has also touted his carbon tax proposal as a potential source of education funding. The oddsmakers in Olympia think that idea is even less likely to pass than a capital gains tax this year.
Lawsuits and permitting battles have long been a favorite tactic of environmental groups trying to stop projects and businesses they don’t like. Politicians are starting to figure out, those same tactics can be used to appeal to voters and interest groups as well.
Seattle mayor Ed Murray has certainly figured that out, inserting himself into a lease agreement that his office has nothing to do with. That lease, between the Port of Seattle (a separate government from the City of Seattle) and Shell Oil to house a drilling rig at the port, is unpopular with environmental groups.
So Murray announced at an environmental fundraiser last week that the city is reviewing a long-issued permit for the port’s Terminal 5 to question whether the port is allowed to house a drilling rig. While the decision was no doubt met with cheers at the fundraiser, as the Seattle Times pointed out in a blistering editorial calling out Murray, it can’t be very reassuring to maritime businesses that add so much to Seattle’s economy.
Arctic work “happening regardless”
The Times noted that the Obama administration has signed off on the Arctic drilling project and “it’s happening regardless of where the ships go for staging and maintenance.” In a liberal city like Seattle, that reality is easily dismissed. What’s important is the symbolism of “making a stand.”
No doubt other maritime businesses are watching what Murray does next. In a fast-growing city with burgeoning tech and pharmaceutical businesses, the maritime industry is still a big part of Seattle’s economy. For the middle class voters Murray claims to stand up for, maritime jobs are stable and well-paying.
The Times asked the right question of Murray and the city:
Whether the decision holds up, it creates uncertainty. It signals to maritime companies that a lease with the Port may be targeted by the interests of local politicians — at the last minute, as vessels are en route to Elliott Bay.
How much of Seattle’s role in global commerce should be subject to city politicking?
No doubt that’s a question Murray doesn’t want to answer, but it’s an important one for businesses wondering if Seattle is a stable place to grow. The next politically unpopular business venture is just a protest away in a city whose government is willing to be whipsawed so easily by the political winds.