Tax plan from WA House Democrats could raise nearly $15B for state budget

The Washington state Capitol building in Olympia. (Photo by Bill Lucia/Washington State Standard)

Democrats in the Washington state House released a plan Friday that could drive billions of additional dollars into state coffers through higher property tax collections and new taxes on the richest residents and largest businesses and banks.

House Democrats want to impose a new tax on individual wealth and a surcharge on certain businesses while allowing for larger hikes in property tax rates than the current 1% cap.

The proposals would generate $5.1 billion for the 2025-27 budget and $14.8 billion over the next two budgets. That would cover much of a budget shortfall estimated as high as $16 billion over the next four fiscal years after accounting for the latest revenue forecast.

Senate Democrats staked out a similar but more aggressive tax position Thursday with a multi-pronged approach centered around higher property tax collections and new levies on the state’s wealthiest individuals and largest corporations. 

They also pitched a half-cent cut in the sales tax to assuage concerns about costs for consumers and they want to ditch some outdated and unused tax breaks.

If enacted, the Senate’s revenue proposals would generate roughly $20 billion over the next two budget cycles. Overall, the package would net roughly $17 billion after factoring in a dip in collections from a lower sales tax, according to Democrats’ calculations. 

Democratic Gov. Bob Ferguson has not publicly commented on either proposal. Ferguson has expressed skepticism about at least one of the ideas, the wealth tax, and has not yet voiced support for any new taxes. 

The wealth tax, a key piece of House Democrats’ plan, is spelled out in House Bill 2046. As proposed, there would be a tax of $8 on every $1,000 of assessed value of certain financial assets such as stocks, bonds, exchange-traded funds, and mutual funds. The tax would only apply to the value of these assets that is above $50 million. 

With the House plan, there would be exemptions for pensions, retirement accounts, and education savings accounts. About 4,300 people would pay the tax, generating about $2 billion per year, beginning in fiscal year 2027, according to the state Department of Revenue.

Those dollars would be dedicated to the Education Legacy Trust Account where they could be used for public schools and early learning programs.

Senate Democrats want to set the tax rate at $10. They contend the same number of people would pay but the amount generated would be $4 billion a year. That’s because they tax the full value of the targeted assets if a person has more than $50 million of them.

In other words, if you have $51 million of these assets, Senate Democrats would apply the new tax on all of it while the House would only tax the $1 million.

House Democrats are also proposing a permanent 1% surcharge to the business and occupation tax rate on businesses with taxable income over $250 million. About 400 businesses would be affected, they said. 

House Bill 2045 also includes an increase to the surcharge on financial institutions with annual net income of $1 billion or more from 1.2% to 1.9%. This will impact about 200 businesses.

Those changes will produce nearly $2.6 billion in the next budget. 

House Democrats also count on added dollars from increased state property tax collections by allowing an increase in annual property tax growth from the current 1% cap to the combined rate of population growth plus inflation, not to exceed 3%. This would apply to the state’s common schools levy and for cities and counties, as well as special purpose districts.

Senate Democrats are seeking a similar change but do not set a 3% limit.

House Speaker Laurie Jinkins, D-Tacoma, and Senate Majority Leader Jamie Pedersen have said they don’t expect votes on any major tax change until the chambers agree on which ones to pursue.

That, they said, will come after the House and Senate pass their respective budgets, expected later this month, and negotiate a final spending plan. To avoid a special session, the Legislature will need to complete the tasks by April 27, the last scheduled day of the legislative session.