Lawmakers are wrapping up a marathon of floor action this week as the opposite house cutoff deadline approaches. In “Survivor” terms, we’re roughly at the point of the final attorneys making their pitch to the jury of their peers, who all saw their torches snuffed by their fellow competitors at different points along the way.
Political agendas, petty grievances, established loyalties, and future relationships come to bear as lawmakers consider the final bills presented by their colleagues from the opposite chamber. Here in Olympia, there are plenty of winners, losers, and long games at play.
House and Senate Democrats announced a $12-billion budget deal, complete with new revenue proposals. We unpack the implications of new tax policies introduced by Democrats, and some of the priority bills with limited fiscal impacts that are inching out of this cutoff deadline:
New tax increase proposals dropped on tax day.
Majority Democrats have introduced a series of bills representing the revenue side of an impending budget deal. Some ideas are tweaks on things we’ve seen before; others are entirely new this year. Democrats say the whole caboodle adds up to about $12 billion over four years.
Taxing Tesla
Tesla makes bank by selling credits under Washington’s Zero-Emission Vehicle Program to other car manufacturers whose vehicles still pump out carbon pollution. House Bill 2077 from Majority Leader Joe Fitzgibbon, D-Burien, creates a new excise tax on the sale of those credits. Tesla earns and sells most of the credits because of its outsized share of the EV market and the fact that it makes zero gas-powered vehicles. The tax is expected to raise about $280 million over the next four years. Given Elon Musk’s antics of late, you have to figure it’ll be an awkward sell.
A big tax increase on very large estates
If Grandad kicks off and leaves you a giant pile of cash, the accompanying tax bite would sting harder under Senate Bill 5813 from Sen. Claire Wilson, D-Auburn, which would boost the top estate tax rate from 20% — already tied for the highest in the country, to a whopping 35%. The bill would also increase the amount of your estate that is exempt from the tax to $3 million, which would add up to tax relief for golden estates.
Steeper tax rates on capital gains for the extremely rich
SB 5813 would also boost the tax on capital gains of more than $1 million, by 2.9%. Current law sets the tax at 7% for gains of more than $250,000. Only a few thousand households pay the capital gains tax in the first place, Together, the two increases would raise $1-1.5 billion over two years. Expect estate-planning lawyers and accountants to complain mightily.
Sales tax on more services
Senate Bill 5814 from Sen. Noel Frame, D-Seattle, would extend the retail sales tax to more services that are currently exempt. That’s worth about $4 billion over the next four years. The biggest chunks will come from computer and IT-related services, about $500 million per year, and temporary staffing services at more than $250 million per year. It would also flush some $1.5 billion into local coffers over those four years. One interesting wrinkle: The bill would also require large businesses to prepay July 2027 sales taxes in June 2027. We’re told that would have the effect of pulling some $800 million back into the 2025-27 biennium from the following biennium, which is helpful for purposes of cosmetic budget-balancing.
A modified temporary B&O surcharge on the big boys
Senate Bill 5815 from Sen. Rebecca Saldaña would temporarily increase the B&O tax rate by 0.5% on companies with more than $250 million of gross revenue. That’s half the increase proposed by the House earlier this session. The bill also exempts the grocery business, which argued strenuously that the cascading effect of the B&O tax would drive up food prices in that low-margin sector.
It would also increase the B&O tax across the board for nearly every business, exempting only small service businesses with less than $1 million in gross receipts. That’s expected to raise $6 billion over four years.
Notably absent from this fresh spurt of cash-raising legislation are new variations on the wealth tax or a statewide version of Seattle’s JumpStart tax on employers of highly paid workers. Those taxes were aimed at the money pile Washington’s marquee tech companies are sitting on, and they haven’t been shy about letting folks know they’re unhappy.
Parents Bill of Rights
When House floor leader Monica Stonier, D-Vancouver, scheduled Senate Bill 5181 for a vote on Tuesday, she said it was with the understanding that securing a fix for some of the purported problems with the Parents’ Bill of Rights initiative lawmakers passed last session was the top priority of the majority Democrats in the House and Senate.
The SB 5181 vote came at a cost, though, in the form of precious floor time. House Republicans seized the opportunity to take up all the oxygen in the room and spent the day introducing amendments, objections, and other commentary related (and sometimes not related) to the changes introduced by Democrats to the Parents’ Bill of Rights initiative, which lawmakers passed last year, so they could amend it more easily this session.
The vote on SB 5181 came after the Senate had already voted Rep. Stonier’s House Bill 1296 off the floor. That bill is broader than SB 5181 and establishes stronger protections for public school students, particularly those in the LGBTQ+ community. “We continue to be very cautious about all the things that could go south,” Stonier told us. “We can’t risk having something go wrong in one chamber and not having a backup in the other.” But don’t be surprised if some of the stuff that dies on the House calendar this week causes some people some heartburn.
Ferguson kills new K-12 education finance strategy
The future of spending plans for special education and school materials, supplies, and operating costs was plunged into further uncertainty when Gov. Bob Ferguson threatened to veto the proposed tax on the intangible assets held by some of Washington’s wealthiest residents, prompting lawmakers to get creative.
Rep. Steve Bergquist and several other Democratic leaders signed on to House Bill 2049, which would boost the annual revenue growth limit for state and local property taxes from 1-3%; gradually hike the tax authority for school district levies and increase local-effort assistance dollars for property-poor districts; remove the 16% cap on special education dollars; and recalibrate how special education dollars are allocated.
The second tax bill comes from Sens. Claire Wilson, D-Auburn, and Derek Stanford, D-Bothell, which would increase the capital gains tax and the estate tax on the very wealthy. The money would be deposited into the Education Legacy Trust Account, which is used to pay for public K-12 schools, early learning, and childcare programs, and access to higher education.
Post-McCleary implications local tax authority for schools
The tax changes outlined in HB 2049 would, in some ways, shift Washington away from the McCleary directive to use state dollars to drive K-12 investment and return to relying on taxes paid by local school districts to generate revenue for schools. The bill would give property-rich districts new authority to raise local taxes for their school district to spend on educational enrichment programs and more.
As we’ve reported in the past, school districts don’t all feel the same about raising the local levy lid. While property-rich school districts stand to benefit the most from HB 2049, property-poor school districts simply cannot fund levies at the same level and instead rely on the state’s local-effort-assistance program to help bridge the gap. School districts that land in the middle are arguably the biggest losers under the state’s educational- enrichment finance policy. These districts don’t have the local tax base to generate meaningful revenue (or the votes) on local levy hikes if the lid were lifted. While HB 2049 included some increases to LEA, it is unclear whether it is even close to equitable.
What about the MSOC?
HB 2049 is the House’s key vehicle for K-12 education finance this biennium. HB 2049 touches on special education but does not address the other big education spending priority for schools: materials, supplies, and operating costs (MSOC)
On Monday, Stonier added Senate Bill 5192 from Sen. T’wina Nobles, D-Fircrest, to the House floor calendar, meaning it’s eligible for a vote. SB 5192 would represent a significant infusion of state money to public schools’ materials, supplies, and operating budgets: About $188 million in the 2025-27 biennium, $240 million in 2027-29, and $250 million in 2029-31, the fiscal note shows. SB 5192 was added to the calendar the same day that the Washington Association of School Administrators pushed school district leaders to get loud about MSOC as a vital need, sparking an email and phone campaign to lawmakers.
The Senate’s bipartisan $1-billion-plus special education bill from Senate majority leader Jamie Pedersen, D-Seattle, and minority leader John Braun, R-Centralia, was added to the House calendar last week but hasn’t been scheduled for a vote yet. While the new bill introductions and calendar updates nothing is set in stone.
These stories first appeared in The Washington Observer.
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