With welcome news that the state’s revenue forecast has returned to pre-pandemic levels, now is the time for the Legislature to turn to providing relief to residents and businesses with available resources rather than focusing on unneeded and untimely new taxes.
As of last week, the state Economic and Revenue Forecast Council projected revenue for the state has increased by $1.3 billion for the current biennium, which is expected to bring the state revenue surplus to nearly $3 billion. On top of that, the council says projections for the 2021-23 biennium have increased by $1.9 billion since its November projections, based on “current receipts, infusions of federal stimulus payments, and better news about economic recovery.”
State revenue now is expected to total $52.3 billion this biennium, which represents a 13.6% increase over the previous, pre-pandemic biennium. Revenue is expected to increase 8%, to $56.6 billion, for the next two-year budget cycle, which begins July 1.
All of this means the state doesn’t have to make deep budget cuts or even tighten its belt to fund necessary government services.
Yet the Legislature is considering a handful of new taxes ranging from a soda tax to a “billionaire tax,” to a health care plan tax. Perhaps the most egregious of tax measures on the table is the proposed capital gains tax, which would impose a 7% tax on capital gains above $250,000 for individual and joint filers.
The proposed tax is a thinly disguised attempt at creating a back door into levying income taxes, which are prohibited under the state constitution—a prohibition that voters have supported and courts have enforced many times over. Supporters of the tax are hoping to get it through the courts by calling it anything but an income tax, although the IRS and many states define a capital gains tax as an income tax.
Taxes on capital gains income wouldn’t affect just the wealthy. At a time when a growing number of people are reaching retirement age, a capital gains tax would harm many small business owners who plan to sell their businesses to fund retirement.
Now, supporters of the proposed capital gains tax are tying it to other legislation aimed at expanding child care, early education, and tax credits for working families, in an apparent effort to paint opponents as being against children. The revenue forecast now shows, however, the state will have resources to fund such priorities without increasing taxes.
David Schumacher, the state Office of Financial Management director, says the state’s fiscal situation has improved dramatically, since Gov. Jay Inslee unveiled his 2021-23 operating, capital, and transportation budgets in December.
While the state revenue system is faring surprisingly well through the pandemic, Schumacher cautions, “Many families, workers, and businesses across the state are still feeling the effects of the pandemic.”
Raising taxes to fund relief would be counterproductive.
In light of what amounts to a state revenue windfall, the best way to improve the tax system is not to raise unneeded taxes, but to focus relief where it’s needed most with resources at hand.
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