Rep. Noel Frame and Rep. Tana Senn answered questions Tuesday on the capital gains tax bills moving through the Legislature.

At a briefing hosted by Invest In WA Now, the Democratic legislators were joined by a group of small business owners who support a capital gains tax. The legislators discussed why they think the state’s current economic context calls for a capital gains tax and how an upcoming federal stimulus package plays into their calculus.

Never again should we allow ourselves to be in a position where we hit a crisis like this and the only tool we have to fund recovery is the most regressive tool in the toolbox – sales tax. This is the exact right time to thank the federal government for the bridge funding and get these new tools set up,” said Frame.

Why is the capital gains tax necessary despite increased revenue collections?

According to the latest ERFC forecast, revenue collections since the November forecast are $593 million (9.0%) above expectations. Some opponents of the capital gains tax argue that as the state’s revenue picture looks sunnier, the crisis faced by lawmakers is not one that necessitates a capital gains tax.

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Rep. Frame says this view does not consider the source of increased revenue, and who has shouldered most of the burden over the course of Washington’s economic recovery.

Revenue is bouncing back, but on the backs of whom? The revenue coming back is on the backs of working people, because that is the tax code we have today. What we are not doing is asking the wealthiest among us and those that have thrived in this pandemic to share equitably in the responsibility of funding community investments, including childcare.”

Responding to what increased revenues say about the state’s economy, Frame also pointed to a November ERFC presentation which showed the increases are related to federal aid coming to the state and helping cover the essential needs of low income people.

In November, ERFC wrote:

“The strong personal income growth this year is the result of extraordinary fiscal stimulus. The slightly slower growth than expected in September is due to the absence of any new federal stimulus in the fourth quarter.”

Rep. Tana Senn, who is the prime sponsor of the House capital gains tax bill, added that the state is is still feeling the impacts of the Great Recession. For this reason, the state needs to develop more sustainable revenue sources, Senn said.

Whether it’s in the areas we had to cut around foster care, whether it is because of behavioral health programs that we eliminated, whether it was cuts to public health, we are reaping the problems right now, and we do not want to repeat that. While we have a forecast that is up from the dire projections, that does not mean it is up. Already in our budget we know that we have 15,000 people that are on our “no pay” caseload waiting for developmental disability services,” said Senn. “We know that we have a mental health crisis where we need more providers and we need more access. So it is not an end-all be-all to be up from a dire situation. We need to make sure we have the dollars to invest in our community and to make our tax code more equitable.”

With a federal stimulus package moving through Congress, why does the capital gains tax need to be passed this session?

With Congress expected to pass a federal stimulus package that would send the state a significant sum to fund services like childcare, for which the bulk of revenue from Senn’s proposal would be directed, the legislators were asked why a capital gains tax is needed now. They were also asked about the near-term impetus for passing the measure given that the revenue would not be received immediately.

The legislators maintained that the present moment is the right one to pass a capital gains tax and other bills that create progressive revenue sources. The federal funds will allow the state to fund critical needs while implementing new measures over time to fix the regressivity of the tax code, Frame reasoned.

It is the exact right moment because we have more federal funding coming, fingers crossed, to operate as a bridge so that right now we can pass this bill, put it into effect immediately and start the process of implementing it. It is going to take some time to stand up that program,” said Frame.

“If we were not so lucky to be receiving federal funding at this point, the tools we would have in the toolbox to raise the kind of revenue to make the type of economic recovery investments that we need to make, including in childcare, are the most regressive in the toolbox,” Frame continued. “What I’m referring to at this point is sales tax, which is about 45 percent of our state revenues but also the tool that disproportionately hits low income families.”

Nick Pitsilonis, owner of Black Cypress restaurant in Pullman, said at the briefing that he did not see a path to recovery without more dollars in the pockets in the customers.

From a small business owner’s perspective, this is the clutch time. Not only to see that people have money to survive, but disposable income. If we going to have the amount of customers we had before, we’re not going to make it, because we can’t attend to our debt burden that we’ve taken on. So we need more customers, we need people that might not have gone out to eat to have the money to be able to do it, or we’re not going to make it.”

The legislators also underscored that since the federal dollars are not ongoing payments, the economic needs of the state will not be erased without a more sustainable revenue source “When that federal money stops, the needs are still going to be there. And some of the deepest cuts in the recession ten years ago came long after the initial recession. We cannot just sit here and not take action,” said Frame.

Speaking to the push for progressive tax reform more broadly, Frame said it is driven by an effort to ensure programs are paid for in an equitable manner. When stimulus dollars dry up, Frame said the economic burden should be shouldered by those who can afford it.

We should ask them to fund economic recovery, not the people who have literally lost their jobs, lost their health care, and are struggling to keep food on the table and a roof over their heads. I do not think it’s acceptable that we would ask those folks to fund economic recovery, whether it’s now or 18 months from now, while not asking some of the wealthiest people in the world to share equitably in funding economic recovery.”

Is Caucus leadership committed to bringing the capital gains tax bills to the floor for a vote?

The legislators indicated that Caucus leadership has worked in collaboration with other legislators on the capital gains bills. Frame says the fact that the Senate version has moved out of the Ways & Committee early in the session is a “very strong indicator of their support for this legislation and that they intend to move it forward.”

At a different press briefing Tuesday, Sen. Marko Liias said legislators are “continuing to perfect” the Senate version. It could be brought the Senate floor for a vote in the coming days, or it could take longer, he added.

Revenue bills are not subject to the March 9th house of origin cutoff.

Liias did not give a “yes” or “no” answer when asked if there was any doubt Senate Democrats have the 25 votes they need to pass the bill. With their current majority, Democrats can only afford to lose three votes if they can’t draw any votes from Republicans or Sen. Tim Sheldon, a Democrat who caucuses with the Republicans.

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