Upcoming Conference | 2019 Re-Wire Policy Conference, Dec 10, 2019 Register

Taxapalooza! — $38 Billion in Democratic Tax-Hike Proposals Get a Courtesy Hearing in the Senate, and Maybe There’s a Back-Handed Message

Senate Leaders Say Dems' Tax Increase Proposals are Going Nowhere, Happy to Give Them a Chance to Make Support Public -- Lobbyist Pops a Brewski

Steve Gano, lobbyist for Miller Brewing, shocks the Legislature by showing up without a tie and popping open a can of beer during business hours -- something that hasn't been seen in the last 20 years. No word on where the beer went after the hearing.

Steve Gano, lobbyist for Miller Brewing, shocks the Senate Ways and Means Committee by showing up sans tie and popping open a can of beer in public during business hours — something that just hasn’t been seen in the last 20 years. So what happened to the beer?

OLYMPIA, Feb. 18.—When longtime lobbyist Steve Gano sat down in front of the microphone in a Senate hearing room the other day wearing a polo shirt with the Miller Beer logo, a few eyebrows went up – what, no tie? Then he pulled out a can of beer and popped it open. The room gasped. “You can’t do that!” a lawmaker called.

“Watch me,” he said.

With perhaps the most unusual visual aid seen at the statehouse in the last couple of decades, Gano poured beer into a schooner to make a point about the temporary beer taxes that the Legislature imposed in 2010. Some have proposed taking another pull on that tap – also temporarily. So there was a serious message somewhere under the foam. But it may have been the first time an open can of beer has been on public view at the statehouse during business hours since The Spokesman-Review blew the whistle on the end-of-session partying in 1993. It just went to demonstrate that the hearing that took place last week on tax policy was definitely a bit out of the box – and showed why people were chortling about the whole thing through the weekend.

Normally big tax bills from the Democratic Party’s progressive wing don’t stand a snowball’s chance; they are dropped into the hopper, get a few polite news stories, and then are never heard from again. But this time the largely Republican Majority Coalition Caucus decided it might be a nice idea to extend the other team an unusual courtesy by granting all their proposals a hearing at the same time. All at once. All $38 billion worth. Then it pumped out press releases calling attention to them.

It’s not that whopping tax hikes stand any chance this year. A big slice of the Legislature considers them lunacy, including the majority coalition that has taken power in the Senate. Even Gov. Jay Inslee has said that he opposes big new taxes — though he says he’s willing to consider extension of the beer tax and other temporary taxes from 2010, because they’re old taxes, not new ones. Chances even for that are dubious, because of the two-thirds voting requirement in the House and Senate, imposed by last year’s voter-approved I-1185. State Sen. Tim Sheldon, D-Potlatch, who joined with fellow Democrat Rodney Tom in forming the governing coalition with the Senate Republicans, said bipartisanship is the watchword this year. That’s why it allowed the other team to explain its tax-increase plans in excruciating detail.  “Now that we are in the majority, we decided to treat the minority better than it’s been treated before,” he said.

State Sen. Tim Sheldon, D-Potlatch.

State Sen. Tim Sheldon, D-Potlatch. .

And the fact that the hearing took place on Feb. 14 – Valentine’s Day – just went to show the love.

Not Quite Everything

To be perfectly fair, that $38 billion figure isn’t all at once – it is a 10-year projection of revenue from the state Office of Financial Management for the five bills heard last week. So it’s not quite as scary as it sounds. But the number actually goes a bit higher, if you count all of the big bills this year that aren’t going anywhere. That’s because of a proposal for a new state capital gains tax, introduced last Wednesday by Senate Democratic Leader Ed Murray, D-Seattle, as Senate Bill 5738. The bill introduction came too late for the hearing — it doesn’t have a price-tag yet, but it certainly would have sent the numbers through the roof.

Taxes are part of the big-picture debate this year because of a Supreme Court directive that the state beef up spending for K-12 education. The cost of the so-called McCleary decision is a matter of debate – most figure it at somewhere around $1 billion or more in the next budget, and considerably more in the future. The big problem is that lawmakers don’t have a way to pay for it unless they make changes in spending patterns. Hence the proposals this year for tax increases – ideas that make it possible to avoid big cuts or reforms. They include old favorites like an income tax, and new proposals like Gov. Christine Gregoire’s plan to extend temporary taxes on beer and professional services while a big new fuel tax is phased in.

You’ve gotta start the debate somewhere, said Dan Steele of the Washington Association of School Administrators. Natural growth in the economy just won’t cover the state’s needs. “We don’t know honestly if an income tax or any of the other proposals on the agenda today are actually the right or the best choices, but our bottom line message is this. We sincerely believe that enhanced revenues that are stable and dependable are necessary for the state to meet its legal and moral obligations.”

Cost Many Thousands of Jobs

State Sen. Maralyn Chase, D-Shoreline.

State Sen. Maralyn Chase, D-Shoreline.

Most testimony was like that – generic support from public-employee unions, education groups and social-service interests, the usual opposition from business. Republicans kept asking supporters how much was enough, and they got the answer they expected – no answer at all. Democrats kept challenging opponents to come up with a better idea, and heard a couple — not that anyone had time for more than a few sentences. But there was one new element, added by the Washington Policy Center, a conservative-leaning think tank: It has contracted this year with Suffolk University in Boston to create a model for considering the effect on the economy this year’s various tax-increase proposals. Sen. Jim Hargrove, D-Hoquiam, said he’s suspicious of the source, and demanded that the Policy Center provide details of Suffolk’s economic model — which it did in an email during the meeting, just in case detail was the point of Hargrove’s question. The important thing: The state doesn’t do anything like it when it analyzes tax proposals, nor does anyone else.

So here’s the rundown, with the Suffolk numbers included: SB 5166, sponsored by state Sen. Maralyn Chase, D-Shoreline, would impose a state income tax on all wage-earners, starting at 2.2 percent and rising to 6 percent above $120,000 of income. The state property tax would be eliminated, local levies would be reduced, and the state sales tax rate would be cut nearly in half. By 2015-17 it would raise about $6.6 billion every two years. The measure recognizes that sales taxes are no longer the most accurate measure of economic activity in the state, but rather personal income, she said.

For the lowest wage-earners, household taxes would be cut by about $300 a year, but millionaires would pay plenty more – about $50,000 on $1 million in income, said John Burbank of the Economic Opportunity Institute. And that’s as it should be. “Consider this $50,000,” he said. “If it remains with the millionaire, the likelihood is that it will be used for investments in Wall Street or travel to Paris, and that is good for the French economy, but it doesn’t do anything for our economy. Now consider the $300 gained by low-income families. That money will be spent right away in our Main Street economy. That is good for jobs in our state, it multiplies economic activity.”

Punch the numbers into the computer and you get a different conclusion. The state fiscal note projects that an income tax would raise $89.2 billion in new revenue over the next 10 years but reduce sales tax and property revenue by about $56.5 billion. The Suffolk University analysis takes it a step further and projects a loss of 67,810 jobs by 2016.

The Fatal Glass of Beer

Former Gov. Christine Gregoire’s final budget proposal came up with a novel way of raising a billion-or-so bucks every two years, and that idea is being presented in the form of Senate Bill 5039. Her plan would extend a pair of temporary tax surcharges from 2010 that are set to expire in June, on beer and professional services. Meanwhile, the state would begin phasing in a big new fuel tax. That is permitted by a state Supreme Court ruling last fall that allows the state to impose taxes for purposes other than highways, ending a 68-year protection. Eventually those temporary taxes would go away, the fuel tax would rise, and starting in 2017 Washington would have the equivalent of a new 12-cent-a-gallon gas tax.

Because the impact already was largely felt in 2010, the Suffolk University analysis calculates only 1,485 additional jobs lost by 2016. That doesn’t include the opportunity cost, however – the new gas tax is widely thought to preclude a transportation package for road construction, because voters would likely balk at two big gas-tax hikes. So jobs that might be created by road construction would go unrealized.

Gano, representing the Miller Brewing Co., found himself talking for once about the all-full glass. As he poured, he pointed out that the state’s beer tax in 2010 was $8.08 a barrel – the equivalent of two kegs. That’s about one-fifth of the glass. Then the state’s temporary surcharge brought it to $23.58. He kept pouring. Then federal taxes add $18. So that brought total tax to $41 a barrel – a glass overfilling with foam. “That was a terrible pour,” he said. “I would have been fired as a bartender.”

But he said the upshot was that brewers lost 18 percent of their sales when the price went up. Craig Stein, CEO of C. Stein Beverage Group in Vancouver, said his company lost $9 million in sales and wound up cutting 23 employees. Oregon’s tax is $2.60 a barrel; Idaho is $4.65 – he said it’s tough to compete.

And then there’s the temporary-is-temporary argument. The surcharge on professional-service tax rates was particularly troublesome because it hit some of the professions hit hardest in the recession, among them architects and real estate agents. “You know, three years ago we were promised, look we just need three years to get our house in order,” said Stan Bowman of the American Institute of Architects. “We understood it. We didn’t like it. We kind of sucked it up and we went with it, and three years later we’re being told, we just need two more years or four more years.”

Going Nowhere Fast

Other bills heard last week included SB 5248, which would impose a 2-cent tax on each plastic bag given out by retailers, so as to discourage their use; SB 5041, an omnibus bill closing a handful of relatively small tax exemptions; and SB 5042, which would end a B&O tax deduction when a company has more than $1 million income from investments or interest on loans to a subsidiary.

And this is probably the last they’ll be heard from – especially the two biggies. Members of the majority coalition caucus, in their press releases, delightedly pointed to their generosity in allowing the bills to be heard, then promptly announced it’s the end of them and good riddance. Why allow a hearing on bills that run counter to everything they believe in? Explained Sen. John Braun, R-Centralia, “We refuse to act like the bullies of the past, which means we will allow hearings on minority bills and welcome open dialogue on all issues of importance.”

And in his own statement, Senate Majority Leader Rodney Tom, D-Medina, said it just goes to show that some of his fellow Democrats are out of touch. He noted that last year’s I-1185 passed with 64 percent of the vote. “And now they propose new income taxes? How tone-deaf can you be? The people of this state will be shocked when they realize just how eager some legislators are to shut out their voices and reach into their pockets.”