Capital gains tax dies in Olympia, B&O increases passed

The Washington State Legislature ended its 105-day session on Sunday, passing a $52.4 billion budget, with $800 million coming from a handful of new taxes.

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Those taxes — spread across multiple bills — will fund things like special education, mental health, and more. Not included in the state’s budget was a previously-proposed — and controversial — capital gains tax.

The tax measures that did get passed include a raise on the business and occupation tax on larger banks, and a change to the state’s real estate excise tax.

With the passage of one bill, the B&O tax on 22 of the world’s largest financial institutions is nearly doubled. That caused controversy on both sides of the aisle, largely because the idea — and the bill — didn’t surface until Friday morning.

That led to significant pushback from Republicans and a handful of Democrats, including Democratic Sen. Steve Hobbs.

“To bypass a policy committee, you don’t do that,” he said. “It’s just not right.”

But fellow Democratic Sen. Christine Rolfes — who chairs the budget committee — made it clear that this was about leveling the playing field.

“Just six of these banks generated more than $120 billion in profit [last year],” she said. “Washington’s tax structure is literally the most unfair in the nation. This is a small increase on the world’s most profitable companies, and it will help fix our broken system.”

That bill squeaked by on just a single vote.

Another tax bill hikes the B&O tax on companies like Amazon and Microsoft to create a dedicated higher education fund. That fund would make public college or apprenticeships free for families making under $50,000 a year, with partial scholarships for families earning up to the state’s median income.

“This is a huge investment in making college and apprenticeship affordable,” said Democratic Rep. Drew Hansen.

Essentially, it’s a targeted tax increase on the industries that need these types of skilled workers most, with big tech companies like Amazon and Microsoft paying the highest rates.

Pushback on this measure came from small businesses, independent doctors, and others who said this would hurt their bottom line.

Rep. Hansen noted, though, that the most sizable increases will strictly be for larger businesses like Amazon and Microsoft.

A fix for the McCleary fix

School districts pleaded for it, and the Legislature listened, approving a plan that allows districts to ask local voters for more tax dollars to supplement their budgets.

A property tax levy cap came with the McCleary fix, leaving most districts in the state struggling, and forced to plan for sizable layoffs.

A deal passed by the Legislature Sunday night softens those limits, and includes more oversight to ensure that levy money is spent on enhancement programs, not just basic education.

Sen. Rolfes called the measure a win.

“We’re building a really solid foundation for the young people of our state,” she said.

Republicans like Sen. John Braun disagreed, arguing that it rolls back many of the key protections originally included in the McCleary fix.

“This is very clearly going to lead to tax inequity, funding inequity, and I think that will all lead to education inequity,” said Sen. Braun.

Democrats stressed that the plan includes state money to help property-poor districts, that can’t raise as much in levy dollars to keep things balanced.

Ultimately, the bill had the support of the state schools superintendent, Chris Reydal.

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