OLYMPIA [Bill Lucia] — A day after the Washington state Senate approved an income tax on millionaire earners, Gov. Bob Ferguson said he’s still not satisfied with the bill.
He’s previously preached the need to pump a significant portion of the proceeds toward tax relief. On Tuesday, he said lawmakers hadn’t gone far enough and offered his blueprint for using income tax revenue to dial back taxes for lower-income families and small businesses.
“This bill must be laser-focused on making life more affordable for Washingtonians and continuing to improve areas like K through 12 education,” the first-term Democrat said during a press conference Tuesday. “We are not there yet, and we are still not close to being there.”
In addition to a 9.9% tax on adjusted gross household income above $1 million a year, the bill includes provisions to devote a sizable chunk of the resulting revenue to tax relief. It does not have a mechanism to lock in money for public schools, and Ferguson did not propose one.
Two Democratic senators who played key roles in pushing the bill through that chamber voiced skepticism about the governor’s proposals.
The Senate approved the bill Monday on a 27-22 vote, with three Democrats peeling off to side with Republicans in opposition. Assuming the House revises the bill, it would go back to the Senate for an up or down vote on the changes.
Meanwhile, a top House lawmaker on tax issues hinted at frustration over how the governor has been sharing his priorities for the bill.
“It’s unfortunate that he’d rather speak to us from a microphone, not a telephone,” Rep. April Berg, D-Mill Creek, who chairs the House Finance Committee, said as she stepped off the House floor en route to a Democratic caucus meeting.
She declined to get into specifics of what the governor outlined during his press conference. “We have three weeks left. I need to get back to work,” she said.
The session is scheduled to end on March 12. Pressure was palpable on Tuesday afternoon as lawmakers scrambled to approve bills ahead of a 5 p.m. procedural deadline.
House Majority Leader Joe Fitzgibbon, D-West Seattle, lead sponsor of the income tax bill in the chamber, declined to comment on Ferguson’s proposals, saying it wasn’t a good time.
Ferguson’s wish list
In the bill, the first $300,000 of gross receipts would be exempt from the state’s main business tax. Ferguson reiterated Tuesday he wants $1 billion in small business tax relief and said he wants the tax effectively wiped out for the first $2.5 million of businesses’ total revenue.
The governor also wants to broaden eligibility for the working families tax credit and lift the value of the rebate by 30%. The tax credit goes to lower- and middle-income households and is currently between around $330 and $1,300 a year. About 350,000 families now qualify.
Ferguson said 460,000 additional households would be eligible for assistance under his plan.
As is, the bill would eliminate age restrictions on the program, opening it to people 18 and older, regardless of whether they have kids. Ferguson said this is a positive step, but emphasized he wants the program expanded further.
Sen. Noel Frame, D-Seattle, a lead lawmaker on tax policy, said erasing the age barrier aligns with recommendations from a coalition of advocates for the Working Families Tax Credit. Legislators have said this would cover about 120,000 more people.
“If he’s got additional ideas, that can certainly be a consideration and part of the conversation,” she said. “That’s for the House.”
In addition, Ferguson is proposing two sales tax holidays — one for two days and one for three. During these times, people would be able to purchase items that cost less than $1,000 without paying sales tax, he said.
He also wants to eliminate sales taxes for diapers and other baby products. The current bill exempts a range of personal hygiene goods, like shampoo and deodorant. Democratic senators on Tuesday rejected a Republican amendment to axe the sales tax on diapers.
Frame said she and others looked into the concept of a sales tax holiday during her time in the House, where she served until 2023.
“It was quickly shot down,” she said. “It’s really, actually quite difficult to administer.”
Ferguson also said he supported an amendment to the bill made on the Senate floor Monday that would roll back new sales taxes on services he signed into law last year.
And he said he backs a provision that would let a 0.5% tax surcharge on companies with more than $250 million in annual revenue expire after 2028 instead of Dec. 31, 2029. It’s expected that this move would reduce taxes for these companies — and collections for the state budget — by roughly $500 million.
Altogether, Ferguson said he’s proposing nearly $1.9 billion a year in tax relief using revenue from the income tax, which is expected to be in the ballpark of $3.5 billion annually.
Rep. Peter Abbarno, R-Centralia, told reporters Tuesday that the reason Democrats are looking for ways to offer tax relief is that their policies have made the state unaffordable.
“It’s really just tax shifting,” he said. “Taking money out of the pockets of working families and small business owners, and then creating a program for them to have their hand out.”
Every Republican in the state Senate voted against the tax. GOP lawmakers argue that the tax would violate the state constitution and would drive away small businesses and wealthy residents.
Lawmakers in both parties expect the tax will be challenged in court and go to the ballot for voters to decide if approved by the Legislature.
Seeking a balance
Senate Majority Leader Jamie Pedersen, D-Seattle, hopes to see 25-40% of revenue from the income tax go toward reductions in other taxes. Pedersen, the lead sponsor of the Senate version of the bill, said it includes tax relief in the 18-20% range, leaving the House room to make adjustments.
He described this as a happy medium where the state will be able to use the revenue to provide tax relief, while having enough left over for the state budget.
“If you get beyond that, then we have no breathing room,” he said Tuesday. “And if you get beyond that, then the budget’s out of balance again.”
During last year’s session, lawmakers resorted to both cuts and tax hikes to bridge a multibillion-dollar shortfall.
Pedersen said he’s not philosophically opposed to beefing up the small business tax credit or Working Families Tax Credit.
But assuming the tax generates about $3.5 billion a year, the amount of tax relief he described would top out around $1.4 billion a year, well short of the $1.9 billion Ferguson is seeking.
“I don’t think we can spend that much,” Pedersen said.
After last year’s tax increases, Pedersen’s view is that it is “politically untenable” for Democrats to adopt the income tax, and then come back in 2027 and say, “we have to raise taxes again.”
“I do not want to be in that position,” he said.
Ferguson acknowledged concerns about avoiding future budget problems, but he said, “What I’d say I worry most about is making life more affordable for more Washingtonians.”
“It’s a balance,” he added. “That’s why there’s a debate going on.”
SOURCE: This article was authored by Bill Lucia of the Washington State Standard part of States Newsroom, a nonprofit news network supported by grants and a coalition of donors as a 501c(3) public charity.
Author: Washington State Standard
