House and Senate Democratic budget leaders released an updated legislative package to raise new progressive revenue and fund K-12 education and essential state services this week. It would raise nearly $12 billion over four years.

“We’ve updated our proposal to reflect the feedback we received from our colleagues and the public,” said Sen. Noel Frame (D-Seattle), vice chair for finance of the Senate Ways & Means Committee. “This progressive revenue proposal raises taxes on some of the biggest, most profitable corporations worldwide and the wealthiest few individuals, directing funding to public schools, community safety, and the essential services people count on from their government. These proposals are a key step in modernizing our nearly 100-year-old tax code to meet the economy and needs of the 21st century.”

“The gaps between working families and the gains by the wealthiest in our state have resulted in not enough funding for our schools, a safety net that is at risk every time revenue collection drops or costs go up, and working Washingtonians struggling to make ends meet,” said Rep. April Berg (D-Mill Creek), Chair of the House Finance Committee. “This revenue package finds a balance to meet our short-term need of addressing the budget shortfall and protecting the critical services on which our communities rely, as well as our long-term goal of reforming our outdated, unfair tax code.”

B&O Tax & Big Businesses

House Bill 2081 and Senate Bill 5815 include several changes to our Business & Occupation (B&O) tax to make it more progressive and ensure some of the world’s largest corporations pay what they owe. The bill raises the base rate for wholesaling and manufacturing from 0.484% to 0.5% and for retailing from 0.471% to 0.5% —rates which haven’t been updated since 1993. It also increases the base rate on services over $1 million from 1.75% to 2.1%, raising additional revenue from those larger businesses which typically have higher profit margins than manufacturers, wholesalers, and retailers.

The bill raises surcharges on big banks (from 1.2% to 1.5%) and advance computer services (from 1.22% to 5%, increasing the cap from $9 to $50 million) and adds a new, temporary 0.5% surcharge on businesses earning more than $250 million annually — generating progressive revenue from some of the world’s largest, most profitable corporations, many of which are poised to receive a windfall due to the ongoing debate on the extension of the Trump Administration’s 2017 Tax Cuts & Jobs Act.

HB 2081 is scheduled to be heard in the House Finance Committee Friday, April 18 and SB 5815 is scheduled to be heard in the Senate Ways & Means Committee Wednesday, April 16.

Making the Capital Gains Tax and Estate Tax More Progressive

SB 5813 and HB 2082 would make our capital gains and estate taxes more progressive with higher rates on the very wealthiest Washingtonians. On the capital gains tax, a tiered structure would be created with an additional 2.9% surcharge on profits from the sale of stocks, bonds, and other financial assets above $1 million per year. For the estate tax, it would exclude smaller estates up to $3 million in value – indexed to inflation (CPI) moving forward – and create a more progressive structure with higher rates on larger estates – up to 35%. The revenue would be dedicated to K-12 schools, early learning, childcare, and higher education through the Education Legacy Trust Account.

SB 5813 is scheduled to be heard in the Senate Ways & Means Committee Wednesday, April 16.

Closing Ineffective & Obsolete Tax Exemptions

The proposal amends SB 5794, which repeals tax exemptions where the public policy objective was not met, is unclear whether the policy objective was met, or the exemption is legally obsolete, according to nonpartisan auditors at the Joint Legislative Audit & Review Committee. It also adds public policy objectives to several exemptions that currently lack them to help guide future reviews and evaluations of tax exemption performance and repeals unused tax preferences.

SB 5794 is scheduled for amendment to narrow the previously proposed list of exemptions and executive session in the Senate Ways & Means Committee Friday, April 18.

Property Tax Reform

The proposal includes the previously introduced SB 5798 and a new bill, SB 5812, companion  to HB 2049, which together would raise the property tax growth limit for the state’s common schools levy, as well as for cities, counties, and special purpose districts, from the current 1% cap to the combined rate of population growth plus inflation, up to a maximum of 3% — similar to the original House plan. The bill would also change local school levy authority and the state’s Local Effort Assistance funding.

SB 5798 is expected to be amended and narrowed to be a tax reduction focused on expanding the “Property Tax Exemption for Senior Citizens and People with Disabilities” program by fully exempting its participants from paying the state property tax, reducing costs for some of our most vulnerable residents, and expanding eligibility to those earning up to 80% of a county’s median income (CMI) for the exemption, and up to 90% of CMI for the deferral program.

HB 2049 is scheduled for executive session in the House Finance Committee Friday, April 18, and SB 5798 is scheduled for executive session in the Senate Ways & Means Committee that same day.

Sales Tax Modernization and More

The proposal also includes SB 5814 and HB 2083, legislation to update the state sales tax code to reflect elements of Washington’s modern economy. The bill applies sales tax to computer related business activities, including custom software development, custom web design, and IT training, technical assistance, and consulting. It also repeals the sales tax exemption for digital automated services, including advertising, and extends sales tax to temporary staffing services and investigative and security services. It also institutes a tobacco tax on Zyn packs.

SB 5814 is scheduled to be heard in the Senate Ways & Means Committee Wednesday, April 16.

The revenue package and the underlying budget must pass the Legislature before session’s end on April 27.