OLYMPIA – Last week, Rep. Noel Frame, D-Seattle, introduced legislation that would provide a pathway to modernize and rebalance the Washington state tax structure so that it is equitable, adequate, stable, and transparent. House Bill 2117, co-sponsored by a majority of the House Finance Committee and House Majority Leader Pat Sullivan, reauthorizes and expands the bipartisan Tax Structure Work Group.
“We must be thoughtful and collaborative as we consider changes to our tax code that fits the 21st century Washington economy,” said Rep. Gael Tarleton, D-Seattle, Chair of the House Finance Committee. “Our state tax base has eroded as our economy has shifted from a goods-based to a service-based economy, while at the same time we’ve welcomed 1.2 million new people into the state in the past 15 years. It is more than time to finally modernize our state’s tax code.”
Washington state’s current tax structure relies primarily on sales tax, property tax, and other excise taxes. Those taxes affect households at the lowest end of the income spectrum, which pay seven times more of their income to taxes compared to the wealthiest households in the state. New businesses, small businesses, and low-margin businesses with high capital costs are also penalized by the current tax structure, as the business and occupation tax (B&O) is assessed on gross receipts, not net, and does not allow a deduction for the cost of doing business.
Over time, taxpayers and businesses have sought relief, resulting in approximately 700 tax preferences, including exemptions, deductions, deferrals, credits, exclusions, and preferential tax rates. According to a 2016 tax exemption study by the Department of Revenue, the state foregoes over $50 billion in revenue per biennium because of these tax preferences. In other words, the state forgoes more revenue than it collects each two-year budget cycle.
“Tax preferences have only made our tax code more regressive and has created ‘winners’ and ‘losers’ within the code,” said Frame. “Powerful special interests are who benefit from the status quo because they have the resources to hire a lobbyist. Taxpayers who don’t receive these preferences are tired of shouldering a disproportionate share of taxes. It’s time for a holistic review of our tax code so we’re fighting for all taxpayers, not just those who can afford to advocate for preferential treatment.”
In 2018, the Tax Structure Work Group began facilitating public discussions to garner feedback about the state’s current tax structure and how it affects small business owners, workers, and families. Legislators, including Frame, traveled across the state to hear directly from taxpayers.
House Bill 2117 builds on the success of that outreach by reauthorizing the Tax Structure Work Group. In addition, the bill expands the workgroup and allows for the assistance of technical advisory groups, which would include policy area experts, tax preparation professionals, and academic scholars. The bill also outlines deadlines to engage the public, provide feedback to the Legislature, and formulate policy proposals to modernize and rebalance the state tax code.
The following activities must be complete by the stated deadline:
- July 1, 2020 – Submit a preliminary report on the current tax structure and possible alternatives.
- December 31, 2020 – Review the findings on the current tax structure and possible alternatives with stakeholders and submit a finalized report, as well as plan strategies to engage taxpayers.
- December 31, 2021 – Hold public meetings in geographically dispersed areas of the state and collect taxpayer feedback.
- December 31, 2022 – Finalize policy recommendations and develop legislation informed by taxpayer feedback to be brought forward in the 2023 session.
- December 31, 2023 – Hold additional public meetings to collect feedback (if legislation is not adopted during the 2023 session) and modify the proposed legislation to be brought forward in the 2024 session.
- December 31, 2024 – Submit a final, compiled report.
House Bill 2117 is scheduled for a public hearing on Tuesday, February 26 and for executive action on Wednesday, February 27 in the House Finance Committee.
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