Lawmakers in the third week of state budget negotiations are no closer than the day they started to deciding how deeply to cut taxes.
The state expects to have a budget surplus of more than $400 million this year, and will likely take in more than it can legally spend over the next biennium.
That’s because Initiative 601, the tax and spending limitation measure voters approved in 1993, goes into effect July 1.
So lawmakers are cooking up a tax cut, but can’t agree on the ingredients or the portions.
The House is pushing a slew of tax cuts worth more than $700 million. The Senate wants to give back less than half as much, and spend most of the difference on K-12 and higher education.
The two bodies want to spend about the same amount on tax cuts for individuals, but the House would outspend the Senate about 3-1 on tax breaks for business.
The Senate’s tax cut package includes elimination of the sales tax on over-the-counter medication. That would put about $35 a year into the pockets of a typical family of four.
The Senate also backs an exemption for businesses from the sales tax paid on the purchase and installation of new and replacement equipment.
Gov. Mike Lowry already has signed into law a $227 million cut in unemployment taxes paid by businesses.
But the House is far more generous with tax cuts - too generous for either Lowry or the Senate.
The House’s proposed 10 percent reduction in the state share of property taxes is just a headline-grabbing gimmick, Lowry argues.
The property tax cut would amount to only about $38 per household, yet cost the state $184 million.
If the Senate won’t cut the state share of the property tax, the House has another alternative, said Rep. Todd Mielke, R-Spokane: a California-style cap on the increase of assessed valuation.
That would help stave off ever-escalating property taxes that price some people right out of their homes, Mielke said.
The House also wants to roll back the state business and occupation tax to its 1992 level - in effect adopting a tax rollback initiative voters turned down in 1993.
“Voters already answered the rollback question when they rejected Initiative 602,” Lowry said.
House proponents of the rollback said business tax hikes adopted in 1993 to balance the budget ought to be reversed now that the budget crisis is past.
The House also wants to cut spending about $600 million more than the Senate, which allows deeper tax cuts, House members said.
“When you spend less, you can tax less,” said Rep. Brian Thomas, R-Renton, chairman of the House Finance Committee.
Despite opposition from Lowry and the Senate, Mielke said the House won’t let go of the three key parts of its tax cut plan: the business and occupation tax cut, the property tax cut and a cut in the sales tax to spur investment.
“We are very serious about this,” agreed House Speaker Clyde Ballard, R-East Wenatchee.
The Senate dismisses the House plan as unaffordable and irresponsible. “Higher education and K-12 are 60 percent of the budget, and tax reductions at this level would require cuts in education we are not willing to make,” said Senate Majority Leader Marcus Gaspard, D-Tacoma.
Sen. Nita Rinehart, D-Seattle, chairwoman of the Senate Ways and Means Committee, said it isn’t good enough for the House to just insist on getting everything it wants.
“They can’t just keep lobbing giant snowballs over here,” Rinehart said. “At some point maturity must prevail.”
More than a dozen House GOP members warn they are willing to let state government run out of money by July 1 rather than spend more and cut less. “They have themselves in a bind over there,” Gaspard said of the House. “It doesn’t work anymore to say they are running against government. They are government, and they have to make it work.”
xxxx DUELING TAX CUTS Here are some of the proposals in the two 1995-97 tax-cut packages under consideration in Olympia. The House’s $738 million tax cut would: Roll back all business and occupation taxes to 1992 levels. Cost is $296 million. Exempt manufacturers and processors from sales tax on new plant and equipment, and make technologies eligible for research and development tax cut. Cost is $186 million. Funnel .3 percent of state sales tax to retailers as an incentive to collect sales taxes. Cost is $25 million. Let insurance companies write off losses at public expense. Cost is $13 million. Cut by 50 percent the business and occupation tax rate for insurance companies, and allow them to deduct cost of commissions to agents before figuring tax bill. Cost is $13 million. Cut state share of property tax levy by 10 percent beginning in 1996. Cost is $184 million.
The Senate’s $264 million tax cut includes: Sales tax exemption for manufacturers on new plants and equipment. Cost is $146.7 million. Sales tax exemption for over-thecounter medical products, including drugs. Cost is $105 million.Reduce business and occupation tax for international investment companies. Cost is $3.4 million.