Gregoire lays out tax plan

OLYMPIA – Washington should tax candy, bottled water and soda, and raise taxes on toxic substances like petroleum as part of a “balanced approach” to the worst economic times in more than 70 years, Gov. Chris Gregoire said Wednesday.

She urged the Legislature to fill a $2.8 billion hole in the state budget by making about $1 billion in cuts to programs, services and employee costs; raise about $605 million in taxes; expect increases in federal funds for medical programs; and use about $677 million in budget reserves or fund transfers.

Last December, Gregoire proposed an “all-cuts” budget that sliced deeply into health, social services and education programs but has since said she’d like to restore some of those cuts with new taxes. Wednesday she listed her preferences for getting that extra money:

•Extend the sales tax to candy and gum;

•Place an excise tax of 1 cent per ounce on bottled water;

•Place an excise tax on soda that amounts to a nickel for a 12-ounce can;

•Raise the tax on cigarettes by $1 a pack, to $3.025;

•Increase the hazardous substance tax from 0.7 percent to 2 percent, which amounts to an increase of 3 cents to 5 cents per gallon depending on who’s making the estimate, and put the lion’s share of it in the General Fund for the next biennium;

•Eliminate business and occupation tax exemptions for sales of gold bullion and syrup used in carbonated beverages, and require corporate directors to pay taxes on the fees they receive for their services.

The proposal does not have a general increase in either the sales or B&O tax. Some legislators have proposed a temporary increase in the sales tax of up to 1 percent, tied either to a time limit or a sign that the economy was improving.

Gregoire said she and her fiscal advisers rejected a sales tax increase as regressive and harmful to the recovery. She adds or raises taxes on items she contends are discretionary: “I don’t think the economic recovery of the state of Washington relies on cigarettes, candy, gum and bottled water.”

Gasoline isn’t discretionary for people trying to get to work, Senate Minority Leader Mike Hewitt, R-Walla Walla, said of the tax on toxic substances: “Now is not the time to be raising taxes on our residents and businesses.”

Gregoire argued that oil companies, which are making large profits, might not pass that tax to consumers because gas prices are so volatile.

A House committee hearing Wednesday on a tax increase on toxic substances similar to what Gregoire proposed drew overflow crowds. Refineries warned it could cost jobs, and farm lobbyists said it would raise their costs, but environmentalists and local government officials, including Spokane Mayor Mary Verner, spoke in favor of the tax to help with stormwater and river cleanup projects.

All the money should go to toxic clean-up, Verner said later, but she understands the state budget is hurting and needs some of that money for the next three years. Asked if she’s concerned the state will re-fuse to shift all the money back to toxic cleanup, she replied: “I’m always concerned about that.”

Sen. Rodney Tom, D-Bellevue, said Senate Democrats will release a budget early next week and currently are split between a menu of tax increases, as Gregoire wants, and a general sales tax increase. Republicans in both houses have said that except for changes to state law to correct the tax the Supreme Court lifted from out-of-state wholesalers, they oppose tax increases.