Legislators Face Big Challenge In Tax Changes

With healthy tax collections and a voter-imposed spending limit, the Legislature is about to embark on a third year of tax cuts, but lawmakers saved the hardest levy for last: property tax.

It’s one thing to give businesses tax cuts, such as the sales-tax exemptions granted over the past few years for, among other things, new and refurbished manufacturing equipment. Those cuts saved individual businesses, mostly big business, handsome sums.

But when the Legislature starts wrestling with reductions in property taxes, it runs into a major problem: Because the tax is so broad, it takes a big cut to make even a small dent in individual tax bills.

Last year’s proposed $92 million reduction in the state’s share of the property-tax levy, which failed in the Senate after passing the House, is a case in point. It would have been worth about $20 a year to the average homeowner.

Some House Republicans were privately relieved that the Democratically controlled Senate killed the proposal. GOP leaders worried that many taxpayers would have been insulted rather than pleased.

So Republicans, who now control both legislative houses for the first time in 15 years, are about to try a new approach.

Instead of cutting existing property taxes, they say, why not try to craft legislation to slow property-tax increases in the future? Leaders of both houses envision legislation that would hold down increases by tying them to the rate of inflation, personal income growth, population growth or a combination of those factors.

“If you look at what’s happened with property taxes in recent years, you can see that they’re way out of control,” said Senate Majority Leader-elect Dan McDonald, R-Bellevue.

“What I want to see is a situation where people aren’t looking at property taxes growing faster than their paychecks.” McDonald said.

His House counterpart, Speaker Clyde Ballard, R-East Wenatchee, agrees.

“We need a lid on the tax,” he said.

McDonald said legislation to accomplish that - details of which remain to be worked out - would apply not just to the state’s 25 percent share of property taxes, but to the shares that go to public education and local governments.

Gov.-elect Gary Locke, a Democrat, is taking no position just yet on the proposal, spokesman Bruce Botka said.

“But one thing I can say is that Gary is going to be taking a very close look at the long-term implication of any tax-cut proposal - for instance its possible effect on things like education,” Botka said.

Locke and the Republicans do agree on another tax-cut proposal for the 1997 session, which starts Jan. 15.

Both sides back a $205 million reduction in the state’s business and occupation tax, a levy applied against a company’s gross.

The cut would amount to half of the business-tax increase approved by former lawmaker Locke and other Democrats in 1993. The 1996 Legislature rolled back one half of those increases, and both Locke and the Republicans say it’s time to eliminate the other half.

The taxes were raised during a financial crisis, Locke says.

Now, surplus revenue is approaching $1 billion because spending-limit Initiative 601 doesn’t allow its expenditure and the state can afford to give back the money, he said.

Locke also supports targeted B&O tax breaks for businesses that provide “family-friendly benefits,” such as health insurance, day care and worker training. And he supports expanding property-tax breaks for senior citizens. He does not put a price on these two proposals.

Whatever taxpayers get in the way of tax relief, they’re unlikely to see any tax increases next year.

McDonald and Ballard snickered at lame-duck Gov. Mike Lowry’s proposal for higher cigarette taxes to help subsidize health insurance for more of the state’s working poor people.

Washington’s 82-cent-per-pack cigarette tax “is by far the highest in the nation,” Ballard said.

“That’s high enough.”