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Spokane, Washington  Est. May 19, 1883

Inslee finally gets what he wants: Legislature passed tax on capital gains and bill to fight climate change

Gov. Jay Inslee gives a news conference last month after signing more than 20 bills into law. The 2021 Legislature passed a Democratic-backed law that institutes a capital gains tax in Washington, a law that immediately headed to the courts for review.  (TVW)

OLYMPIA – After campaigning on carbon restrictions and pushing for a capital gains tax for two terms, Gov. Jay Inslee scored big wins in the Legislature this year.

Aside from addressing COVID-19 recovery and response, the Democratic-led Legislature passed many long-awaited, consequential proposals. Pushed by Inslee, Democrats made last-minute deals on climate change, capital gains, police accountability and drug possession.

Inslee told reporters Monday he had “never seen a legislative session that was so productive.”

“Their efforts were so broad in the number of things that they worked on in such difficult circumstances in the middle of the pandemic,” he said.

Since taking office eight years ago, Inslee has pushed for passage of proposals that would lower the state’s carbon emissions and help fight a changing climate. His unsuccessful presidential campaign was dedicated to raising awareness on climate change, but until this year, no major policy changes on the issue had passed the Legislature.

In 2012, Inslee campaigned for a low carbon fuel standard, which he said would encourage the use of fuels that have less effect on the climate. In 2014, Inslee laid out plans to cut carbon emissions by implementing a “cap-and-trade” proposal that would collect a carbon tax on industries that pollute.

The proposals have been complicated and controversial, with opponents saying they would increase fuel prices and the general cost of living for residents. Some also worried that businesses targeted by pollution caps would leave the state.

But something changed this year. In the final days before the voting deadline, lawmakers reached deals on both climate bills.

Washington joins California, Oregon and British Columbia in adopting a clean-fuels standard, similar to what Inslee has introduced.

Beginning in 2023, fuel companies in Washington must start reducing emissions a little bit each year in order to hit a statewide goal of emissions 20% below 2017 levels by 2038. Fuel companies can either clean up their fuels by producing biofuels or mixed fuels. If they can’t, they would be required to purchase “credits” to make up for emissions that go above the allowed amount.

The cap-and-trade program that passed this year would set a cap on emissions that large polluters in the state would have to meet by 2023. If they can’t meet the cap, they could either clean up their work or purchase allowances from the state. The state would receive the revenue generated from those allowances, which it would use to invest in programs that help the environment and communities disproportionately affected by climate change, such as people of color and low-income earners.

Both the clean-fuels standard and the cap-and-trade program that passed over the weekend come with a tie to a 5-cent gas tax increase, meaning neither would go into effect until lawmakers pass a new transportation revenue package.

Inslee said Monday he did not agree with the provisions tying the climate policies to the gas tax increase, but he would not say whether he would be vetoing those lines.

He said he is committed to getting a new transportation package moving, although he did not say for certain whether he would call legislators back into special session.

In a Sunday news conference, Democrats attributed their success this session on so many issues to a variety of reasons. House Speaker Laurie Jinkins said House members were told early in session to limit the number of bills they introduced.

Members really wanted to prioritize consequential bills and move through the session with “real urgency,” she said. “The pandemic pressed us to do bigger things.”

Senate Majority Leader Andy Billig, D-Spokane, said lawmakers worked more during the interim this year than in previous years. The pandemic exposed many institutional problems, which built public and legislative momentum to push a lot of bills through.

Sen. Joe Nguyen, D- Seattle, attributed the success to the Legislature being the most diverse it’s ever been with more members of color, women and LGBTQ members than before.

The party breakdown in the chambers did not change this year, but some long-term moderate Democrats were replaced with more progressive ones after last November’s election.

Another example of where lawmakers were able to reach a deal after years of trying: the capital gains tax.

Democrats have pushed for the policy for years as a way to fix what they say is a regressive tax code in which low-income earners pay proportionately more in taxes than those whose income is higher. In 2014, Inslee introduced a capital gains tax into his budget.

As in other years, Inslee had proposed a capital gains tax in his budget plans in December. His version though looked a little different than the one that eventually passed. It would have implemented a 9% tax on annual investment earnings of $50,000 for a married couple.

The final proposal approved by the Legislature implements a 7% tax on capital gains, including from the sale of stocks, bonds, businesses and other assets, if the profits exceed $250,000.

Lawmakers could never get enough support through both chambers to get Inslee’s initial proposal through, as they faced stiff opposition from Republicans and some moderate Democrats who called it an unconstitutional income tax.

The measure that passed will be signed by Inslee, but will likely face a court challenge.

Inslee’s initial plan would have brought in more money for the state than the plan that passed Sunday, which brings in about $415 million in tax revenue.

Inslee acknowledged Monday the capital gains tax rate in the final measure will be lower than those in other states, but said he did not have plans to push for expansion of the bill passed on Sunday. Instead, he said he wanted to first “celebrate the success” of a proposal he’s worked on for years.

“This will bring a good portion of fairness to our tax system,” he said.

Along with Inslee’s requests, legislators tackled other consequential issues, passing significant reforms in many categories. Here are some other notable policy changes made this session:

Police accountability

Lawmakers passed almost a dozen police accountability measures, a package that came together almost a year ago after the death of George Floyd in Minneapolis.

Bills include creating a statewide database of use-of-force incidents, requiring officers to intervene when they see another officer use excessive force and easing requirements to decertify officers.

Two others, which received some of the most debate, address police tactics and the standard needed to use force. The police tactics bill prohibits the use of choke holds and neck restraints and limits the use of tear gas, police dogs and vehicle pursuits. It also bans law enforcement agencies from acquiring military equipment.

Lawmakers then changed the policy for when force is allowed. A previous statute allowed for “any means necessary” during an arrest. A bill that passed last week requires officers to prioritize de-escalation before employing force.

Drug possession

Drug possession will now be treated as a misdemeanor in Washington, punishable by up to 90 days in jail, a $1,000 fine or both.

Prior to February, possession was a felony. But a state Supreme Court decision ruled Washington’s drug possession law unconstitutional. Lawmakers began scrambling for a fix. Some wanted to see decriminalization of drug possession and a focus on treatment while others wanted to see at least some criminal penalty.

The compromise: making possession of a controlled substance a misdemeanor, at least for the next two years. In 2023, the criminal penalty will expire, meaning no more arrests for drug possession, unless legislators pass any further laws.

The final bill also focuses heavily on treatment for substance abuse disorder. Those possessing drugs will be diverted to treatment on their first two offenses. Their third offense would be a misdemeanor. It also increases funding for behavioral health services to increase community treatment and outreach programs for addiction.

Open carry at demonstrations

Openly carrying firearms at the Capitol campus and at public demonstrations would be illegal, if Inslee gives his final signature.

The proposal came after a year of large armed protests at the Capitol. In January, protesters breached the governor’s mansion gate. Last summer, two protests ended with shots fired.

The bill would ban open carry within 250 feet of publicly permitted demonstrations and on the state Capitol campus. People openly carrying a firearm on their private property are exempt, if a protest is occurring outside their home or business. Law enforcement officers are also exempt.

Forest health

After years of fighting for more stable funding for wildfire fighting and forest health, Commissioner for Public Lands Hilary Franz garnered support this session for a bill to give substantial funding every two years toward the wildfire effort.

The bill passed unanimously and would set aside $125 million every two years for wildfire response, forest restoration and community resilience.

For wildfire response, it would allow the state to hire 100 more firefighters and expand the air fleet. The bill would also help fund the Department of Natural Resource’s 20-year Forest Health Strategic Plan, which treats the state’s forests to make them more wildfire resistant. Lastly, it would help communities across the state make investments at a local level to reduce wildfire risk, such as building fuel breaks or doing prescribed burns.

COVID-19 economic recovery

With the infusion of billions of federal stimulus dollars, state lawmakers turned their focus to helping the state recover from the COVID-19 pandemic.

At the start of the session, lawmakers allocated $2.2 billion for rental assistance, school assistance, public health, food assistance and child care grants.

When Congress passed an additional $1.9 trillion federal stimulus package, lawmakers used about $10 billion of the state’s share of funds in their budget for one-time costs related to the pandemic. The final budget allocated funds for vaccine distribution, school reopening and rental assistance.

A portion of the federal funds will assist child care providers across the state. As part of a broad package to address child care shortages statewide, lawmakers expanded eligibility and decreased co-pays for subsidy grants and increased the subsidy rate, supports and grants for providers. In the short-term, federal funds will pay for those expansions. In the long-term, funds would come from revenue generated by the capital gains tax.

Lawmakers also funded the Working Families Tax Credit, which provides between a rebate of $300 to $1,200 for low-income families, depending on how many children they have.

Laurel Demkovich's reporting for The Spokesman-Review is funded in part by Report for America and by members of the Spokane community. This story can be republished by other organizations for free under a Creative Commons license. For more information on this, please contact our newspaper’s managing editor.