WA Democrats introduce new tax proposals as clock ticks

OLYMPIA – Democratic lawmakers are back from the drawing board with a new plan to raise taxes after heeding Gov. Bob Ferguson’s warning that he would not sign a budget with a broad, untested wealth tax.

A new tax on the state’s wealthiest residents was a key part of House and Senate lawmakers’ plan to shore up part of a $16 billion shortfall in the budget over the next four years.

That pitch is now nixed, scrapped along with Democrats’ earlier proposals to drain the state’s rainy day fund and a payroll tax on high wages at large companies, like Microsoft and Amazon, similar to Seattle’s JumpStart tax.

New on the menu: hikes in capital gains and business taxes; new sales taxes on services; expanded tax on nicotine products; an increase in surcharges for some companies; and a one-time prepayment of sales tax for some big businesses.

With less than two weeks to go before the Legislature is scheduled to adjourn April 27, the latest Senate proposals are moving quickly – a public hearing in the Ways and Means Committee was held at 5:30 p.m. Wednesday, with an executive session scheduled for the proposals Friday.

The road to balancing the deficit, even for the 2025-27 biennium, has not been an easy one.

Republicans have been against the revenue proposals from the get-go, criticizing them for raising taxes during such times of uncertainty. While Ferguson criticized the wealth tax presented by lawmakers, many Washington progressives have thrown their weight behind supporting a broad tax on the state’s wealthiest individuals.

On April 9, state employees backed by Washington’s largest union marched into the Capitol to call on Ferguson to support the wealth tax with their shouts echoing throughout the rotunda. In addition to denouncing support for a large wealth tax, Ferguson has also proposed furlough days for state employees once a month for two years even after workers negotiated a 5% pay raise over the next two years.

Ferguson has not weighed in on whether he would support the new plan for tax increases.

Here are some of the new revenue proposals Democrats are considering:

Capital gains and estate taxes

Senate Bill 5813 would adjust the rate structure for the capital gains tax and estate tax. The measure would apply an additional 2.9% percent excise tax on an individual’s state capital gains over $1 million. Currently, the state levies a 7% tax on gains over $270,000, which is adjusted annually for inflation. The measure would also increase tax rates on taxable estates of those who died after Jan. 1, and would increase the estate exclusion amount from $2.1 million to $3 million. Funding from the revenue would go into the state’s Education Legacy Trust Account. A similar proposal was introduced in the House, but has not been scheduled for a public hearing.

Business and occupation surcharges

Senate Bill 5815 proposes increases on business and occupation (B&O) tax rates for certain activities such as manufacturing, retail, child care and gambling. The proposal also creates an additional 0.5% B&O surcharge on taxpayers with taxable state income over $250 million, and increases the tax rate for several existing B&O surcharges. The proposal would fund public schools, higher education, health care and social services. A similar version of the bill is set for a public hearing in the House on Friday.

Property tax

Senate Bill 5812 allows for an adjustment from the 1% cap on state and local property taxes to a combined rate of inflation and population growth, not to exceed 3%. The proposal is similar to one introduced last month by House lawmakers, and would fund K-12 education, including special education. The House version of the bill is scheduled for an executive session Friday.

Sales tax on services, nicotine

Senate Bill 5814 would extend retail sales and use tax to services such as information technology consulting services, temporary staffing services and advertising services. The bill would also expand the definition of nicotine products to include products that contain nicotine, regardless if they are synthetic or derived from tobacco, and subject those products to a tobacco products tax. The proposal calls for a one-time prepayment of state sales tax collections for businesses with $3 million or more in taxable retail sales in 2026. The measure would fund public schools, health care, social services and other programs.