Inslee’s tax increases really are massive

Three topline reactions to Gov. Jay Inslee’s massive tax increase proposal:

  1. The actual tax hike is much larger than what’s being presented. Most of the news coverage presented it as a $4.4 billion tax increase. Since not all of the tax increases would be phased in immediately, that $4.4 billion increase would apply to the first two-year budget cycle only. When the increases are fully implemented, it’s an over $8 billion tax hike.
  2. How come Inslee didn’t campaign on his tax plan? Despite just completing a high-profile reelection campaign, Inslee didn’t take advantage of all the attention on the campaign trail to tout his belief in the need for huge tax increases. Hmm, wonder why…
  3. Clearly Inslee must not intend to run again in 2020. He has so clearly violated his numerous promises and denials about tax increases with this proposal. Winning re-election must be freeing: He doesn’t feel constrained by prior promises to the voters.

Let’s take a look at the specific taxes Inslee wants to raise. These are all proposals we’ve seen before. The whole budget plan is a very familiar retread; it’s just the whopping size of the increase that’s unprecedented.

  1. Carbon tax – Voters rejected a similar tax proposal, I-732, just 36 days ago with a 59.25% no vote. Unlike that initiative (which I supported), Inslee’s proposed carbon tax won’t lower other taxes by an equal amount. By the 2019-21 budget cycle, this carbon tax is projected to bring in $4.1 billion in new taxes for the biennium. It amounts to a 25 cents-per-gallon gas tax increase – but unlike a gas tax, it wouldn’t go toward transportation projects that help build our economy.
  2. B&O taxes on service businesses – Everyone from accountants to hair salons would see a B&O jump from 1.5% to 2.5% on gross receipts. That’s a 67% jump, despite obvious problems with gross receipts taxes generally.
  3. Capital gains income tax – It’s volatile and probably unconstitutional. By the time it’s fully implemented, it would bring in $1.8 billion in the 2019-21 budget cycle.
  4. Other – Inslee also proposes taxing you when you trade in your car or buy bottled water (gee, where have we heard that one before?). He wants to end tax preferences for extracted fuel and the non-resident sales tax exemption, both of which are problematic.

Make no mistake, Inslee is proposing a massive tax hike and a massive budget increase. His proposed state budget for 2017-19 is $46.7 billion, which is $8.3 billion higher than the current biennium – a 21.4% increase. His new taxes would equal more than the state takes in from property taxes and gas taxes combined.

To top it all off, Inslee’s budget wouldn’t balance over four years, which state law now wisely requires.  Instead of getting his budget in balance by dialing back these huge spending increases, Inslee will propose a bill to suspend the four-year rule. Why meet the law’s requirements when he can just rewrite them to suit his spending preferences?

Inslee is likely going big in hopes of negotiating less-dramatic-but-still-high tax increases with the Legislature. With Republicans in charge of the Senate and Democrats holding a bare 50-48 majority in the House, he’ll have a hard time finding the votes for tax increases anywhere near his proposed amounts.

Two things are painfully clear: Inslee’s tax-and-spend proposals are big sops to the teachers union and state employee unions, and legislators are likely to be in special session for a long time in 2017.
-Rob McKenna

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Rob McKenna
Rob served two terms as Washington’s Attorney General, from 2005 to 2013. He successfully argued three cases before the U.S. Supreme Court and negotiated three of the largest consumer financial protection settlements in national history, all involving mortgage lending and servicing. He is a recognized leader in the development of consumer protections on the internet, in data protection and privacy regulation.