Washington's Big Tax Bump

With the dust settling from the 2019 legislative session, the focus is assessing the impacts on taxpayers and our economy.

Our state’s budget grew by a whopping 17.5 percent, which is one of the largest increases ever. Gov. Jay Inslee and his Democrat colleagues who controlled the legislature came to Olympia last January set on raising taxes despite higher than projected revenue collections.

“Rather than looking for cost savings, lawmakers chose to raise more than $1 billion in new taxes over the next two years and $2.5 billion over four years,” Association of Washington Business (AWB) President Kris Johnson said in a session-ending press release.

The $52.4 billion budget is nearly $8 billion more than the previous two-year spending authorization (2017-19). “It comes on the heels of double-digit growth in the previous two budgets, raising serious questions about the long-term sustainability of such spending,” Johnson concluded.

It could have been worse. Inslee’s proposals for new taxes on carbon emissions and on capital gains failed. However, large banks, high-end home buyers and merchants in border communities got clobbered.

In an end-of-session maneuver, Democrat lawmakers raised the business and occupation tax (gross receipts) on large financial institutions — those making at least $1 billion in net income per year — from 1.5 percent to 2.7 percent. Republicans argued it is illegal so it could be overturned in court.

Lawmakers also converted the flat-rate real estate excise tax (1.28 percent) into one with a graduated scale. It lowers the rate on homes selling under $500,000, but jumped the tax on those selling over $1.5 million.

That means if you are selling a home worth $500,000 this year, you’d pay $6,400 in taxes as compared to $5,500 in 2020. However, if you are selling a home for $2 million this year, you’d pay $25,600 in taxes. In 2020, the tax will be $55,000, according KREM-TV (Spokane) calculations.

Merchants in border communities are expected to see a drop in sales after the Legislature removed the sales tax exemption for out-of-state residents at the cash register.

For example, starting in January, Portland-area shoppers making a purchase in the Vancouver-area will be charged sales tax at the time of purchase. They can save their sales receipts and as long as the tax is more the $25. They can mail in their receipts and be reimbursed by mail each year.

No doubt Washington lawmakers face mounting costs for public employee and teacher pay increases and pensions, health care, education, treatment for mental illnesses and drug addiction, homelessness, public safety and fighting wildfires. But higher taxes also have consequences.

In Connecticut, for example, individuals earning more than $500,000, pay capital gains at 6.99 percent rate. Recently, according to the Wall Street Journal, Democrats who control the legislature approved the surcharge for individuals in the top income bracket. The surcharge would effectively raise the highest rate to 8.99 percent.

The result is a continued exodus of taxpayers in high-income brackets to lower taxed states such as Florida. The population flight is taking a toll on Connecticut’s economy and tax collections.

WSJ reported recently the federal Bureau of Economic Analysis found Connecticut’s GDP grew a paltry 1 percent in 2018 which is 44th in the country and the slowest in the Northeast after Rhode Island. Slow economic growth depresses tax revenue and contributed to Connecticut’s $3.7 billion budget deficit.

Our state’s GDP grew by 5.7 percent ($5.6 billion) last year thanks, in part to Microsoft, Amazon and Boeing. However, things change and our state’s economy will face rough times. That’s when full impact of the “big bump” in taxes hit businesses and families.

Don C. Brunell is a business analyst, writer and columnist. He recently retired as president of the Association of Washington Business, the state’s oldest and largest business organization, and now lives in Vancouver. He can be contacted at theBrunells@msn.com.