Wednesday, March 17, 2021
MID-POINT: Last week marked the last date to pass bills in their house of origin in the state Legislature—meaning no new bills can be introduced for consideration this session. Those bills that have survived are now prepared to move on to be considered by the opposite house in April. Lawmakers debated and voted on dozens of bills ahead of the cut-off deadline, including a Senate proposal to introduce an income tax on capital gains by the tightest of margins.
The debate on a capital gains tax signals the beginning of a transformative effort to build equity into the most regressive tax system in the nation, fundamentally unchanged since the 1930s, and one—weighted heavily on property and consumption sales taxes—that has proven increasingly inadequate to capture the kinds of economic growth that is actually occurring in Washington.
Senate Bill 5096 would apply a 7 percent tax to profits from the sale of stocks and bonds, personal property and the sale of a business—but only if those profits are in excess of $250,000 for both individuals and those who file jointly. Specific exemptions include retirement accounts, all real estate—such as the sale of a house, commercial real estate, agricultural and timber land, and family-owned small business that gross less than $10 million per year. Profits from stocks and bonds under $250,000 are excluded.
The capital gains excise tax is anticipated to raise approximately $500 million per year, which would be dedicated to funding childcare priorities—such as the Fair Start for Kids Act (which also passed the Senate last week)—and building “a future tax infrastructure that corrects the unfair, upside-down nature of our tax code,” Democrats said in support of their bill.
The lower House of Representatives, meanwhile, focused on bills to create greater social equity—such as a measure that would limit the ability of landlords to evict tenants as the governor’s emergency orders on evictions sunset. Another bill seeks to establish a statewide standard for police use of force, including deadly force.
Ominously, Whatcom County’s newest legislator, Democrat Rep. Alicia Rule, joined Republicans in voting against both of these bills; her colleagues in the 40th and 42nd districts supported these common- sense proposals.
Several bills the Gristle has commented on this session survived, and now move across the aisle for consideration, including E2SSB 5188—the state public banking bill, now mutated and re-termed as a state financial cooperative, perhaps to ease concerns the state was muscling into the commercial banking business. No, not so: The financial cooperative would allow the state to collect and manage and lend from its own tax revenues for a broad array of public infrastructure and economic development projects, including housing, at competitive rates with lower internal administrative costs than are found in the external commercial lending market.
In sum, the cooperative keeps local public dollars local for public projects, allowing state tax revenues to stretch farther by reducing debt service to commercial lenders: “The state public financial cooperative will have full powers to borrow money and to issue its bonds and notes in a manner that does not create state debt in order to make capital funds available for borrowing by local and tribal government entities,” Senate lawmakers explained in the text of their bill.
Carbon pricing—another revenue generator that could drive billions of dollars into the coffers of a state reeling from the impacts of a prolonged pandemic while providing incentives to reduce Washington’s carbon pollution footprint—also survived the bill cutoff. It, too, has mutated, with surprising pushback against the governor’s cap-and-trade concept by advocates of a competitive concept that would forgo swapping pollution credits with a simpler plan to just tax carbon. The latter proposal is championed by Sen. Liz Lovelett, the Anacortes Democrat.
A cap-and-trade approach (Senate Bill 5126) allows carbon pollution to be auctioned off and purchased by carbon dioxide emitters. The price of pollution credits rises as the total number of credits is reduced and the amount of pollution declines. It’s a zero-sum concept that in its essence allows corporations to pay to pollute.
A carbon tax (Senate Bill 5373) is more straightforward. It doesn’t cap carbon pollution, but polluters would save money by driving down the amount of their emissions. It taxes a liability the state does not want and would like to see less of. Supporters say the tax would generate more than $16 billion in revenue and enable the state to borrow up to $5 billion through bonds to develop new clean-energy infrastructure. The tax also avoids the externals of cap-and-trade, a concern that purchased pollution would be concentrated and released in lower income and at-risk communities.
“Fossil-fuel combustion is also responsible for other pollutants, such as nitrous oxide, carbon monoxide, benzene, particulate matter, and others that contribute to respiratory diseases like asthma and lung cancer, which compromise public health, shorten life expectancy, and strain our public health system,” Lovelett noted in the text of her bill. “This pollution affects all Washingtonians, but falls disproportionately on low-income communities, communities of color, and the most vulnerable of our population.”
This is a debate on the merits and substance and external consequences of a carbon pricing strategy that has divided progressive support for carbon pricing since at least 2018. Even now, both of these proposals are moving slowly through their committees.
It’s a debate worth having, provided the Legislature does indeed enact a commitment to climate action this session. WA can’t wait.