In a Late Night Vote, Washington Senate Passes One of Several Proposed Progressive Taxes

Leschi, where millionaires can buy mansions and pay the same real estate tax rate as someone buying a mobile home in Yakima. Lester Black

After 11 p.m. Thursday night the Washington state Senate passed a bill that raises taxes on the sale of mansions and cuts taxes on the sale of less expensive homes. Senate Democrats say the new graduated Real Estate Excise Tax (REET) will bring in around $150 million per year while reducing taxes on 80 percent of property sales, though they didn't release an updated fiscal note so we can double check the math. This year they say they're slating the money for education funding, which sounds like a good idea considering the fact that 86% of Washington state schools are facing budget shortfalls.

I know the mere mention of REET has worked you into an erotic fervor so totalizing that you can barely read these words, but I'll ask you to bear with me while I briefly explain the proposal, at least until I get to the part about the state of play on the capital gains tax and the changes to the business-and-occupation tax, which will feel like cold shower.

Under the current REET, the state taxes most property sales at 1.28%. The new proposal reduces that tax to 1.1% on sales of property less than $500,000 and maintains it for properties sold between $500,00 and $1.5 million. The tax on the selling price of property between $1.5 million and $3 million will rise to 2.75%, and anything over $3 million will be taxed at 3%.

Though Republicans worry the progressive tax will place "a burden on sellers of multifamily housing units" that will be "passed on to the renter," Misha Werschkul, director at the Budget and Policy Center, says, “It's highly unlikely that a one-time tax on the sale of a property would impact rents. And if that were the case, it would mean lower rents on properties that sold for under $500,000.”

Sen. Joe Nguyen, who sponsored the bill, is confident the House will pass the legislation this evening.

When asked if he got pushback on the tax, Nguyen said, "Yes, yes I did."

This change to the REET is one of several new taxes some Democrats are considering this year. They want to raise revenue to pay for badly needed fixes to our education system, mental health care system, regular-ass health care system, housing system, energy systems, and other systems that have gone underfunded due to our regressive tax system.

Negotiations on two other major proposals—a capital gains excise tax and a change to the business-and-occupation tax—are still ongoing.

Nguyen says using capital gains to fund "constitutionally required" budget items such as K-12 education is off the table, but he's "hopeful" the Senate will pass its version of the tax, which aims to use the increased revenue to lower certain property and sales taxes.

(The following paragraph provides more detail on that. Skip if you're way too turned on by all this tax talk to focus. The Senate's version imposes an 8.9 percent tax on profits over $250,000 from the sale of "stocks, bonds, commercial real estate, or a large business," according to a summary of the proposal. The estimated $195 million per year in increased revenue would be used to lower property taxes for seniors, lower business-and-occupation taxes on small businesses, cut sales taxes, and fund the Working Families Tax Credit, which would "give between $300 to $970 in state sales tax refunds to low-income workers and families who qualify," according to Northwest Public Broadcasting.)

Since the capital gains tax will inevitably draw a legal challenge, Senate Democrats fear that funding vital education or mental health programs with that revenue might leave big holes in the next budget if they lose the lawsuit or if it drags on for more than two years.

The least they could do this year, then, is pass the version of capital gains that makes our tax code a little less regressive, assuming the tax survives the legal challenge, which isn't totally certain. Surely they could do that. No way they'd back down on a bill that will only possibly give regular people a tax break, right?

Other tax bills that seem to be part of the new budget package, which lawmakers say they've reached an agreement on but which they won't release until Saturday likely due to cowardice, include a bill from Rep. Gael Tarleton that removes the business-and-occupation tax from hospitals owned by "a county with a population greater than 2 million and managed by a state university." Seems like a nice tax break for university hospitals. And then there's another bill from Rep. Tarleton that increases the business-and-occupation tax on financial companies with "annual net income of at least one billion dollars." Both bills were scheduled for committee votes today.

Stay tuned for more hot state budget news this weekend, friends!