The Basics of Inslee’s New Tax Plan

State Tax Plan Governor Education Funding
Olympia, WA

In the first half of this last December, Governor Jay Inslee proposed a new tax plan designed to generate funding for basic education. The plan is responsive to a recent state court opinion which held that funding for K-12 education in Washington must come from the state rather than local districts. Prior to this opinion – the McCleary opinion – local districts contributed a substantial part of the cost for education through local property taxes; now, the state must foot the entire bill, and Mr. Inslee’s new plan addresses the deficit created by the removal of this familiar source of funds.

Mr. Inslee’s plan would draw tax revenue from several sources. Let’s review these sources and then take a look at the political reaction to his proposal.

Revenue Sources

The tax plan of Mr. Inslee would draw revenue from four sources. The plan would implement a capital gains tax of 7.9 percent on the sale of a number of assets, including stocks, bonds and others. The capital gains tax of Inslee’s plan would not apply to retirement accounts, homes, farms and forestry. The tax would apply to earnings above $25,000 for single filers and $50,000 for joint filers. Approximately $821 million would be raised from this tax for the fiscal year of 2019.

The plan would also impose a carbon emissions tax of $25 per metric ton. This tax would raise approximately $2 billion (per year).

Also included in Inslee’s plan would be an increase to the business-and-occupation (B&O) tax for attorneys, real estate agents and other professionals. The rate would be increased from its current level of 1.5 percent to 2.5 percent. This would generate roughly $2.3 billion.

Inslee’s proposal would also eliminate multiple tax exemptions, such as the exemption on bottled water and the exemption which benefits oil refineries.

Political Reaction

Unsurprisingly, given the severity of its probable impact, Inslee’s proposal has sparked substantial criticism from lawmakers on the other side of the political spectrum. Senate Majority Leader Mark Schoesler, for instance, was quoted as saying (disapprovingly) that the proposal by Mr. Inslee would constitute the single largest state tax increase in Washington’s history. Another senator, Ann Rivers, also of the Republican Party, said she felt that Mr. Inslee’s plan appeared to be an overly aggressive solution to the issue of funding state education.

Democratic lawmakers have been more sympathetic, and it seems that Mr. Inslee will likely have full support from members of his party. Importantly, newly elected Superintendent of Public Instruction Chris Reykdal has voiced his support for the proposal and even appeared alongside Inslee during the unveiling of the plan at Lincoln High School in Tacoma.

Whether Governor Inslee’s tax plan will be enacted in its current form remains to be seen. What is certain is that the state must develop a workable plan in double quick time. The court of Washington has already held the state in contempt because of the state’s failure to supply sufficient educational funding and has ordered the state to pay hefty fines. If it wishes to avoid further consequence, the state must develop a full funding plan by September 1, 2018.

Image credit: Piutus


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About the author

Seattle CPA+John Huddleston has written extensively on tax related subjects of interest to small business owners. He is a graduate of Washington State University and the University of Washington School of Law.

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