Inslee Budget Plan Reduces Tax Breaks, Finds $1.2B for Schools

By Andrew Garber, March 28, 2013, Seattle Times

Gov. Jay Inslee wants to raise $1.2 billion in additional revenue for education by closing or changing 11 tax breaks and extending existing taxes set to expire next year.

Inslee on Thursday proposed using all that money to meet a state Supreme Court mandate to beef up K-12 funding.

“To govern, it is said, is to choose,” Inslee said at a news conference, surrounded by students from Cleveland High School in Seattle. “Today I choose, and I believe we should all choose, education over tax breaks, and to make good on our constitutional and moral duty to quality schools for our children.”

In addition, the Democratic governor proposes closing a budget shortfall estimated at up to $1.3 billion largely by tapping reserves, shifting money into the general fund from outside accounts, and reducing expenditures. For example Inslee proposes saving $320 million by suspending Initiative 732, which provides cost-of-living increases for teachers.

Democrats in the House and Senate sent out statements supporting the governor’s proposal.

Senate Republican Leader Mark Schoesler, R-Ritzville, disagreed with the governor’s approach.

“This tax package just kicks a lot of job creators right in the shins. That’s not what we want to do,” Schoesler said. “We are very confident we will get there without these job killing taxes.”

Republicans took control of the Senate the first day of the session, in January, when Democratic Sens. Rodney Tom, of Medina, and Tim Sheldon, of Potlatch, crossed party lines to caucus with the GOP.

The Republican-led majority is expected to issue its budget proposal as soon as next week. House Democrats will come out with their budget after the Senate. Then all three sides will try to work out a compromise.

The tax breaks Inslee proposes ending or reducing would bring in $565 million. They include:

Vehicle trade-ins. Limiting the trade-in exemption for cars, boats and other items. Currently, you are only charged a sales tax on the difference between the purchase price of a new vehicle and the trade-in value of your old car. There is no limit. Inslee proposes limiting the exemption to the first $10,000 in value of the trade-in. It’s worth about $95 million over the next two years.

Phone service. Repealing a sales-tax exemption for local residential phone service. The state is concerned the exemption could be challenged in court by cellphone companies wanting the same exemption. Inslee’s budget takes care of that by repealing the tax break. It’s worth nearly $83 million over the next two years.

B&O tax. Trimming the business and occupation tax breaks that roughly 40 industries in the state get, including the manufacturers of certain agricultural products, travel agencies and newspapers, including The Seattle Times. The value of that preferential rate would be reduced by 25 percent. It’s worth $66 million over two years.

Bottled water: Repealing the sales-tax exemption for bottled water. Under current law, the sales tax does not apply to retail sales of bottled water.

In addition to closing and reducing tax breaks, Inslee proposed extending a 0.3 percent increase to the business and occupation tax paid by doctors, lawyers, accountants and others. He also proposed extending a tax a 50-cent-per-gallon tax on beer, which comes to 28 cents per six-pack. The taxes are due to expire next summer. That’s projected to bring in nearly $662 million over the next two years.

Total spending under Inslee’s two-year proposal would be roughly $34.4 billion. Former Gov. Chris Gregoire proposed a $34.1 billion spending plan. The current budget, which runs through June, is roughly $31.3 billion.

The governor’s proposal drew criticism from some of the interests affected.

The Washington Education Association sent out a statement saying “Inslee’s education proposal is a step in the right direction but doesn’t go far enough to fully fund our K-12 schools as required by the Supreme Court.”

A group called End the Beer Tax Now Coalition sent out a statement saying “a balanced approach that addresses wasteful spending in the budget and doesn’t single out one industry is the best solution for dealing with our state’s financial issues.”

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