The House Finance Committee has voted 8-to-5 along party lines to approve a $900 million tax package. The biggest piece of House Bill 2038 is the permanent extension of a business-occupations tax surcharge that otherwise expires in June. But in its scaled-back form, it no longer extends the temporary tax surcharge on beer that was adopted in 2010.
Republicans offered a series of amendments seeking to omit elements of the package – everything from closure of a tax-break for out of state shoppers to a tax on certain imports and bottled water. A final striking amendment from Rep. Reuven Carlyle, the Democrat who chairs Finance, does drop insurance agent services, janitorial services and stevedoring services from the list of repealed tax exemptions and shrinks the package from its original value that was nearly $1.16 billion.
Some of the GOP amendments could return when the bill goes to the floor – as soon as Thursday. The tax bill faces a steep climb in the tax-averse Senate.
“We took out some of those that presented various difficulties. … Any time you are trying to close tax exemptions it’s hard, hard, tough work. We took a shot. This is the package that at this stage we feel good about,’’ Carlyle said after the vote.
The Seattle Democrat also acknowledged there was a concern the beer tax could sink the whole package if it went to voters – which happened a few years ago with soda pop when the American Beverage Association filed an initiative to repeal taxes on pop and candy.
“I think it’s fair to say the beer industry – the big industry players, (like) Anheuser Busch – do not look at $5 or $10 million for an initiative repeal as a deterrent or much of a problem. … That’s a risk,” Carlyle said. “(W)e were not willing to take the risk of that happening.’’
Carlyle said no substitute or stand-alone beer tax is being drawn up. “For me, 14 cents for a six pack is just not that onerous,’’ he said.
That said, the bill still levies lots of taxes that are not in effect today – or would not still be in effect after June. It eliminates tax breaks for bottled water, travel agents, and high-tech research and development. It also gets rid of a utilities tax break for interstate truckers that Washington is one of the few states to exempt from taxes, according to Carlyle.
In today’s session, Republican Rep. Ed Orcutt of Kalama and others on the committee said the state has plenty of money for education and did not need to end the tax breaks at stake. He described the closed tax breaks as tax increases and warned, “We still have a struggling economy.”
Orcutt also said the state has 58,000 fewer people employed than before the recession, and he argued that growth in jobs could provide more revenues. “It’s the courage to fund education first and say no to some other people,’’ Orcutt said.
But Carlyle and other Democrats on the Finance panel said the state needs more funds to pay for education, which is the result of the state Supreme Court’s ruling a year ago in the McCleary case. They also said the tax system is not a good one and they hoped a broader conversation can follow on how to change the Washington tax code that is so reliant on taxes that hit a business’ gross receipts.
Democratic Rep. Chris Reykdal of Tumwater said “the greatest corporations on the planet Earth have chosen the state of Washington” for headquarters in part because of the education system and also the state’s position between markets. He also said Washington spends $130,000 per pupil from kindergarten through high school graduation and the cost is $150,000 to $160,000 to get a child all the way through college.
Referring to the tax package, Reykdal said: “It says take the worst tax code in the country and tries to make lemonade out of it.’’
“I encourage all of us to find a way to have a meaningful long-term conversation about reform,’’ Reykdal added.
Rep. J.T. Wilcox, R-Yelm, said that despite talk of subjecting tax exemptions to review and audits by a legislative task force, key pieces of the package did not get such a review. In particular he questioned the extension of the business-occupations tax surcharge on service businesses – which is set to expire in June and was intended as a temporary tax.
But Carlyle rejected that line of reasoning. He said he has great respect for the Joint Legislative Audit and Review Committee, which is made up of lawmakers and fiscal experts, but that its reports often end up gathering dust on shelves.
Here, he said there was a larger issue – funding education – and there was no need to delegate the Legislature’s fiduciary duty.
Although passing House Bill 2038 was the first step to moving it to the House floor for a vote, any final package ultimately agreed to by the Senate looks destined to occur during a special session. The Republican-dominated coalition that controls the Senate is tax averse, and Carlyle said it is highly improbable that lawmakers can finish their 105-day session on time Sunday.
Today’s vote to approve the scaled-back tax plan came after a long hearing that went more than three hours on Friday. It drew strong testimony from industries and small-business owners.
There also was testimony from those who believe additional revenue is needed to fully pay for public schools and universities – without sacrificing the safety net or further reducing a state government that has shrunk to staffing levels comparable to 1996-97.
As passed, the bill would bar a referendum, but not an initiative challenge.