Legislative Commentary: Jan. 17, 2019

Dear Friends,

It’s customary for me, as leader of one of the four legislative caucuses, to do a round of media interviews on the opening day of a legislative session. You never know exactly what the questions will be, but my interview with the TVW public-affairs network in the Rotunda (click here or on either photo to watch) was fairly typical, going something like this:

-What are the Senate Republican Caucus priorities this year? Our list includes improvements to mental-health services (which does not automatically mean building a new state psychiatric hospital) and increasing access to affordable housing (which may mean updates to the state’s Growth Management Act). Some SRC members were putting ideas on the table months ago, instead of waiting until they got to the Capitol to start the conversations.

-How do you respond to the governor and others who want to raise taxes? That’s easy—there’s no need for new or higher taxes, especially not a state income tax (the proposal Governor Inslee and his political allies call a “capital gains” tax) or a huge hike in the business tax on service providers. If anything, the taxpayers deserve a break.

-Can Republicans be effective without holding a majority of the seats in the Senate? Absolutely, and we do that by saying “no” to bad ideas, then stepping forward with better ideas.

For the most part our first week went about as I expected; by Tuesday afternoon the focus had already shifted from ceremonial activities to the Senate hearing rooms, where our committees are asking questions and receiving testimony about legislation. Keep reading for more about an example -- the governor’s massive tax proposals.

In Inslee’s world, a 67% tax increase is ‘not a significant burden’

Not surprisingly, Governor Inslee’s “state of the state” speech to the Legislature was filled with ideas for spending taxpayer dollars, with no mention of the taxpayers themselves, or of the billions more he wants them to hand over to state government.

This year’s speech did mention the Palouse, and his appearance at the ribbon-cutting for the new solar farm in Lind – but as I sat there in the House chamber, my thoughts turned to how the 67% business-tax hike proposed by the governor would hit professional-service providers in the places he referenced: the Palouse, and Lind, as well as Ritzville, and other 9th District communities.

Inslee wants to raise the B&O rate on services from a rate of 1.5% on gross receipts to 2.5%. He and his budget staff would “spin” that as being just 1 percent higher, when in reality it means a 67% increase in the tax that must be paid. A $100 tax bill becomes a $167 tax bill.

A look at the appointments I had shortly before heading to Olympia perfectly illustrates the damage. Let’s take a trip around town:

-The stop at my local insurance broker, who can’t raise premiums just because the governor wants more money.

-A checkup from my family practitioner, who can’t demand more from insurance carriers or government-run health programs.

-A visit to our veterinarian, who is treating my faithful hound Colt for a hurt leg and also looks after the health of the cattle my wife and son run. Inslee wants vets to pay more so he can be the savior of the orcas.

-The lady who cuts my hair -- she can’t afford to jet around the country like the governor, but would also see her business taxes jump by 2/3rds.

-My accountant, who also can’t raise rates on short notice to support more state spending.

-Same for the optometrist in Pullman who kindly squeezed my dad in so he could get a new prescription.

On Tuesday afternoon, the governor’s budget director laid out the governor’s $54 billion budget proposal to our Ways and Means Committee. The slide in his presentation that listed the B&O tax hike described it as “improving an outdated, unfair tax system.”

I asked how a 67% increase in the B&O tax could make an unfair tax system fair. The answer? The Inslee administration thinks professional services are undertaxed, and that’s why state government revenues have “slid” (even though they haven’t). The budget director added he doesn’t see how a 67% tax hike could be a “significant burden” -- his thinking seems to be that if every barber, or accountant, or veterinarian in town raises their rates to cover the tax increase, then none of them lose business…right?

Maybe the professional-service providers in “Insleeville” (or Insleetopia) won’t mind the thought of seeing a $100 tax bill become a $167 tax bill. To me, the whole idea is an insult to a vital sector of our economy.

Connecting the words confirms it: ‘capital-gains’ tax is really an income tax

In recent years the governor and his political allies inside and outside the Legislature have tried very hard to avoid using the term “income tax” to describe the various bills that would impose a new state tax on income from capital gains.

They seem to have settled on calling it an “excise tax” to get around the inconvenient truth, even though there is nothing “excise” about taxing capital gains (the IRS defines excise taxes as “ taxes paid when purchases are made on a specific good, such as gasoline”).

But the legislation containing Governor Inslee’s tax increases (Senate Bill 5129) finally allows the connection of enough words to confirm what our side has been saying all along: a “capital-gains tax” is identical to an “income tax.”