Governor Jay Inslee Proposes Billions of Dollars in Tax Hikes in 2015 Budget

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Posted by Paul Blair on Thursday, December 18th, 2014, 4:20 PM PERMALINK

Today, Washington Governor Jay Inslee (D) released a two-year budget that includes a wide range of tax hikes on industries, individuals, and small businesses. Faced with a $2 billion overspending problem, unlike countless states throughout the US who have reined in spending, the governor has resorted to a typical answer from politicians who refuse to reform government: billions in higher taxes.

Here is a list of the tax hikes:

Capital Gains Tax: This 7 percent tax on earnings from the sale of bonds, stocks, and other assets above $25,000 would begin in 2016. The size of this tax hike is 798 million dollars and will hit an estimated 32,000 taxpayers.

Carbon Tax: The Carbon Pollution Accountability Act would impose a misguided cap-and-trade regime in Washington, generating $1 billion annually according to the governor. On the issue, California Governor Jerry Brown said, “This is global. So if it’s only Oregon, Washington, California, and British Columbia, nothing’s going to happen.” He's right. As developing countries exponentially increase their emissions, there isn’t much a few states can do to lower overall global emissions. The clear impact of cap-and-trade, however, is an increase in the cost of electricity.

Peter Orszag once noted that electricity “price increases are essential to the success of a cap-and-trade program.” Cap-and-trade is regressive and hits hardest poor and middle-income households who spend more of their paychecks on energy.

Cigarette Tax: The governor’s proposal increases the state cigarette tax from $3.025 by 50 cents, which would make cigarettes sold in Washington subjected to the second highest cigarette tax rate in the nation, only behind New York. The governor projects this will generate $37.8 million dollars over the next two years. Unfortunately for Inslee, higher taxes don't always generate more revenue for the state. The Washington Department of Revenue estimates that the state lost about $376 million in tax revenue in 2012 due to tobacco tax evasion, with more than one third of cigarettes in Washington being contraband. This tax hike makes that even more likely going forward. Indian tribes in Washington are exempt from imposing or collecting the tax altogether.

E-Cigarette and Vapor Tax: Reviving a failed 2014 proposal, the governor has proposed a massive 95% tax at the point of sale on e-cigarettes and vapor products sold in Washington. The governor projects this will generate $18.1 million up through 2017 and another $78.4 million over the following two years. This is clearly intended to prevent smokers from switching to vaping in an effort to protect the state’s monopoly on cigarette tax revenue. ​

Tax Credits and Deductions Repeal: The governor proposes eliminating five tax exemptions, which also constitute as tax hikes. Repealing the sales tax exemption for trade-ins generates $105 million, use tax exemption for fuel $51 million, sales tax refunds $52 million, tax exemption on bottled water $44 million and the B&O tax rate for royalties $30 million, constituting a roughly $282 million tax hike overall over the next two years.

Gov. Inslee also proposes extending a number of small tax credits, netting a projected loss of $94 million up through 2017.

In his 2012 campaign, Inslee said he wouldn’t raise taxes. He said at the time, “I would veto anything that heads the wrong direction and the wrong direction is new taxes in the state of Washington.” The Seattle Times said he was “solidly on the record” on this issue. He wouldn’t, however, put it in writing by signing the Taxpayer Protection Pledge to Washington voters. Faced with what he calls a “massive hole left by the Great Recession” Inslee hasn’t been successful in following in the footsteps of Governors who have not only recovered from the Recession but are thriving in its aftermath as a result of cutting taxes and reforming government spending programs. 

The legislature should reject all of these tax hikes and work to reform education, transportation, and other priorities in a more reasonable way. 

Photo Credit: Center for American Progress

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