State House OKs tax on candy, pop, bottled water; bill headed to Senate for vote

OLYMPIA — The state House voted Saturday to boost a host of taxes — including on beer, bottled water, soda pop and candy — to help close a $2.8 billion budget shortfall.

The bill passed by a 52-44 vote. No Republicans voted for the bill. Eight Democrats joined with Republicans to vote no.

It now goes to the state Senate, which could vote as early as Sunday.

The measure passed by the House makes up the bulk of a nearly $800 million tax package Democrats argue is needed to prevent cuts in state services from going too deep.

Democratic leaders in both the House and Senate said earlier in the day they were confident of having enough votes to approve the taxes, and of finishing their work by the end of the 30-day special session on Tuesday.

"One thing people can't say is that Democrats rushed to raise taxes," quipped Sen. Ed Murray, D-Seattle, referring to a 3-month-long battle in the Legislature over what taxes to increase.

Lawmakers have agreed to make hundreds of millions of dollars in cuts, along with using federal money and reserves, to help bridge the budget gap.

Murray defended increasing taxes as well, saying the state can only cut so far.

"We cut health care, we cut K-12, we cut higher education. It's going to be harder for your students to get into college. Your students are going to have crowded classrooms they didn't have before because of our cuts," he said. "But at some point, you cut so much you start to close down basic government services."

The state House debated the tax bill for only a few minutes on Saturday evening, a sign of how tired they are of the fight.

"I don't like everything in this package. There are some things in this package I really don't like," said House Finance Committee Chairman Ross Hunter, D-Medina, who voted yes. "But I like 20 percent across-the-board cuts even less. I think this is an appropriate balance."

Gov. Chris Gregoire has threatened to make such cuts unless the Legislature approves tax increases to help close the budget gap.

Republicans argued that taxes are the wrong way to go.

"I would challenge anyone to show me how you can take $800 million ... out of the economy and expect the economy to improve," said Rep. Ed Orcutt, R-Kalama.

Senate Majority Leader Lisa Brown, D-Spokane, said she expects to have the votes to pass the tax bill as well, but won't know for sure until the vote is taken.

The bill would raise about $668 million through June 2011.

The biggest chunk — about $242 million — would come from a business-and-occupation tax surcharge. It would increase from 1.5 to 1.8 percent the B&O tax paid by service businesses, with exemptions for hospitals and research and development. A tax credit for small businesses would be doubled.

New taxes on the portion of business some out-of-state companies do in Washington state would raise about $85 million. Those taxes would mainly hit banks and credit-card firms.

Taxes on beer, soda pop, candy and bottled water would bring in more than $150 million combined.

The tax on mass-market beer would levy an additional 50 cents per gallon, or 28 cents per six-pack. Microbreweries would be exempt from the increase. The tax is projected to raise about $59 million.

The soda-pop tax of 2 cents on each 12-ounce can or bottle would raise $33.5 million.

Under the measure, the B&O surcharge and the taxes on beer and soda would expire in June 2013.

A tobacco-tax increase that would raise about $100 million is contained in a separate bill. Lawmakers will vote on that measure later.

Andrew Garber: 360-236-8266 or agarber@seattletimes.com