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Originally published March 28, 2013 at 11:01 AM | Page modified March 29, 2013 at 7:22 AM

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Inslee budget targets tax breaks, finds $1.2B for schools

Gov. Jay Inslee proposes raising $1.2 billion in additional tax revenue and putting the money into education.

Seattle Times Olympia bureau

Inslee’s revenue proposals

Inslee would bring in $565 million by ending or reducing tax breaks, including:

Vehicle trade-ins. Currently, you are charged a sales tax only 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 would be worth about $95 million over two years.

Phone service. Repealing a sales-tax exemption for local residential phone service. It would be 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. It would be worth $66 million over two years.

Bottled water: Repealing the sales-tax exemption for bottled water. It would be worth $51 million over two years.

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OLYMPIA — History suggests Democratic Gov. Jay Inslee has little chance of pushing through his proposal to pump an additional $1.2 billion into education by closing tax breaks and extending existing taxes.

While lawmakers have talked for years about taking on tax exemptions to help pay for state services, they’ve never gotten far. Industries benefiting from breaks have proved very adept at killing such proposals.

This session, the hurdle may be even higher.

Inslee and fellow Democrats must persuade a tax-averse Senate majority — guided by Republicans for the first time in eight years — to take on exemptions such as the sales-tax break on bottled water, and turn “temporary” surcharges on beer and certain businesses into permanent increases.

“This tax package just kicks a lot of job creators right in the shins,” Senate Republican Leader Mark Schoesler, R-Ritzville, said. “That’s not what we want to do.”

The governor, for his part, notes the state Supreme Court has ordered more spending on education. And he exhibited little patience, as he rolled out his proposal Thursday, for any suggestion that the politics of the past predicts the future.

“History would suggest we’d never get health-care reform. History suggests we’d never get equality in marriage. History suggests all kinds of things that would tell us we should lower our sights,” he said.

“I’m just not that kind of governor. I would suggest that we should pay more attention to the future and less attention to history.”

Inslee’s job was made somewhat easier when the state Supreme Court recently overturned a state law requiring a two-thirds vote in the House and Senate to increase taxes. Now only a simple majority vote will be needed.

Also, House Democrats appear to be largely on the same page as the governor. “Overall, I think the budget really reflected the values of our caucus pretty well,” said House Majority Leader Pat Sullivan, D-Covington.

He would not comment on any of Inslee’s specific tax proposals, but House Democratic leaders said their budget likely would be on the same scale as Inslee’s.

Senate Republicans are expected to release their budget proposal as soon as next week, followed by House Democrats. Then all three sides will try to hash out an agreement.

The current two-year state budget, which runs through June, is roughly $31.3 billion. The governor’s budget office projects the state would need roughly $33.8 billion just to meet the state’s existing obligations over the next two years. Inslee’s budget would spend $34.4 billion.

Aside from more money for education, Inslee proposed closing a two-year budget shortfall estimated at as much as $1.3 billion using the tried-and-true method of tapping reserves, shifting money into the general fund from outside accounts among other moves. There are relatively few actual reductions in spending.

More revenue

The tax breaks Inslee proposes ending or reducing for K-12 education funding would bring in $565 million.

They include repealing a sales-tax exemption for local residential phone service and ending a sales-tax exemption for bottled water. He also would trim the value of the business-and-occupation tax breaks that roughly 40 industries in the state get by 25 percent. The aerospace industry would be exempt.

In addition to closing and reducing tax breaks, Inslee proposed permanently extending a 0.3 percent increase to the business-and-occupation tax paid by doctors, lawyers, accountants and others. He also wants to extend the current 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.

The tax-break changes and proposed tax extensions combined would raise about $1.2 billion for education.

Republicans criticized Inslee for what they argue are broken campaign promises.

While running against GOP nominee Rob McKenna last year, Inslee said, “I would veto anything that heads the wrong direction, and the wrong direction is new taxes in the state of Washington.”

During a news conference Thursday, Inslee said he’s doing exactly what he promised during the campaign.

“I said I was going to do three things. I was going to increase education funding over $1 billion and I’m doing that. I said I would close tax breaks to make sure that we did do that. I said I would do that without increases in the existing tax rates and I’m doing that,” he said. “I’m comfortable where I am.”

Inslee did talk repeatedly during the campaign about scrutinizing special business tax breaks but was vague about which exemptions he might target. He didn’t talk about extending taxes, but was not queried about it either.

Inslee has a long list of programs he wants to spend the additional education funding on, including $116 million to expand full-day kindergarten to all high-poverty schools, $98 million to hire 1,400 middle- and high-school teachers and $90 million to provide additional professional-development time for educators.

“To govern, it is said, is to choose,” Inslee during his 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.”

Even so, the Washington Education Association, the state’s largest teachers union, had concerns, saying in a statement that “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.”

It’s worth noting that while Inslee puts more money into education, he also proposed saving $320 million by suspending Initiative 732, which provides cost-of-living increases for teachers.

That’s been a favorite target for the Legislature, which repeatedly suspended the voter-approved measure during the long economic downturn.

Andrew Garber: 360-236-8268 or agarber@seattletimes.com

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