Gov. Inslee proposes capital gains tax, tax on health insurers to offset pandemic revenue losses

Washington Gov. Jay Inslee is proposing a new capital gains tax and a tax on health insurers as part of his two-year, $57.6 billion budget proposal that seeks to offset the revenue losses the state has seen during the ongoing coronavirus pandemic and to help bolster the state’s public health system.

Last month’s state revenue forecast showed that while the state has made some gains since the first round of business closures earlier this year, revenue projections through mid-2023 are about $3.3 billion below what they were projected to be before the pandemic hit. The budget proposal released Thursday looks to drain the state’s so-called "rainy day" fund of $1.7 billion to handle the immediate budget issues, while the new revenue is intended to continue covering those costs as that emergency fund replenishes in future years.

"Covid has caused an economic crisis hand in hand with the health crisis," Inslee said at a news conference announcing his plan. "Now is not the time to make cuts to the provisions of the state that help our families and our businesses."

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The capital gains tax — which has stalled in the the Democratic-controlled Legislature in previous years — would not take effect until mid-2022 and looks to raise $3.5 billion over the next four years from a 9% capital gains tax on earnings from the sale of stocks, bonds and other assets above $25,000 for individuals and $50,000 for those who file jointly. Retirement accounts, homes, farms and forestry would be exempt from the tax.

About $1.1 billion of that total amount would be raised in fiscal year 2023. The governor’s budget office estimates that less than 2% of the state’s households would be affected.

Opponents of a capital gain tax have argued that it’s a type of income tax illegal under state law; Inslee and other supporters have said they believe it is constitutional. The debate is certain to end up in court if the Legislature approves the tax.

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The other new tax that Inslee is proposing is an assessment on health insurers, Medicaid managed care organizations, limited health services contractors and third-party administrators that would start in March 2022. The charge will be assessed based on each person covered by the insurers and is expected to bring in $343 million for the 2023-2025 biennium, with $203 million of that raised in the first fiscal year. The money raised from this tax would go to a dedicated fund to help the state’s struggling public health departments and would be used to develop and maintain data infrastructure, building community partnerships and emergency management planning.

Inslee’s budget proposal also looks to spend $397 million in state funds for COVID-19 resources, including personal protective equipment, testing supplies and staff for contact tracing.

He’s also seeking to increase the minimum weekly benefit amount for those seeking unemployment benefits from $201 per week to $270 per week, and proposing a plan to decrease unemployment insurance tax increases on employers. After the state saw significant backlogs of recipients waiting for benefits, the budget also seeks to increase staffing to process unemployment claims.

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The plan also looks to provide additional financial support to child care providers and families struggling with child care during the pandemic, boost food benefit payments to people who qualify for the state’s food assistance program, and fund a program that provides a cash benefit to those facing an emergency who don’t have resources to meet their basic needs.

The state has distributed state and federal assistance in response to pandemic-related needs throughout the year, including grants for small businesses, child care support and food assistance.

The governor called on the Legislature to pass legislation to approve an additional $100 million in grants for businesses affected by the state’s coronavirus restrictions and $100 million in rental assistance.

Democratic House budget chairman Rep. Timm Ormsby called the proposal a "good starting point" for budget discussions and Democratic Sen. Christine Rolfes, the lead budget writer in the Senate, said that she appreciated that the governor’s proposal "makes critical investments in public health to reinforce our state’s pandemic response."

See the full budget presentation below:

Inslee rolled out some of his policy ideas earlier in the week. On Monday, he proposed the establishment of a new office to conduct investigations of police use of excessive force and funding the state Equity Office that was created by the Legislature earlier this year. On Tuesday he announced several climate proposals, including a plan to cap carbon pollution and a measure that would require fuel producers and importers to reduce greenhouse gas emissions associated with gasoline and other transportation fuels.

Thursday’s budget proposal also restores funding to more than a dozen budget items or bills that he vetoed in April in response to the dive in state revenues. Those refunding of programs include the state equity office, guidance counselor and paraeducator training in K-12, and law enforcement behavioral health/suicide prevention.

Sen. Lynda Wilson, the lead Republican on the Senate Ways and Means Committee, said that she was disappointed with the inclusion of tax increases in the governor’s plan.

"If the people of our state ever deserved that kind of consideration from their elected leaders, it’s now," she said in a written statement. "Instead, it’s hard to tell from his budget proposal that our state is still dealing with a pandemic, because he’s again looking for billions in new spending and making another run at imposing unpopular taxes that were failures even before COVID-19 came along."

The governor’s budget is just the first of three to be released in the coming months. After the legislative session begins Jan. 11, the Senate and House will also release proposals during the 105-day session, which will be held mostly remotely because of the pandemic, with committee hearings held completely online and with limited in-person floor votes by lawmakers.

The Associated Press contributed to this report.