issue area reports | budget and taxation
Budget and Taxation
Emily Shay : Tax & Fiscal Policy
Emily Shay is AWB ’ s Government Affairs lead on tax and fiscal matters .
“ The operating budget spends a lot more and still doesn ’ t have enough reserves for another pandemic or recession . And in the budget , we didn ’ t see any tax relief , none for businesses or employers .”
~ Emily Shay
State lawmakers passed a two-year operating budget and capital spending plan that contains no new general tax increases . Lawmakers also returned money to the rainy-day fund after draining it during COVID-19 pandemic – an important step as a possible recession looms .
Unfortunately , for the second straight year , the Legislature failed to pass meaningful tax relief to help employers and residents still struggling with high inflation . They also used up valuable time debating various proposals to raise taxes , including the real estate excise tax and eliminate the 1 % cap on local property tax growth enacted by voters .
The Legislature adopted a $ 69.8 billion operating budget for 2023-2025 . The budget spends about $ 4.7 billion more than the 2021-2023 budget , an 8.9 % increase in spending . This is a notable slowdown in spending increases compared to the 24.3 % jump between the 2019-2021 and 2021- 2023 budgets .
In 2022 , lawmakers missed an opportunity to replenish the state ’ s rainy-day account with a $ 15 billion revenue surplus . This year , they avoided tapping the fund and started saving again . The fund is expected to grow to $ 2.1 billion by the end of the next biennium .
Lawmakers did withdraw $ 1.3 billion from the Washington Rescue Plan Transition Account , a separate savings account created during the pandemic . The state will have about $ 3 billion in total reserves by the end of the 2025- 2027 biennium .
AWB and the business community advocated strongly for legislative leaders to shore up the state ’ s reserves even more . A cooling economy is already impacting state revenues , with the latest forecast showing Washington is bringing in less money than expected . A strong savings account would mean the state would have enough to cover a budget shortfall in a downturn and better avoid tax increases .
There were several positive tax incentives that will benefit businesses . At least a dozen AWB-supported tax bills made it to the floor . One successful bill extends tax preferences for dairy , fruit and vegetable and seafood producers to ensure Washington farmers remain competitive in a global market . Another offers tax credits for companies seeking to become employee-owned .
The Legislature also passed a $ 9 billion capital construction budget , including a record $ 400 million for housing that will help address our housing affordability crisis .
The state ’ s capital gains tax – applied at 7 % to the sale of stocks , bonds and other assets – had a big impact on the budget this year . Lawmakers assumed $ 1 billion in capital gains revenue when they wrote the budget so additional tax increases weren ’ t needed . Looking ahead , however , it ’ s likely some tax proposals that died in 2023 will be back next session .
AWB will continue to monitor the impacts of the Washington Supreme Court ’ s capital gains tax ruling . The court ruled in March that the state ’ s capital gains measure is constitutional . The decision eliminates one of Washington ’ s key economic advantages and opens the door to a state income tax . Some local governments have already proposed their own capital gains measures .
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