John Braun: Watch out for ‘mega-taxes’ as budget time draws closer
Friday, February 21, 2025
While people across our state continue to struggle financially, Democrats in Olympia are moving forward with tax legislation that would make living in our state even less affordable.
They include two bills about raising property taxes, one that would tax drivers by the mile, another to hike the tax on mobile phones, and a new sales tax on the purchase of firearms, firearm parts and ammunition.
Will Democrats stop there? Don’t count on it. Because of a December email that went to more recipients than was intended, we know the Senate Democrats came to the Capitol with a list of nine ways to take more money from the people, and employers, and hand it to the state.
The tax on firearms and ammo is on that list, as is one of the property-tax increases. That leaves seven we have yet to see filed as legislation in the Senate. Of those, three are in a league of their own, and not in a good way. Republicans have labeled them “mega-taxes” for a reason.
One of these would triple the business-and-occupation tax rate for the manufacturers, retailers and wholesalers that fall within the bracket Democrats are targeting — the Boeing Company, for example. Over in the service category, it would mean a 57% tax hike for firms like Microsoft.
This is the smallest of the mega-taxes, yet by the Democrats’ estimates, it would pull in either $2 billion or $3 billion in its first full year, depending on how wide the majority casts the net.
Another mega-tax would basically copy the “jump-start” payroll tax imposed within the city of Seattle during the pandemic and apply it statewide. With this tax, Democrats don’t just have Amazon.com, Microsoft and the tech industry in their sights; professional services, finance, real estate and health care are in there as well.
How the payroll mega-tax is applied would dictate whether the state’s estimated haul is $3.7 billion in the first full year, or $4.1 billion.
It’s hard to believe Democrats would think they can keep piling taxes on Washington employers without any consequences. Surely they noticed how Seattle’s jump-start tax caused businesses to “jump” their highly-paid employees across Lake Washington to Bellevue.
Did they learn nothing from watching Amazon.com founder Jeff Bezos relocate to Florida before Washington’s capital-gains income tax took effect — thereby avoiding a $600 million capital-gains tax bill? Are they prepared to risk harming the golden goose of Washington’s economy?
An answer can be seen in the marketing plan for the Senate Democrats’ nine-piece tax plan, which also became public in December.
“Identify the villain,” the plan advises. “We have an upside-down tax code that benefits big corporations and the wealthiest few.”
Republicans don’t see Washington’s leading employers as villains to be punished with tax increases. Legislators should be working to improve the state’s business climate, not taking actions that could alienate those who provide good family-wage jobs.
We also remember the wisdom of President Ronald Reagan, who correctly observed that raising taxes on the business community is equivalent to raising taxes directly on the people.
The third of the Democrats’ mega-taxes does go directly at people. They call it a capital-assets tax, but also a “wealth tax,” which keeps with the tax-the-villain theme of their marketing plan.
The truth is, it would be a different style of property tax — the first attempt to tax intangible assets like stocks and bonds as though they’re pieces of land.
Based on the Senate Democrats’ estimate, this would be the biggest of the mega-taxes, pulling in $4.3 billion by itself in year one.
But would it really? A study released by the state Department of Revenue in November 2024 notes how estimating the amount of revenue a wealth tax would produce is particularly difficult.
This is due not only to a lack of data and experience with such a tax, but also because of things like “capital flight risk” — meaning people flee the state with their money rather than stay and suffer the high tax rates.
If that sounds familiar, it’s because the Democrats’ capital-gains income tax is similarly volatile.
In its first year, the capital-gains income tax brought in $847 million. That sank to $361 million in year two, even though the number of tax filers increased from the first to the second year.
Just this month the state Department of Revenue explained why more filers didn’t equal more revenue: In year two, the 300 filers in the highest bracket paid nearly $450 million less compared to the year before. That sounds like a flight of capital.
When a tax fails to produce as advertised, those who want the tax dollars either increase the rates or apply the tax to more people. They often do both.
That explains why the Senate Democrats also are looking this session at increasing the capital-gains tax. Their nine-part tax plan would include a hike of more than 40% in the tax rate on gains above a certain threshold.
So far one of the loudest critics of the intangible-assets tax is Seattle venture capitalist Nick Hanauer. He had a major role in bankrolling the big-spending campaigns against at least two of the voter initiatives on the November ballot. Those included Initiative 2117, which would have repealed the state’s costly Climate Commitment Act, and I-2109, which would have repealed the income tax on capital gains.
That’s right: A multi-millionaire who describes himself as “filthy rich” had no problem spending money to protect a Democratic policy that hits Washington families hard at the gas pump, and brags on social media about defending the capital-gains tax — but then squawks when the Democrats decide to come directly after him for money.
The concern Republicans have about a tax on intangible assets is less about how it might immediately affect the “wealthy few,” as Democrats call them, and more about how the tax would likely be expanded over the years to hit more people, and at a higher rate.
Governor Ferguson is concerned as well, having already expressed his deep skepticism about what he calls “an untested wealth tax.”
We’re aware how Democrats and others have taken the results of the November election as a sign that people in our state are more receptive to tax proposals.
Republicans see it differently. We know how $44 million was poured into the various campaigns against the voter initiatives, giving the opponents a microphone seven times larger than the supporters had.
Also, we will put more stock in the January public-opinion survey that focused on state spending. After all, enabling more spending is what the Democrats’ proposed tax increases are ultimately about.
More than three-fourths of those responding to that survey think the Legislature already has enough money available to address important priorities. More than three out of five responding simply don’t trust the Legislature on spending.
It isn’t unusual for tax proposals to remain under wraps until the Senate and House operating-budget packages are made public, which is still a few weeks away.
While we will be watching for Democrats to file their mega-tax legislation, there’s still time for them to change course. They are welcome to join us in looking for enough savings and efficiencies to solve the self-inflicted budget gap. That is the better path for our state.
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Sen. John Braun of Centralia serves the 20th Legislative District, which spans parts of four counties from Yelm to Vancouver. He became Senate Republican leader in 2020.