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Competing Plans to Fund Education

This is part two in a three-part series on education funding in Washington. Part one is available here and part three is here:

As I mentioned in part one of this series, education funding is the 800-pound gorilla that the legislature needs to address in the upcoming session. Both parties have “solutions”, and both are painful to the taxpayers. The voters need to know what ideas both parties are suggesting, and I will examine both sides in this post.

First, I will look at the ideas being put forth by the Democrats. Basically, their plan is to raise taxes. As I mentioned in a part one, one of those ideas is an income tax. I also pointed out that the person who is sponsoring that tax is the same person who sponsored the bill requiring a much more expensive education system. The income tax was undoubtedly the plan the whole time. It is a tax which has been ruled unconstitutional by the Washington State Supreme Court in 1933, and rejected by voters multiple times and as recently as 2010. The second proposal that Democrats are suggesting is a capital gains tax. They are selling this tax as a tax on the wealthy, and as an excise tax. Neither of these claims are true. A Capital gains tax is a is tax that is applied to any investment when you cash out that investment. In other words, if you buy a stock for $2 and cash it out at $10 you will be taxed on the $8. It is very unclear how the Democrats plan to make this tax apply only to the wealthy, and is another example of the “just trust us” narrative that the Democrats are selling. This sort of tax punishes those who had the ability and foresight to invest in their own future. Additionally, it is a backdoor way for them to institute and income tax. The 41 states that have an income tax, the District of Columbia, and the Federal Government all consider capital gains taxes to be income taxes, so how this tax magically becomes an excise tax in Washington, and does not create an income tax is beyond me. Additionally, any money you make when you sell your home is considered a capital gain. While the current proposal exempts home sales, if this tax is put into place that exemption can be removed at any time without a vote of the people. The last problem with a capital gains tax is that it is really easy to avoid. Oregon residents have been avoiding their State’s capital gains tax for years simply by moving to Washington. Why try something that has already shown itself not to work in our nearest, and most similar, neighbor? Rep. Ryu has also said that she supports I-732, a tax on carbon emissions. Regardless of where you come down on the climate change debate, I-732 is bad policy. In a time where we are “short” billions of dollars in the State budget, I-732 would lower revenue. The most likely area for the shortfall to be made up is by removing the cap on property tax increases, which would allow the legislature to raise property tax as high as they would like each year (currently they are capped at a one percent increase per year). The last option that Rep. Ryu has put forward is even more cryptic and disturbing, “any other source of revenue that we can come up with.” What that means is unclear, but it does suggest that those who already feel the squeeze from an overly burdensome tax structure are likely to get squeezed more.

Moving over the Republicans option, a “levy swap”.  A levy swap is a way for the legislature to change the way that schools get funding by raising property taxes and lowering local levies. They say it is revenue neutral, and it is on a State level, but not to the individual taxpayer. Meaning that those in so called “property rich” areas would pay more in property tax, while the property tax for residents in Eastern Washington would largely go down. It was also the plan that was used to fix school funding in the 70’s. While flawed itself, this plan is better than the Democrats plan because it does not create new, income based, taxes that can be raised at any time. Additionally, any levy swap needs to be combined with cuts to ineffective services to offset some of the size of the swap thereby lowering the impact on individual taxpayers. The swap would also need to be combined with cuts to services that are only used in Eastern Washington (they pay less into the general fund; they should take less out). With all of that being said, the levy swap is not the best idea to address this problem, and should only be used as a last resort once all other funding options have been used.

Why Am I an Independent?

What is McCleary, and How Did We Get Here?