OLYMPIA — Ahead of next week’s full operating budget proposal, Senate Democratic budget leaders released their new revenue proposal for the 2025-27 operating budget.
“We’ve spent months discussing our budget, learned about how damaging an all-cuts budget might be, and have done the hard work to scrub the budget for savings and efficiencies,” said Sen. Noel Frame (D-Seattle), vice chair of the Senate Ways & Means Committee for Finance. “Now, honoring our responsibility to Washingtonians, we are releasing this proposal for new revenue. Rather than balance our budget entirely through devastating cuts or doubling-down on our regressive tax code on the backs of working families, we’re asking the wealthiest among us to finally do their part and pay what they owe so that we can fund great public schools, health care, public safety, and the services that our most vulnerable residents are counting on.”
The proposal contains five key elements:
Financial Intangibles Tax — a tax of $10 on every $1,000 of assessed value of certain financial assets (stocks, bonds, exchange-traded funds, and mutual funds) held by individuals with more than $50 million of these assets, paid by about 4,300 wealthy individuals. It generates approximately $4 billion per year starting in fiscal year 2027 for public schools, helping the state uphold its paramount duty with new, increased funding for special education services and the growing daily operating costs of running our public schools.
Removing the Cap on Employer Payroll Taxes — a 5% tax on large employers on the amount of payroll expenses above the Social Security threshold — currently $176,100 per year. This tax is limited only to companies with $7 million or more in payroll expenses— about 5,289 companies. The proposal is similar to the city of Seattle’s “JumpStart” tax and includes a full credit for businesses already paying that tax. It would raise about $2.3 billion per year once fully implemented, going to public schools, health care, and other programs that protect the safety and wellbeing of the public and provide basic needs assistance for seniors and those with developmental disabilities.
Allowing Property Tax to Grow by Population and Inflation — raising the property tax growth limit for the state’s common schools levy and for cities and counties, as well as special purpose districts, from the current 1% cap to the combined rate of population growth plus inflation. Local governments have the option to take a lower growth rate if they so choose. Instead of being tied to an arbitrary number, it would allow the growth limit to reflect the actual cost of providing public safety and related services. The proposal also completely exempts participants in the “Property Tax Exemption for Senior Citizens and People with Disabilities” program from paying the state property tax, giving a tax reduction for some of our most vulnerable community members. The state property tax is dedicated to public schools, with about $779 million in additional funding over the full four-year budget cycle, while increased funding in cities and counties would go to public safety, criminal justice, and community protection.
Repealing Ineffective & Obsolete Tax Preferences — repealing 20 tax exemptions where the public policy objective was not met, it is unclear whether the policy objective was met, or the exemption is legally obsolete, according to nonpartisan auditors at the Joint Legislative Audit & Review Committee, including for in-state hauling, gold bullion, prescription drug wholesalers, and more. This generates just over $1 billion over the full four-year budget cycle for public schools, health care, and social services.
Cutting the Regressive Sales Tax – as cost of living rises, Washington’s current regressive tax code puts an additional strain on households already struggling to meet their basic needs. This proposal reduces this disproportionate impact on low- and middle-income households with a half-point sales tax reduction, from 6.5% to 6% – a decrease in revenue of approximately $1.3 billion per year.
“Voters were clear last November: they don’t want school funding cut so that extremely wealthy people can keep enjoying a tax break,” said Senate Majority Leader Sen. Jamie Pedersen (D-Seattle). “This proposal reflects what we’ve heard from our communities: the wealthiest few should share more of the responsibility of investing in public schools and the services people need. People across the political spectrum – Democrats, independents, and even Republicans – express their frustration with a tax system that is rigged against working- and middle-class families. This transformative proposal will rebalance our tax code and provide ample funding for public schools, public safety, and the needs of the people of our state.”
“Washingtonians deserve what we all need to thrive — strong public schools, support for loved ones with disabilities, a home they can afford, and more,” said Sen. June Robinson (D-Everett), chair of the Senate Ways & Means Committee. “Our operating budget proposal includes billions in cuts, but an austerity budget of cuts alone would devastate communities across our state. We need a balanced approach — one that includes both responsible, targeted reductions and new revenue paid by some of the wealthiest people and corporations in the world. This proposal is a key part of that.”
“Our nearly century-old tax code relies mostly on flat taxes that fail to distinguish between small businesses and large corporations, homeowners and skyscraper owners, working people and billionaires,” Frame said. “It’s antiquated, unfit for a modern economy, and deeply unfair. This year, we’re proposing major reforms to ensure the biggest corporations in the world and extraordinarily wealthy individuals pay what they owe in taxes, so we can fund world-class schools, health care, infrastructure, and the services Washingtonians rely on.”
The policies include several key changes from previous versions. Based on feedback from the attorney general and the Department of Revenue, the financial intangibles tax has been narrowed to apply only to certain assets like stocks, bonds, and mutual funds, making valuation easier and implementation more straightforward. The property tax growth limit has also shifted from a fixed, arbitrary number to a flexible cap that aligns with the actual cost of providing public safety and services. The bill to remove the cap on employer payroll taxes makes improvements upon the “JumpStart” tax in Seattle to simplify compliance for taxpayers.
“We’ve worked incredibly hard over the past year to develop these proposals and incorporate feedback from stakeholders, the business community, fellow legislators, and tax experts and attorneys to present the best, most effective policy options,” Frame said. “We’re confident every single one of these proposals are ready for implementation, can withstand legal challenges, and will raise the revenue from the wealthiest few that we need to fund the schools and services Washingtonians not only need, but deserve.”
The full operating budget funded by these revenue proposals will be released in the coming days. Both the House and Senate must negotiate and agree on a final budget and revenue plan, which will be passed by the end of the legislative session on April 27 and signed by Gov. Bob Ferguson.
