Wash. House approves $680M package of tax hikes

The state House has approved a $680 million tax package that would shrink tax exemptions, collect more money from smokers and service businesses, and extend the sales tax to new types of purchases.

The 52-45 vote, which came in the pre-dawn hours Tuesday after about five hours of testy debate, finally sends ruling Democrats from the House and Senate into high-stakes negotiations over how to solve a $2.8 billion deficit in the state budget through June 2011.

Significant differences remain between the two chambers' tax and spending plans with only three days left in the Legislature's regular 60-day session. If legislators are unable to reach a deal in time, Democratic Gov. Chris Gregoire could be asked to call a special session.

The House tax package is significantly smaller than the $890 million tax blueprint approved by the Senate last weekend. It also avoids a general sales tax increase - a step endorsed by the Senate, but disliked by Gregoire.

The heart of the House tax plan is a $380 million smorgasbord of revisions to the tax code, which majority Democrats characterize as the closing of unfair "loopholes."

That includes $155 million from reversing a court ruling that extended tax breaks to out-of-state direct sales companies, and another $73 million from changing the way out-of-state businesses are taxed - aimed mostly at credit-card issuers, banks and other financial firms.

House Democrats also want to significantly expand the sales tax base, applying the state's 6.5 percent sales tax to custom software, candy and gum, bottled water and elective plastic surgery. That would be worth about $144 million through June 2011.

The House also wants to add another $1-per-pack tax to a pack of cigarettes, reaping about $112 million, and raise business taxes on service providers such as lawyers, accountants and consultants.

Republican lawmakers objected loudly to the tax-hike plans, saying the Democratic majority still hasn't gone far enough to reform the way government delivers services. The fragile economic recovery and the state's high unemployment rate make this precisely the wrong time to raise taxes, they said.

"We should fear what this will do to people," said Rep. Bill Hinkle, R-Cle Elum. "Stop and think what it's going to be like to try to create wealth. Because somebody has to create wealth in our economy."

Democrats, however, said their tax plan was part of a balanced solution to the $2.8 billion deficit. The House budget, for instance, calls for about $605 million in spending cuts - and that comes on top of the $9 billion deficit that was solved in 2009 without general tax increases.

"We're all here to make a courageous decision in a balanced way, and that's what this bill does," said Rep. Marko Liias, D-Mukilteo.

The House's tax plan shrunk significantly from the size originally penciled out in the chamber's budget plan. Left out were a tax increase on the investment earnings of nonfinancial firms and a business tax hike on janitorial services.

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The tax bill is Senate bill 6143.

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On the Net:

Legislature: http://www.leg.wa.gov