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Facing K-12 Budget Crunch, Washington Governor Proposes Capital-Gains Tax

Going into 2015, Washington Gov. Jay Inslee, a Democrat, faced a major challenge for his budget proposal. In addition to a recently voter-approved class-size-reduction initiative that will require higher levels of state K-12 funding, Inslee has to reckon with the state supreme court. It ruled the state in contempt earlier this year because Washington failed to sufficiently increase education spending in light of a 2012 decision on public school funding, McCleary v. Washington. Failure to do so next year, the justices said, could lead to severe court-imposed budget sanctions. 

Right now, the state doesn't have an income tax to increase. It also doesn't have a capital gains tax to increase. And Inslee has a legislature with split partisan control. 

What's a governor to do? In Inslee's case, he decided that part of the answer is to enact a capital gains tax.

In his proposal for the 2015-17 biennial budget, the governor wants to create a capital-gains tax of 7 percent on investment income of at least $25,000 for individuals ($50,000 for joint filers), starting in the second half of the biennial budget. That would translate, according to Inslee, to over $700 million in additional revenue over the two-year budget. 

Other new revenue would come from a 50-cent hike on packs of cigarettes, and repeal of certain sales-tax exemptions, such as on bottled water. 

What would Inslee's plan mean for education spending? In terms of per-student spending, this is what Inslee wants to see:

Inslee Budget.PNG

Per-student spending would rise to $9,015 in the governor's 2015-17 budget. Here's how other K-12 spending increases in Inslee's budget break down:

• Additional early child-care spots and early-reading initiatives ($156 million);

• Funding full-day kindergarten for all students ($108 million);

• Reducing class sizes to 17 students per teacher in grades K-3 ($448 million);

• Additional money for classroom materials, curricula, and other operating costs ($752 million).

Inslee will now have to convince a legislature (where Republicans control the state Senate through a coalition with Democrats) to pass his ambitious plan. And then, the plan  would have to pass muster with the court. In terms of K-12 finance, there may not be a more interesting state to watch next year than the Evergreen State. 

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