Gov. Jay Inslee is calling for a tax hike of nearly $1.3

Gov. Jay Inslee is calling for a tax hike of nearly $1.3 billion, to be achieved largely from a 7 percent capital gains tax, a tax on polluters, and a stiff hike in cigarette taxes, which, combined, would go a long way toward closing an expected $2.5 billion deficit over the next two-year budget cycle.

The new capital gains tax would be imposed on earnings from the sale of stocks, bonds and other assets and would raise nearly $800 million, the governor said today in Olympia, where he formally presented his $39 billion budget proposal.

The capital gains tax, he added, will increase the share of state revenue paid by the wealthiest Washingtonians and less than 1 percent of state residents would be subject to the tax.

The governor also wants to place an additional 50-cent per pack tax on cigarettes as well as a tax on e-cigarettes that would bring in $56 million.

Another new tax proposed by the governor earlier this week would raise $380 million by charging polluters for carbon emissions.

“It is time to reinvest in Washington,” said Inslee. “This budget will accomplish these four things: stronger schools, healthier kids, cleaner air and a fairer tax system.”

The budget includes a new $2.3 billion education plan, which Inslee is calling the largest-ever state investment in early learning, and makes a commitment to meet the demands of the state Supreme Court’s McCleary decision in 2012, obligating the state to fully and sustainably fund basic education.

His plan also:

• Reduces K-through-3rd grade class sizes to 17 and implement full-day kindergarten statewide.

• Includes funding to promote student success, raise high school graduation rates and improve educator training and mentoring efforts.

• Maintains higher education access and affordability by freezing in-state undergraduate tuition rates, boosting funds for financial aid and adding money for math and science programs.

“It is said a budget is the ultimate policy statement,” Insleer said at a morning press conference. “But this is the start of a conversation, and I want to stress that I am open to any ideas others may have.”

Other budget highlights:

• An increase mental health treatment capacity by adding 145 beds to prevent boarding of psychiatric patients and another 35 beds to shrink wait times for those in jail awaiting evaluation and restoration services.

• Hiring Hire more than 100 child protective and child welfare services workers to more rapidly conduct investigations of abuse and neglect, and to ensure foster children are safe and foster parents are supported.

• Adding staff and capital investments to enhance operations at State Parks and catch up on a backlog of maintenance work.

• Providingt raises for state employees, the first general wage increase since 2008.

The 7 percent tax to capital gains would be on earnings above $25,000 for individuals and $50,000 for couples. Less than 1 percent of the state’s taxpayers have annual capital gains earnings above those thresholds. Exemptions would be provided to remove any capital gains tax on retirement accounts, homes, farms and forestry. Earned income from salaries and wages are not capital gains and would not be taxed at all.

“This is a fair way to raise needed revenue,” Inslee said. “It avoids an additional burden on the vast majority of Washington taxpayers. This is not intended to show a lack of respect for those who would pay. We honor success in Washington, but we also always strive for fairness.”

Inslee’s budget will be the main order of business when the state Legislature convenes on Jan. 12.