OLYMPIA — House Democrats in the state Legislature have sighted the elephant in the room.

Although they haven’t shot it yet, they’ve thrown $3.2 billion at education that, because it’s not peanuts, would be funded by a 5 percent excise tax on capital gains.

The 2015/2017 House budget they unveiled Friday also would reverse a 0.3 percent cut in the Business & Occupation Tax.

But it would eliminate the B&O entirely for the state’s 15,000 service businesses that gross less than $100,000 a year.

The elephant is the state Supreme Court’s McCleary decision last fall that held legislators in contempt and threatened sanctions if they failed to reform funding for public schools this legislative session.

The lawsuit that produced the ruling was brought by Stephanie McCleary, a Sequim native who is administrative secretary to Chimacum School District Superintendent Rich Stewart.

Meanwhile, the state Senate’s majority Republicans expect to release their budget Tuesday.

That’s the same day that House majority Democrats will bring their spending plan up for action on the floor.

“We’re going to pass it Tuesday, probably,” said Rep. Steve Tharinger, Democrat from Sequim.

“I think it’s a good budget for the state,” said Tharinger.

Rep. Kevin Van De Wege, also a Sequim Democrat, agreed.

“I think it goes a long way in funding our McCleary obligations,” he said.

Sen. Jim Hargrove of Hoquiam, a Democrat, said the Senate’s budget would likely be a partisan piece of legislation.

“It’s basically a Republican budget,” he said, “because we weren’t able to dot all our I’s and cross all our T’s.”

Nevertheless, the 24th District Democrats legislators didn’t foresee a bitter fight to reconcile each chamber’s budget into a single spending plan.

“There’s not a lot of bomb-throwing at each other,” Tharinger said.

“I’m expecting a lot of it will be all right” Hargrove said, although Sen. Andy Hill, a Republican from Redmond, said the state shouldn’t raise taxes but should cut spending to fund education.

As for a capital gains tax, Hill told The Associated Press, “I don’t know if that’s unconstitutional or just unconscionable.”

Tharinger, Van De Wege and Hargrove all represent the 24th District that includes all of Clallam and Jefferson counties plus most of Grays Harbor County.

Tharinger said the House budget allocated $100 million for mental health programs the Supreme Court also has ordered, $220 million for early learning and $8.2 million for salmon habitat protection and restoration projects.

These include the Coal Creek culvert near Lake Ozette and the Tsooess River in western Clallam County.

Although the capital gains tax would funnel $400 million to meet the court’s McCleary order, Tharinger said the legislation did not target Individual Retirement Accounts, business personal property or sales of homeowners’ primary residences valued at $250,000 or less.

“It’s really an equity recovery,” Tharinger said, “a good new source for Washington’s revenue.”

Gov. Jay Inslee had asked the state Legislature for a 7.5 percent capital games tax, but even Democrats demurred.

The tax as proposed would fall on “less than a half of a percent of the population,” Tharinger said.

He said the House budget also would raise money by doubling the current 3-cent-per-container tax on bottled water and by establishing a point-of-purchase sales tax on Internet transactions.

As many as 20 other states levy taxes on Internet sales in the buyer’s home state, not the seller’s location, he said.

If the tax is adopted, Washington residents would pay it on Internet purchases regardless of a company’s headquarters.

Tharinger said it would raise $560 million a year.

The House budget can be viewed at http://tinyurl.com/PDN-2015housebudget.

One of Tharinger’s legislative priorities was reforming the B&O tax that is computed on a business’ gross receipts.

“You don’t get to deduct if you’re trying to get your business up and running,” he said

“It’s really stifling start-up and small businesses.”

Tharinger originally cosponsored a B&O exemption for companies that gross up to $500,000.

When that ran into opposition, he backed a bill exempting businesses that gross less than $250,000.

He finally settled for the $100,000 limit.

Still, any reform of the B&O tax is acceptable, Tharinger said.

“It’s really onerous for small businesses,” he said.

“I just wish we could do a little bit more.”

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Reporter James Casey can be reached at 360-452-2345, ext. 5074, or at jcasey@peninsuladailynews.com.