Ballot Measures

Supermajority Law Struck Down, Time to Move Forward

Andy Nicholas — 2013-02-28T23:14:34Z

Today’s State Supreme Court ruling struck down the onerous supermajority requirement, that means policymakers can finally begin reversing the damage caused by the Great Recession.

The supermajority law contributed to years of deep cuts to schools, health care services, and other key economic investments. Now it’s time to start rebuilding the state economy so it works for all Washingtonians.

But there are more hurdles ahead. Several proposals introduced in the State Senate would add the damaging supermajority law to the State Constitution, in order to sidestep the Court’s decision. As we’ve said before, a Constitutional amendment requiring a supermajority is a bad idea – one that would further dampen Washington state’s already-fragile economic recovery.

Any attempt to reverse the Supreme Court’s reasoned judgment by putting a supermajority requirement into the State Constitution would only distract and hinder lawmakers from making investments that will create jobs and prepare workers to compete in the 21st century economy.

Until it was ruled unconstitutional today, the supermajority law prohibited tax increases without a two-thirds vote of the legislature or a public referendum vote. The law was undemocratic, giving a small minority of ideologically driven lawmakers the ability to overrule the majority. This small minority used this law to block important investments in schools, health care, and other priorities, resulting in $10.6 billion in cuts over the past five years.

As the Court stated in its ruling:

“The Supermajority Requirement unconstitutionally amends the constitution by imposing a two-thirds vote requirement for tax legislation. More importantly, the Supermajority Requirement substantially alters our system of government, thus enabling a tyranny of the minority.”

This “tyranny of the minority” has done great harm to our state. During the worst part of the Great Recession, as the tax resources that support investments in education, health care, and public safety dropped at a historically unprecedented rate, the supermajority law made it impossible for policymakers to respond in a fiscally responsible manner with a balanced approach of new revenue and cuts. Instead, lawmakers cut billions from these and other important public services. As our analysis has shown, these cuts deepened and prolonged the recession in Washington state and cost thousands of jobs.

The supermajority law has done great damage to our ability to make important investments in Washington state’s future. Now that chapter is over. It’s time for a new one to begin. Let’s come together and begin creating jobs and building a prosperous future for all Washingtonians.

Read the statement our Executive Director Remy Trupin issued this morning on the Court's ruling.

Proposed ‘Supermajority’ Amendments Would Protect Latest Tax Loophole for the Wealthy

Andy Nicholas — 2013-02-07T18:15:53Z

In the wake of the State Supreme Court decision to allow wealthy married couples to avoid paying the estate tax on a legal technicality, at great cost to public schools, policymakers should be able to act responsibly and simply close the legal loophole. But thanks to the state law that requires a “supermajority” vote of the legislature to raise revenue, as few as 17 state Senators can block any attempt to rationally solve the problem.

It’s just the latest hurdle caused by the supermajority law, which has resulted in four years of legislative dysfunction and sluggish economic growth. Today, lawmakers are hearing three proposed measures – Senate Joint Resolutions 8200, 8204, and 8205 – which would permanently cement this job-killing law into the State Constitution. At a time when policymakers should be focusing all of their attention on getting more resources to our badly underfunded schools, these proposals are a destructive distraction.

The supermajority law bars policymakers from raising additional tax revenue without a two-thirds majority vote of the legislature or a public referendum. As we’ve written previously, the law, by allowing a small group of lawmakers to block legislation, effectively hands all state budget decisions over to a handful of people who are opposed to raising any additional revenue for any reason.

As a result, this minority of legislators (who represent a small portion of Washington state’s population), has forced the majority to accept round after round of debilitating cuts to vital investments in health care, education, and safe communities. These cuts have eliminated thousands of jobs and hampered Washington state’s economic recovery, taking an enormous toll on struggling Washingtonians from Yakima to Mount Vernon.

If that weren’t bad enough, a recent State Supreme Court decision created an enormous loophole in Washington state’s estate tax, a voter-approved tax that only impacts the heirs of the super-rich. Due to a legal technicality, the Court’s decision (known as the “Bracken decision”) allows wealthy married couples to completely avoid paying estate taxes and shirk their obligation to help support schools. (All revenue from the estate tax is dedicated to education.) The court decision is projected to cost Washington state $160 million in the coming 2013-15 budget cycle, widening the already yawning gap between our needs and the resources we have to meet them.

Not surprisingly, the Washington State Department of Revenue has found that estate planners and lawyers are already developing strategies to help their ultra-rich clients take advantage of the Bracken loophole.

The supermajority has done enough damage to Washington state. Enshrining the law into the State Constitution would make it impossible for the majority to rebuild a state economy that benefits all Washingtonians.

Ballot Measures 2012: A Summary of Major Fiscal Initiatives

Andy Nicholas — 2012-10-18T22:42:48Z

By Andy Nicholas and Michael Mitchell -- Voters will make some important choices about Washington state’s economic future in the coming weeks as they consider a range of initiative and referendum measures appearing on the November 6th ballot.

Initiative 502: Regulating marijuana will boost key state investments

Initiative 502 regulates, taxes, and legalizes small amounts of marijuana for adult recreational use in Washington state. This measure would also have a positive impact on such important state investments as education, health care, and public safety, while enhancing justice and equality.

Check out a recent schmudget post on I-502 for more information.

Initiative 1185: Supermajority law will cause more pain for Washington state’s economy

Initiative 1185 would bar policymakers from raising much-needed public resources without a two-thirds “supermajority” vote of the legislature or a vote of the people. This initiative extends the supermajority requirement for two more years, allowing it to continue to do damage to Washington’s economy.

The supermajority law has given a small band of ideologically-driven lawmakers veto power over the entire state budget. With the disproportionate power this law gives them, the minority has been able to overrule the majority to protect wasteful tax breaks and make deep and painful cuts to health care, child care, senior services, and other vital investments. These cuts have cost thousands of jobs and have deepened and prolonged Washington’s economic recovery.

For more information on how I-1185’s supermajority law has harmed Washington’s economic recovery, read our policy brief “Supermajority Law’s Damaging Legacy.”

Also, check out this schmudget post, which explains that policymakers responded to recessions much more responsibly prior to supermajority law’s enactment.

Advisory vote on narrowing a wasteful tax break

In early 2012, the legislature voted to narrow a tax break claimed mostly by large out-of-state banks (known as Engrossed Senate Bill 6635). In exchange for agreeing to limit that tax break, a small group of legislators demanded the expansion and extension of other tax breaks. This means the state will actually lose more revenue in the next budget cycle than it will recoup from narrowing the tax break for banks.

Because state law requires a nonbinding “public advisory vote” when policymakers raise taxes or curtail tax breaks, Washingtonians will have an opportunity to weigh in. However, because the vote is merely advisory, the results will not alter the law. In other words, voting “no” would not restore the bank tax break.

Senate Joint Resolution 8223: Won’t solve state universities’ funding problems

This resolution would give the University of Washington (UW) and Washington State University (WSU) more flexibility in their investments with the hope of bringing in more funding. Importantly it doesn’t address the real problem facing public universities: the massive cuts policymakers have made in support to higher education since 2009.

The resolution would change the state constitution to give UW and WSU the option of investing operating funds in stocks and bonds. These state universities now are allowed to invest only in government bonds and other U.S. government-back securities.

By broadening the range of assets, UW hopes to increase its operating funds by $10 million to $20 million over the next 20 years. WSU estimates additional funds from this change would amount to $3 million to $10 million over the same period.

But new resources generated by this resolution would be a drop in the bucket compared to the $1.4 billion in cuts experienced in our higher education system over the past few years. As a direct result of cuts, tuition has skyrocketed and universities cannot meet the financial aid needs of the state’s lower- and moderate income students. No investment strategy could remedy cuts of this magnitude.

Engrossed Senate Joint Resolution 8221: Altering the "debt limit"

Washington, like other states, routinely borrows money, by selling bonds, for example, to finance large building projects like new schools, prisons, roads and bridges. This resolution makes three critical changes to how much debt the state can issue, but it is largely a solution in search of a problem. That's because for more than a decade, interest payments on Washington’s state debt have remained relatively stable as a share of state spending. And, this borrowing makes sure that resources are available to make critical investments in infrastructure that are essential to supporting a strong economy in Washington state.

Specifically, the resolution:

Lowers the constitutional debt limit: The resolution would gradually lower the amount of debt the state can issue as a share of general revenues, restricting the state’s ability to issue debt for important infrastructure investments, even when interest rates are low and borrowing can be cheap.
Broadens the definition of general revenue: This resolution amends the state constitution to classify property tax revenue as general revenue, which allows the state greater ability to issue debt. Broadening the definition of general revenue partially offsets the impacts of lowering the constitutional debt limit.
Lengthens the measurement period for debt capacity: Currently, when calculating the debt limit, lawmakers take the amount owed for the current year and divide it by the average general revenues of the three prior fiscal years. This resolution increases the number of years used in calculating the average of general revenue from the three previous years to six. This change will reduce dramatic fluctuations in the debt limit, particularly at the onset of a recession.

Overall, ESJR 8221 would not dramatically alter Washington’s current practices for issuing debt. It is important to note, however, that Washington does not have excessive levels of debt and the state’s credit rating remains one of the highest in the nation.

Impact of Initiative to Legalize and Regulate Marijuana

Andy Nicholas — 2012-10-11T18:04:07Z

By Andy Nicholas and Michael Mitchell--Initiative 502, which goes before voters next month, would regulate, tax, and legalize small amounts of marijuana for adult recreational use in Washington state. Our analysis shows that I-502 would have a positive impact on the state’s public investments while enhancing justice and equality.

If passed, I-502 would:

Generate up to $530 million per in new tax resources for important public investments: Due to uncertainties in how a legal marijuana market would function in Washington, it’s difficult to determine precisely how much revenue would be generated under I-502. However, using a conservative set of assumptions, the Office of Financial Management estimates that sales tax and business and occupation (B&O) tax revenues from marijuana sales, coupled with new marijuana excise taxes and fees levied on marijuana farmers, wholesalers, and retailers, would generate some $530 million per year to support important investments in education, health care, drug treatment, and other public investments.
Promote justice and equality: Current enforcement of marijuana laws disproportionately impacts communities of color in Washington state. Although white and black adult Washingtonians are equally likely to use marijuana, blacks are 3.2 times more likely to be arrested for possessing it. Legalizing small amounts of marijuana for personal use would greatly reduce this glaring disparity in our criminal justice system. The current system can also cause significant long-term damage to an individual’s economic potential. Being convicted of sale or possession of marijuana can deny a person access to assistance programs that encourage economic mobility and security, including student loans and public housing. They may also lose their job, driver’s license, or even custody of their children. (1)
Reduce public costs: Every year, the state and local governments spend about $23 million dollars on marijuana crimes, according to data from the ACLU of Washington. Those resources could be more effectively spent on education, health care, and other investments proven to have a much larger bang for the buck.

(Click to enlarge)

Next week the Budget & Policy Center will release a summary of findings on some of this year’s ballot initiatives. Stay tuned to schmudget.

1. Katherine Beckett and Steve Herbert "The Costs and Consequences of Marijuana Possession," 2011.

Supermajority Law Debate: History Favors A Balanced Approach

Andy Nicholas — 2012-09-06T17:02:12Z

There was a time – not so long ago – when bipartisan majorities of legislators worked together in the face of tough times.

They responded to recessions with a recipe of policies that worked – a balanced mix of targeted cuts in spending and some tax increases. That reasonable approach lessened the severity of past downturns by maintaining crucial investments in health care, education, child care, and job training while the economy recovered.

But since the state’s first “supermajority” law was enacted in 1993 – meaning that taxes couldn’t be raised unless two-thirds of legislators approved – Washington state has been forced to endure an over-reliance on the cuts side of the equation. The result: damaging cuts to public services that cost jobs and make economic recovery take longer.

Some put forward an odd, history-defying argument (see here and here) that policymakers would have relied on a cuts-only approach to the most recent recession even without the supermajority law. Those who say that seem to suggest the law isn’t necessary because raising taxes is already extremely difficult.

But the record shows otherwise. Before the supermajority law legislators were able to unite behind raising additional revenues when the only alternative meant unacceptably deep cuts to core public health, education, and safety services. For example:

Facing a severe recession in the early 1980s, policymakers (including Republican Governor John Spellman), enacted spending cuts and tax increases to preserve essential health and education investments. The package included a one-cent sales tax increase as well as more than $230 million in budget cuts.
During the recession of the early 1990s, Washington state faced a $2.1 billion shortfall between the amount needed to maintain key public investments and available tax revenues needed to pay for those investments. Again, legislators responded with a balanced approach consisting mainly of spending cuts, drawing upon reserves and funds other accounts, and some Businesses and Occupation (B&O) tax increases.

That’s a sharp contrast from the last time around, when the supermajority law in essence took important tools out of the hands of legislators and left them fumbling for a solution that only made things worse.

The bottom line is that without the overly-restrictive supermajority law, history clearly shows that Washington state has been able to come together during recessions and negotiate reasonable solutions to economic problems.

For more information on the toll the supermajority law has taken on Washington’s economy check out our latest policy brief, "Supermajority Law’s Damaging Legacy: I-1185 Would Renew a Policy That Has Eliminated Jobs and Thwarted Economic Recovery in Washington State."

Supermajority Law's Damaging Legacy: I-1185 Would Renew A Policy That Has Eliminated Jobs And Thwarted Economic Recovery In Washington State

Michael Mitchell — 2012-08-30T19:15:53Z

Update August 24th: Graphs have been updated to reflect accurate representation of B & PC analysis.

Introduction

Initiative 1185, which will appear on the November 2012 ballot in Washington state, jeopardizes our economic future and undermines basic values held by the vast majority of Washingtonians – such as healthy families, education and opportunity, thriving communities, and economic security.

It would renew the so-called “supermajority law,” which bars policymakers from raising additional tax resources without a two-thirds (supermajority) vote of the legislature, or a vote of the people. That law has already caused enormous damage to Washington’s economy, and renewing it would be a mistake.

During the worst recession of the post-World War II era, the supermajority law has given a small handful of lawmakers the ability to block legislation to raise the additional revenues necessary to bolster Washington’s economy. As a result, policymakers have been forced to slash funding for health care, schools and colleges, and other public investments that create jobs and support a strong state economy.

Just in the past three years, the supermajority law has been responsible for:

The elimination of thousands of jobs in Washington: Since the summer of 2009, about 18,000 jobs – teachers, child protection agents, parole officers, health care workers – have been directly eliminated due to state budget cuts. Thousands of additional private-sector jobs have been lost as a result of these layoffs and in turn reduced state and local government investments in the economy. Many jobs could have been preserved, were it not for the supermajority law.
Protecting wasteful tax breaks at the expense of public investments that support a strong state economy: The supermajority law blocks policymakers from curbing special tax breaks for large, profitable corporations that don’t need them. Even tax breaks that state auditors fault for failing to create jobs cannot be touched under the supermajority law. This wastes precious resources that could be used for education, health care, public safety, and other investments proven to foster economic growth.
Suppressing economic growth and causing human suffering: Supermajority-induced budget cuts have deepened and prolonged the recession, taking public resources out of the economy when they are most needed. Cuts to education, health care, and other services have also taken an enormous human toll. Thousands of seniors can no longer afford prescription drugs. Large reductions to basic food assistance mean many households must go without nutritious meals or choose between food and other necessities.
Reducing opportunities for the next generation of Washingtonians: The supermajority law has been especially harmful to young workers and families. Prospects of long-term prosperity and economic opportunity have been dimmed by short-sighted budget cuts to higher education, work supports largely utilized by young working families, and health care. The next generation of Washingtonians will shoulder most of the economic damage caused by the law, jeopardizing Washington’s middle class.

It didn’t have to be this way. Without the supermajority law, policymakers could have taken a more responsible and balanced approach to the downturn – one that included new revenue to save jobs and protect basic public priorities and values.

As long as Washington state is saddled with the onerous supermajority law, the state will not be able to make job-creating investments in transportation, public safety, health care, and education. If I-1185 is allowed to cement the law into place for another two years, those investments will continue to erode, forcing the next generation of Washingtonians to accept fewer jobs and limited opportunities.

It is not clear whether the supermajority law is even legal under the Washington State Constitution. Later this year, around the time voters will be deciding whether to approve I-1185 on the November ballot, the State Supreme Court will review the law. No matter how the Court rules, the supermajority law is a destructive policy that has done great damage to Washington state.

Power To The Few

For much of the last two decades, the supermajority law has given a small handful of lawmakers de facto control over the state budget. The law, which has been on the books in various forms since 1993, bars policymakers from raising taxes without a two-thirds vote of the legislature or a vote of the people. It allows as few as 17 state Senators (one-third of the 49-member chamber) to block legislation that would raise revenues to support state and local public health, education, and safety investments.

The supermajority law has made it nearly impossible for lawmakers to take a responsible and balanced approach to Washington’s ongoing economic problems. Instead, just a handful of lawmakers – those who are ideologically opposed to any tax increase for any purpose – have forced the majority to accept unnecessarily deep cuts to public health and education priorities in the last few years.

Figure 1 illustrates just how lopsided Washington’s approach to the Great Recession has been under the supermajority law. Since 2009, for every one dollar in new revenue raised to support higher education, child care, and other economic investments, more than $17 has been cut from those services. In fact, tax increases and other revenue enhancements account for a mere four percent of the actions taken to balance the state budget over the past three years.(1)

Protecting wasteful tax breaks

The supermajority law is so broad that it has prevented lawmakers from raising additional resources simply by ending wasteful tax breaks – even those that don’t create jobs and that predominantly benefit large, profitable corporations. It requires two-thirds of the legislature to modify or eliminate a tax break, but a simple majority to create one. This unequal treatment, making it far easier to create a new tax break than to weed out an underperforming one, has greatly undermined transparency and accountability in Washington’s entire budget process.(2)

Many of the 640 tax breaks on the books in Washington state have no proven ability to create jobs. Since 2007, the Joint Legislative Audit Review Committee (JLARC) has evaluated the performance of state tax breaks, with most subject to scrutiny at least once every ten years. So far, JLARC has reviewed 120 tax breaks. It has recommended terminating six because they do not fulfill their intended purpose and re-examining or clarifying another 29 that have no explicit public purpose whatsoever.(3)

Because of the supermajority law, the legislature has not been able to terminate a single tax break in accordance with JLARC’s findings. In early 2012, one tax break – a wasteful Business and Occupation (B&O) tax deduction claimed mostly by large out-of-state banks – was narrowed.(4,5) However, in exchange for agreeing to limit that tax break, a small group of legislators successfully demanded the expansion and extension of other tax breaks. As a result, the state will actually lose more revenue from these expanded tax breaks in coming years than it will able to recoup from the bank deduction.(6)

Damaging Legacy

Even in normal economic times, the supermajority law has prevented lawmakers from providing adequate funding for higher education, health care, and other public investments essential to building a modern and competitive state economy. However, the greatest economic damage from the law has occurred just in the past few years.

Thousands of jobs needlessly eliminated

Tens of thousands of Washingtonians have lost jobs as a result of the Great Recession, and the supermajority law has made the situation far worse than it otherwise would have been. Without the law, policymakers could have responded to the recession with a balanced mix of targeted budget cuts and some tax increases. Such a balanced approach would have saved many jobs – both in the public and private sectors – and would have preserved core public health and education investments.

Instead, the supermajority law forced policymakers to cut public investments by $10.6 billion since 2009.(7) This damaging, all-cuts approach to the recession eliminated health care, child care, worker re-training, and other economic services right when they were most needed. It also eliminated thousands of jobs.

Since the deepest part of the recession in June 2009, the jobs of nearly 18,000 child protection workers, parole officers, health care workers, and other frontline public workers have been lost.(8) As Figure 2 shows, while private sector employment has increased by about 3 percent (83,200 jobs) since summer 2009, the state and local government workforce has declined by nearly 4 percent (17,800 jobs) during the same period.

That drop has significantly held down growth in total employment and has held back a broader economic recovery in Washington state. Without the loss of teachers, parole officers, child protection workers, and other state and local government employees, the economy would have added at least 83,000 new jobs since 2009 – well above the actual growth of 65,400 jobs.(9)

Supermajority law has eliminated private-sector jobs too

The supermajority law didn’t just eliminate the jobs of teachers, public health workers, and parole officers. Thousands of private-sector workers have also lost jobs as a result of the unnecessarily deep state budget cuts.(10) That’s because:

Cuts have hurt thousands of private businesses that contract with the state: Washington’s state and local governments contract with thousands of local businesses and nonprofit organizations to build and maintain roads, bridges, and other transportation infrastructure; provide medical, dental, and mental health care; and do family counseling and other important public services. Jobs were eliminated as the state reduced purchases and lowered payments to these businesses. As of 2009, 41 percent of human service nonprofits that contract with the state or local governments in Washington have been forced to lay off staff as a result of budget cuts.(11) Today, that share is certainly much higher due to an additional $5 billion in cuts to public health, education, safety services enacted since 2009.
Laid-off teachers and other public-sector workers can’t fully participate in the economy: When teachers, nurses, child care workers, or other public-sector employees lose their jobs, they must sharply curtail their spending in order make ends meet. They reduce their purchases of goods and services from local businesses. When 18,000 workers stop buying, the whole economy suffers, and businesses are forced to eliminate jobs or postpone hiring additional workers. That is exactly what has happened in Washington state.

Were it not for the supermajority law, many of these jobs could have been saved.

The human toll of the supermajority law

Beyond the economic damage they have done, state budget cuts have greatly harmed thousands of workers, children, seniors, and people with disabilities in other ways. Since 2009:

More than 66,000 Washingtonians have lost health coverage, forcing them to go without care or seek expensive ER services that make the system more costly for all of us.(12)
The number of kids in K-12 increased by 12,135 between 2008 and 2010, but the number of teachers in classrooms shrunk by nearly 3,000.(13)
Roughly 20,000 individuals who cannot work due to a disability have seen their income support vanish.(14)
Funding for Regional Support Networks, which manage and coordinate mental health care for over 120,000 people, has been slashed, leaving many without needed care.(15)
Basic food assistance was halved for about 14,000 struggling people, forcing them to choose between nutritious meals and other neccessities.(16)
More than 180,000 have lost dental care, eyeglasses, hearing devices, and podiatry services.(17)
More than 50,000 seniors have lost prescription drug assistance, making vital medication too expensive for many.(18)
Use of Maternity Support Services – a program shown to improve maternal and child health outcomes – has fallen by as much as 40 percent in some counties.(19)

These and other severe cuts to core public priorities have made the recession deeper and more painful than it otherwise would have been. However, it’s the next generation of Washingtonians that will shoulder most of the economic damage caused by the supermajority requirement.

Less opportunity for future workers

The supermajority requirement has jeopardized the economic future of Washington state. Young adults, whether pursuing higher education or beginning their professional lives, are coming of age during a dismal economic reality – one that translates into lower-than-expected lifetime earnings and diminished careers.(20) As young workers age, long-term reductions in income and well-being mean a future of less prosperity, limited economic growth, and a weakened middle class.

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Box 1: Why Raising Taxes Would Have Saved Jobs and Mitigated Economic Damage

State policymakers can do much to mitigate job losses and reduce overall economic damage during a recession, but not with a supermajority requirement for revenue increases standing in the way.

Losing a job greatly compromises workers’ ability to support their families, get adequate health insurance, and make ends meet. As cash-strapped households rein-in spending, local businesses are forced to eliminate even more jobs due to the reduced demand for their products or services.

State governments can help break this destructive cycle and limit total economic damage by maintaining investments in public services. During a recession, preserving health care, job-training, higher education, and other economy-building public investments helps to stem job losses because to keep delivering these important public services, the state must maintain (or even increase) its purchases of goods and services from local businesses. In doing so, it helps keep consumer demand high, which in turn supports the public and private sector jobs that help meet that demand.

But mass layoffs and reductions in consumer spending also greatly reduce tax resources that pay for public health, education, and safety investments. To keep the state budget in balance, policymakers must either raise taxes or sharply cut these important investments.

Given those choices, severely cutting public services is the most damaging action a state can take during a recession, according to two highly regarded economists -- Nobel Prize winner Joseph Stiglitz of Columbia University, and Peter Orszag, former director of the federal Office of Management and Budget.(a,b) While both budget cuts and tax increases reduce demand, budget cuts do more overall damage to a state’s economy, they argue.

That’s because budget cuts directly reduce a state’s investment in the local economy on a dollar-for-dollar basis. In other words, every dollar cut from public services is directly removed from the state economy -- due to a combination of reduced purchases from local businesses, salary reductions for public sector workers, and lower support payments to struggling workers and families.

On the other hand, tax increases – especially those targeted to higher income households – do not reduce demand on a dollar-for-dollar basis. That’s because some of the money used to pay the additional taxes comes from either savings, which would not otherwise be spent in the local economy; or reduced purchases of goods from other states, which would have no impact on the local economy.

Unfortunately, the supermajority law has forced policymakers in Washington state to take the most damaging, cuts-only approach to the Great Recession. By blocking additional resources to maintain crucial health, education, and safety investments, the law has forced some $10.6 billion in damaging cuts to these assets since 2009. Without a change in direction, these cuts will continue to hold down Washington’s economic recovery.

a.Peter Orszag and Joseph Stiglitz, “Budget Cuts vs. Tax Increases at the State Level:Is One More Counter-Productive than the Other During a Recession?” Center on Budget and Policy Priorities, November 2001, http://www.cbpp.org/cms/index.cfm?fa=view&id=1346.
b.Nicholas Johnson, “Budget Cuts or Tax Increases at the State Level: Which Is Preferable When the Economy Is Weak?, Center on Budget and Policy Priorities, April 2010, http://www.cbpp.org/cms/?fa=view&id=1032.

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In the past, when young adults have struggled with a poor economy, the state has responded with sustained investments that encourage opportunity and a strong economy by adequately funding higher education, basic supports for lower-income working people and investments in public health. During the Great Recession, the supermajority requirement prevented the state from taking this normal course of action.

Young adults have paid the price. Since 2009, cuts to the higher education system have resulted in a 94 percent increase in the average cost to attending four-year college in Washington state.(21) Temporary Assistance for Needy Families (TANF), a program in which nearly three out of five adults served are between ages 18 and 30, was cut by $127 million this past legislative special session.(22)

As noted above, since the beginning of 2009, cuts to the Basic Health Plan have cost some 66,000 lower- and moderate-income adults their health insurance. Young Washingtonians have been hit hard: 52 percent of those who lost coverage were age 39 or younger (Figure 3).(23) Our state’s young adults are facing higher barriers to care and more out-of-pocket costs, which could saddle them with high levels of debt for years to come.

Young Washington state residents who work hard and have played by the rules, through no fault of their own, see opportunity slipping away through higher tuition costs, fewer available work supports, and heightened fears of unanticipated health care expenses. The supermajority law means a steeper climb to prosperity for our future small business owners, community leaders, middle class families and, consequently, all Washingtonians.

Conclusion

Initiative 1185 would renew a law that has greatly undermined core public values held by the vast majority of Washingtonians – such as education and opportunity, thriving communities, economic security, and healthy families. By giving a small handful of lawmakers de facto control of the state budget, the supermajority law compromises Washington state’s democratic institutions and the republican form of government they support.

Under the law, policymakers have been forced to cut some $10.6 billion in funding for essential public investments that create jobs and build a strong state economy. These cuts have eliminated thousands of jobs in Washington state and have stifled economic growth. They have also taken an enormous toll on the health and well-being of workers and families from Aberdeen to Spokane, while reducing opportunities for the next generation of Washingtonians.

It doesn’t have to be this way, however. Without the supermajority law, Washingtonians would be empowered to make crucial investments needed to create jobs and build a more prosperous state for years to come.

Acknowledgments

The Budget & Policy Center gratefully acknowledges the support of the Annie E. Casey Foundation, Bill & Melinda Gates Foundation, Paul G. Allen Family Foundation, Campion Foundation, Northwest Area Foundation, Stoneman Family Foundation, Washington Progress Fund, Women’s Funding Alliance, and The Seattle Foundation. The findings and conclusions presented in this report are those of the author alone, and do not necessarily reflect the opinions of these organizations.

Endnotes

1. Budget & Policy Center calculations; data from the Legislative Evaluation & Accountability Program (LEAP) Committee and the Economic and Revenue Forecast Council (ERFC).
2. Andy Nicholas, “Every Dollar Counts: Why It’s Time For Tax Expenditure Reform,” Washington State Budget & Policy Center, February 2011, http://budgetandpolicy.org/reports/every-dollar-counts-why-its-time-for-tax-expenditure-reform.
3. Citizen Commission for Performance Measurement of Tax Preferences, “Recap of Legislative Actions on Prior Reviews,” July 2012, http://www.citizentaxpref.wa.gov/documents/Scorecard.pdf.
4. 2012 Senate Bill 6635 limited the tax deduction for interest paid on loans secured by first home mortgages to banks that operate in 10 or fewer states, which was projected to generate about $15 million per year in additional revenue.
5. The Joint Legislative Audit and Review Committee concluded, “There is no evidence that continuation of the [first home mortgage interest deduction] will contribute to the implied public policy objective of making residential loans available to Washington home buyers at lower cost.” See the 2011 report, located at http://www.leg.wa.gov/JLARC/AuditAndStudyReports/2011/Documents/12-2.pdf#page=93.
6. The net fiscal impact of SB6635 (legislation that narrowed the first mortgage interest deduction and extended other tax preferences) is estimated to be -$1.2 million in 2013-15 fiscal biennium. See the Department of Revenue’s, “Summary of 2012 Tax Legislation,” located at http://dor.wa.gov/Docs/Reports/2012/Summary_2012_Tax_Leg/2012LegSummary.pdf.
7. Budget & Policy Center calculations; data from LEAP.
8. Budget & Policy Center calculations; seasonally adjusted data from the Bureau of Labor Statistics (BLS).
9. Budget & Policy Center calculations; seasonally adjusted data from BLS.
10. Estimating the exact number of private sector jobs lost as a result of state and local budget cuts is beyond the scope of this analysis due to data limitations. However, as explained in box on page 6 of this report, that budget cuts remove demand from state economies to a greater degree than tax increases -- and therefore create more economic damage -- is supported by mainstream economic theory.
11. Elizabeth T. Boris, Erwin de Leon, Katie L. Roeger, and Milena Nikolova, “National Study of Nonprofit-Government Contracting: State Profiles,” Urban Institute, Center on Nonprofits and Philanthropy, October 2010, http://www.urban.org/UploadedPDF/412227-National-Study-of-Nonprofit-Government.pdf.
12. Budget & Policy Center calculations; caseload data from the Health Care Authority (HCA).
13. Kim Justice, “Declining Support for Education Threatens Economic Growth,” Washington State Budget & Policy Center, November 2011, http://budgetandpolicy.org/reports/declining-support-for-education-threatens-economic-growth/.
14. Kim Justice, “Economic Security: Key to Recovery and Prosperity,” Washington State Budget & Policy Center, October 2011, http://budgetandpolicy.org/reports/economic-security-key-to-recovery-and-properity.
15. Kim Justice, “Cuts on the Rise, Health in Decline: The Impact of Cuts to Washing State’s Health Care Structures,” February 2012, http://budgetandpolicy.org/reports/cuts-on-the-rise-health-in-decline.
16. Washington State Department of Social & Health Services.
17. See endnote 15.
18. See endnote 15.
19. Lori Pfingst, “Women, Work, and Washington’s Economy: How State Budget Cuts are Hurting All Three,” Washington State Budget & Policy Center, February 2012, http://budgetandpolicy.org/reports/women-work-and-washingtons-economy?searchterm=Women%2C+Work.
20. Lisa Kahn, Yale School of Management, “The Long-Term Labor Market Consequences of Graduating from College in a Bad Economy” 2009, http://mba.yale.edu/faculty/pdf/kahn_longtermlabor.pdf
21. See endnote 13.
22. Budget & Policy Center analysis; data from LEAP.
23. Budget & Policy Center analysis; data from HCA.

Harmful Supermajority Requirement Headed Back to Ballot

Andy Nicholas — 2012-07-20T22:59:37Z

It’s a good time to review the economic damage done by the state’s “supermajority” requirement for revenue increases, now that Initiative 1185 has officially garnered a place on the November ballot.

By forcing deep cuts to job-creating investments in health care, education, public safety, and transportation, instead of allowing a balanced approach that would have included some new revenue, the supermajority requirement has stifled Washington’s economic recovery.

The requirement, which has been on the books in various forms since 1993, bars policymakers from raising taxes without a two-thirds vote of the legislature or a vote of the people. Initiative 1185 would lock the requirement into place for at least another two years.

Throughout the course of the Great Recession, a small number of ideologically extreme lawmakers have used this onerous law to block legislation needed to maintain investments essential to a strong state economy.

The impact on Washingtonians has been devastating:

More than 60,000 Washingtonians have lost health coverage, forcing them to go without care or seek expensive ER services that make the system more costly for all of us.
Too many aspiring students have been unable to receive financial aid, depriving them of the opportunity for a college education they’ve earned.
Double-digit tuition increases have made a four-year college education out of reach for thousands of students and unemployed workers looking to retool their skills to find a job.
Thousands have lost assistance to get and keep a job, when it should be our top priority to get people back to work
Many seniors must pay more for prescription drugs, increasing financial hardship for many who are already struggling to get by.

And that’s just the tip of the iceberg.

It didn’t have to be this way. Without the onerous supermajority requirement, policymakers could have responded to the recession with a mix of targeted budget cuts and modest tax increases. That approach would have preserved many of the job-creating public health, safety, and education services that were eliminated.

By continuing the supermajority requirement, I-1185 would hurt our economic recovery and further tie the hands of our elected officials.

Earlier this year, a King County Superior Court found that the supermajority requirement violates the State Constitution. The State Supreme Court will review the lower Court's ruling later this year, with oral arguments scheduled to take place on September 25th.

Whatever the Supreme Court rules, now is the time to make investments that create jobs, not keep bad laws that eliminate them.

Stay tuned. In the coming weeks the Budget & Policy Center will release more detailed analyses of the supermajority requirement and the damage it is done to Washington’s economy.

“Son of 1053” would continue to exacerbate budget woes

Michael Mitchell — 2012-01-17T16:55:18Z

Earlier this month Initiative 1185 (Son of 1053) was filed with the Secretary of State’s office. The initiative would extend the onerous supermajority voting requirement of I-1053 – a requirement that has repeatedly prevented the adoption of sensible policies needed to address our ongoing economic problems.

Due to the supermajority requirement, our public health, education, and other economic structures have been cut by at least $10 billion over the last three years, while unproductive tax breaks have remained completely intact. Like I-1053, I-1185 would extend the mandate that all tax increases be subject to either a public referendum vote or pass a supermajority (two-thirds) vote in both houses of the legislature.

For policymakers, the supermajority requirement works as a significant roadblock to finding responsible solutions to our severe budget shortfalls. The two-thirds mandate allows a small minority of lawmakers to block legislation needed to prevent economically damaging cuts to critical public services, at the expense of the well-being of state residents.

The imbalance caused by I-1053 has prevented the state from scrutinizing ineffective and costly tax breaks while directly leading to the enactment of over $10 billion dollars of cuts threatening our state's economic security, k-12 and higher education systems, and investments in health care.

Hampering policymakers from responsibly raising revenues directly jeopardizes our investments in safe neighborhoods, access to quality education, and supports for middle and low-income working families.

Extending the supermajority requirement will only work to prolong our state’s slow economic recovery, as thousands of working families lose access to child care, individuals with disabilities are cut off from critical financial supports and over 20,000 adults are left without job search and training assistance.

Limiting our state lawmakers with the supermajority requirement is irresponsible, and serves only to limit future opportunity for all Washington residents.

I-1107: Claim that candy tax includes food items is misleading

Andy Nicholas — 2010-10-29T21:51:00Z

Though proponents of Initiative 1107 claim that the measure would repeal taxes on “food and groceries” they have yet to support that claim. This year policymakers appropriately extended the state sales tax to purchases of candy using a common, multistate definition. Doing so helped our state to avoid unacceptably sharp cuts to basic public priorities like health care and education.

To back up the misleading claim that I-1107 would eliminate taxes on common groceries, proponents often argue that the definition of candy used for sales tax purposes in Washington unfairly includes typical food products. But proponents of I-1107 have not been able to point to a single non-candy product that would commonly be considered food or groceries.

Instead, they point to so-called “energy” bars and “yogurt-covered” fruit products, which are now taxed under our state and local sales taxes. However, from a nutritional perspective, these products are no different from candy and are appropriately taxed as such in our state. These products are described more fully below.

“Energy” bars

Recent radio and TV advertisements in favor of I-1107 feature a product called “Belly Timber,” which is now taxed along with other candy products under our state and local sales taxes. While Belly Timber is marketed as an organic “survival bar,” the nutrition labels below show that it has more calories, total fat, and saturated fat than a comparably-sized Snickers candy bar.1,2 The labels also show that Belly Timber has about the same amount of carbohydrates as a Snickers bar.

Similar problems exist with other so-called “energy bars.” Though marketed as nutritional supplements for athletes, many of these bars contain more calories, sugar, fat, and carbohydrates than standard candy bars.3

“Yogurt-covered” products

Proponents of I-1107 also trumpet yogurt-covered raisins, complaining that they are unfairly defined as candy under our state sales tax. Yet once again, a closer look at the nutritional value of these products greatly undermines this argument.

In fact, so-called “yogurt-covered” products are really oil-and sugar-covered products with minor amounts of powdered milk. (see the complete list of “yogurt” coating ingredients.) As a result, yogurt-covered raisins have considerably more calories, fat, and sodium compared to regular raisins.4

Given these facts, it is entirely reasonable that Washington’s multistate definition of candy includes energy bars and so-called yogurt-covered products.

View the following schmudget post for a deeper analysis of the misleading claims made by proponents of I-1107.

For information on other ballot measures, view our Initiatives Summary page.

Endnotes

1. Nutritional information on Belly Timber was obtained from the product website at http://www.bellytimberbars.com/Nutritional_analysis.html.

2. Nutritional information on Snickers was obtained from peertrainer.com at http://www.peertrainer.com/DFcaloriecounterB.aspx?id=5624

3. More information available at Consumer Reports Health, and kidshealth.org.

4. It's Not About Nutrition, "Is Yogurt-Covered Really Yogurt?" March 2, 2010, http://itsnotaboutnutrition.squarespace.com/home/2010/3/2/is-yogurt-covered-really-yogurt.html

Budget Growth Claims Lack Context, Belie Deep and Painful Cuts

Andy Nicholas — 2010-10-26T16:35:58Z

Introduction

Despite the claims made by proponents of I-1107 and I-1053, the size of our state government has actually declined since the late-1990s. That’s particularly true after the more than $4.3 billion in painful cuts to essential public services like health care and education the state has made in response to the Great Recession. The situation would get much worse if voters approve I-1107, which would repeal modest and mostly temporary tax increases enacted earlier this year to prevent even more damaging cuts to these and other important public priorities.

Problems with “out-of-control spending” claims

Proponents of I-1107 and I-1053 often compare the amount Washingtonians are spending from all funds on public services in the current biennum with the total spent during the 1999-01 biennium. There are at least two serious flaws with their approach:

Big numbers, but no context: Each year, the cost of maintaining key public priorities grows along with economic and demographic trends. Because of this, the simple changes in state spending quoted by the I-1053 and I-1107 campaigns reveal little about actual changes in the overall size of our state government. Though their figures seemingly reveal large growth, they are meaningless without a basis for comparison. Rarely, if ever, do proponents show how their figures relate to economic growth or other factors – such as the rising population of seniors – that impact the costs of simply maintaining core public services in our state from year to year.
Growth figures inappropriately include federal funds: The figures cited by I-1107 and I-1053 proponents typically include state spending from all funds, including federal funds. It makes little sense to blame state legislators for federal spending choices. State policy makers could theoretically turn down the federal dollars, but that would mean our state could not afford to provide special education services, health care services for lower-income children and families, numerous public infrastructure projects, and so on. Turning down these funds would also mean that federal taxpayers in Washington state wouldn’t see any of the benefits of their tax dollars flow back to our state; their taxes would simply be used to subsidize services in other states and to pay for services administered solely through the federal government.

State spending growth in context

Given the problems described above, a more informative approach is needed to fully understand trends in state spending on public priorities. Such an approach involves: 1) Excluding federal funds and focusing solely on spending from state-only revenue sources – that is, spending that comes directly from state taxes and fees paid by Washington state residents and businesses; and 2) Placing state spending in the context of total state resources, or the size of the state’s economy.

Graph 1 shows that, as a share of our state economy, spending from state-only sources on education, health care, public safety, and other important services declined since the late-1990s. During the 1997-99 fiscal biennium, state spending stood at slightly more than 6 percent of total personal income – the metric commonly used by economists to measure the size of state economies. As of June 2010, state spending in the current 2009-11 biennium was projected to be about 5.4 percent of total personal income in Washington. This amount will likely decline even further due to the recently-announced 6.3 percent across-the-board budget cuts, however.

Recent cuts in services have been deep and painful

Though proponents of I-1107 and 1053 deceptively use their spending growth figures to minimize recent cuts in services, the truth is the impacts of those cuts have been great. In the current biennium, essential public priorities have weathered budget cuts totaling more than $4.3 billion. As a result, programs that ensure the health of our people and our environment have been cut by 9.3 percent (44,000 lower-income workers have been kicked off our state’s Basic Health Plan); investments in education and opportunity – from preschool to universities – have been cut by 11.3 percent; efforts to create thriving communities, such as public safety and economic development, have been cut by 7.3 percent; and the list goes on. In total, the current budget will spend 10 percent below the amount that would have been necessary to maintain our previous commitments to these and other core public services1.

Acknowledgments

The Budget & Policy Center gratefully acknowledges the support of the Annie E. Casey Foundation, Bill & Melinda Gates Foundation, Paul G. Allen Family Foundation, Marguerite Casey Foundation, Campion Foundation, and the Seattle Foundation. The findings and conclusions presented in this report are those of the authors alone, and do not necessarily reflect the opinions of these organizations.

Endnotes

1. Jeff Chapman and Andy Nicholas, “A Step Backward: The 2009-11 State Budget,” Washington State Budget & Policy Center, September 1, 2010.

Analyzing the claims: Share of state resources devoted to public services has actually gone down

Kery Murakami — 2010-10-22T17:08:01Z

Despite the claims being made by Initiative 1107 and Initiative 1053’s proponents, Washington actually devotes a smaller share of its resources to public services like education and health care than a decade ago. And given the magnitude of the recession, the state will likely continue to devote a smaller share of its economy to public services than before.

Typically, economists measure changes in government spending over time by analyzing how much of a state’s total personal income – or the sum of its collective resources – goes for public services. But as the graph below shows:

The share of our resources that are spent on education, health care, public safety, and other important services has actually dropped since the late-1990s;

As of June 2010, state spending in the current 2009-11 biennium is projected to fall to about 5.4 percent of total personal income in Washington – lower than the 6 percent share that went for public priorities the late-1990s.

This percentage will decline even further due to the recently-announced, 6.3 percent across-the-board budget cuts.

In other words, a smaller share of our collective resources is going to public priorities like educating our kids or providing health care than before.

And it is declining.

To read more about the issue, please see our policy brief.

Confused about all the initiatives on the ballot? Check out our summary.

Our Summary of the 2010 Initiatives

Kery Murakami — 2010-10-22T18:34:54Z

A look at this year’s ballot initiatives and their impact on Washington state.

Initiative 1107 would repeal mostly temporary taxes on non-essentials at a cost to the state;

Initiatives 1100 and 1105 would privatize the liquor system, which would also cost the state resources;

Initiatives 1053 would require a supermajority to raise taxes or fees, making it more difficult to take a balanced approach to dealing with our priorities;

Initiative 1098 would create a high-income tax to help fund education and health care;

Initiative 1082 would allow private insurers to sell workers compensation insurance, also at a cost to the state.

Initiative 1107:

The measure would repeal the extension of the sales tax to candy, gum, and bottled water, along with an excise tax on carbonated beverages.

Analysis: The approval of these taxes was pivotal to preventing even deeper cuts this year. Their repeal would significantly reduce state resources for important priorities like education and health care. Indeed, the fiscal gap faced by the state in the next three years would grow by some $272 million. The likely result? More cuts.

It’s important to note these taxes are mostly temporary and quite common around the county.

Learn more

Initiatives 1100 and 1105

The two initiatives would dramatically change the state’s liquor system and would cost the state millions for public investments. Though different in many respects, both I-1100 and I-1105 would eliminate all state-owned liquor stores and the state’s centralized distribution center. These measures would instead allow liquor to be distributed through private wholesalers and be sold at grocery and convenience stores.

Analysis: Both initiatives could significantly reduce state resources in coming years:

Under both I-1100 and I-1105, privatizing retail and wholesale liquor sales would cost the state more than $70 million per year in state markup revenues;

I-1105 would also repeal all existing state taxes on liquor, which generated about $220 million in fiscal year 2009. Only a small portion of these revenues would be replaced by new taxes on distributors and retailers;

I-1105 would require the state Liquor Control Board to propose a new per-liter liquor tax to the Legislature. But nothing in I-1105 requires lawmakers to act. Additionally, should I-1053 pass, the proposed tax would have to be approved by a supermajority (two-thirds vote) in the Legislature or by a vote of the people;

The state Office of Financial Management (OFM) estimates that I-1100 would have a five-year cost to the state general fund of $115 million-$123 million. OFM estimates that I-1105’s five-year cost would be $513 million-$547 million.

Learn more

Initiative 1053:

Tim Eyman’s latest measure would reinstate a requirement that tax increases, no matter how small, be approved by a supermajority in the Legislature or by a public referendum vote.

Analysis: The supermajority requirement would allow a small minority of lawmakers to block any revenue proposal. It would make it virtually impossible for legislators to take a balanced approach to Washington’s ongoing economic problems. The result would likely be more damaging cuts.

Learn more

Initiative 1098

The measure would reduce taxes for homeowners and small businesses while providing additional resources for education and health care through a new tax on high incomes.

Our analysis: I-1098 would enact important long-term reforms to our state’s inadequate revenue structure. The proposed tax on high incomes would generate about $2.9 billion per year for Washington state. About 55 percent ($1.6 billion) of the revenue would be spent on improvements to Washington’s education system. Another 15 percent ($393 million) would be used to lower property taxes for homeowners and businesses. The remaining revenues would be spent on new funding for health care ($686 million) and lowering B&O taxes for small businesses ($259 million).

Learn more

Initiative 1082

This measure would allow private insurers to sell industrial insurance policies (also known as Worker’s Compensation) in Washington state. The insurance covers the costs of medical care, and missed time at work for injured workers. It also provides a pension for those who are unable to return to work as a result of a serious injury.

Analysis: OFM identifies a range of potential costs – including lost premium payments from state employees, higher administrative and oversight costs for the state Office of the Insurance Commissioner and the Department of Labor & Industries, and legal costs associated with higher numbers of rejected injury claims. That adds up to $202 million over the next five years in lost state resources.

Learn more

The Washington State Budget & Policy Center does not take positions on initiatives.

Analyzing The Claims About I-1107

Andy Nicholas — 2010-10-21T22:19:02Z

Proponents of Initiative 1107 are making a number of claims about the recent taxes on candy and other non-essential products that were enacted earlier this year to prevent deeper cuts in state priorities. In this post, we analyze these claims:

The claim that the definition of candy is too complicated and is harmful to businesses is misleading and out of context;
The argument that the legislature applied new taxes to meat and vegetable products, but didn’t apply these taxes to similar products from other states or countries, ignores key facts; and
The claim that the taxes enacted earlier this year harm Washington’s economy runs counter to mainstream economic theory.

The claim: The definition of candy is too complicated and is harmful to businesses.

Analysis: Misleading. Proponents fail to put the issue in context.

Proponents of I-1107 claim that the definition of candy, used to administer the sales tax in Washington, is too narrow and is difficult for businesses to comply with. They note that the current definition of candy excludes products with flour resulting in some sweets not being defined as candy. Proponents fail to mention a number of positive aspects about the way candy is defined – including the fact that the definition arose from a multistate effort to reduce tax compliance costs for businesses.

The definition of candy is part of a broader effort to reduce costs for businesses: For sales tax purposes, the definition of candy used in Washington was developed by businesses and state tax policy specialists from around the country as part of the Streamlined Sales and Use Tax Agreement (SSUTA). Under SSUTA the 23 participating states (including Washington) have agreed to adopt a uniform set of sales tax base definitions and to develop statewide sales tax databases, containing comprehensive information on taxable products and state and local tax rates by zip code. These provisions, among others, are designed to help large Internet and mail-order businesses collect and remit state and local sales taxes.

SSUTA helps small in-state businesses compete with large out-of-state businesses: Small in-state businesses are required to charge sale taxes on taxable sales in Washington, putting them at a competitive disadvantage to out-of-state mail order and internet retailers that are able to avoid collecting sales taxes. The SSUTA helps level the playing field between in-state and out-of-state retailers by making it easier for the larger businesses to charge sales taxes on Internet and mail-order purchases from in-state customers. See here for more information on the Streamlined Sales Tax Agreement.

Washington is hardly alone in using the SSUTA definition of candy: At least eight other states – Iowa, Kentucky, Minnesota, North Carolina, North Dakota, New Jersey, Rhode Island, and Tennessee – currently tax candy under the SSUTA definition.
The SSUTA candy definition prevents taxation of non-candy products: By excluding products that contain flour, the SSUTA definition of candy ensures that bakery products and confections -- like scones, cookies, rolls, and other products that are generally not considered to be candy – are not subject to state sales taxes.
Actions are being taken to help small businesses comply with the new taxes: To help small businesses identify taxable candy products, the Department of Revenue (DOR) has developed a searchable on-line database containing over 12,500 different products. The database is available on the DOR website.

The claim: The legislature applied new taxes to meat and vegetable products, but didn’t apply these taxes to similar products from other states or countries.

Analysis: Misleading. The legislature simply clarified two small business tax preferences earlier this year to ensure they achieve their intended purposes. Under state and federal law, Washington cannot levy state business taxes on out-of-state manufacturers that have no physical presence here.

Proponents of I-1107 argue that the legislature placed new taxes on meat and vegetable products this year. They further argue that these taxes are unfair because they only apply to businesses located in Washington State. This ignores or misrepresents the following factors:

No new taxes on processed foods were enacted this year: Early in 2010, the legislature clarified and narrowed two Business & Occupation (B&O) tax preferences, originally intended only for meat packers and companies that can or preserve fresh fruits and vegetables. Due to vagaries in the law, businesses whose products contained only minor amounts of meat or preserved fruits and vegetables were able to claim these preferences, even though the intent of the preferences was not to benefit these businesses. The expanded preferences cost the state more than $4 million per year in foregone tax revenues. To reclaim these resources, this year lawmakers clarified and narrowed both preferences. As a result, a small number of businesses will no longer be able claim these preferences (often referred to as “tax subsidies” by economists) and will be required to pay the same B&O tax rates that similar businesses pay. For more information on these preferences read the following schmudget post.
The U.S. Constitution prohibits Washington State from levying similar taxes on out-of-state manufacturers: Under state and federal law, Washington is barred from levying B&O taxes on firms that do not have nexus (a firm connection) with the state. State law mandates that out-of-state manufacturing firms must own property or have employees or agents working here in order to be subject to taxes on activities conducted in Washington. This means that the state cannot levy taxes on a meat or vegetable processing business located in another state if that business has no employees or property in Washington. That does not necessarily mean out-of-state manufacturers of processed foods have an advantage over in-state business, however. That’s because:
Products from out-of-state businesses are still subject to wholesaling and retailing B&O taxes in Washington: While Washington cannot tax businesses located in other states, products from these businesses are subject to wholesaling and retailing B&O taxes here. Additionally, out-of-state businesses are subject to state taxes in the state(s) in which they are located. It’s also important to note that other states are similarly prohibited from taxing production activities that occur exclusively in Washington.

The claim: The taxes enacted earlier this year harm Washington’s economy.

Analysis: False. The modest revenue package enacted earlier this year prevented economically-damaging cuts to essential public services.

Proponents argue that the taxes targeted by I-1107 should be repealed because they are harmful to Washington’s economy. Again, they fail to place this issue in the proper context. Mainstream economic theory indicates that state tax increases enacted during a recession prevent further economic damage by preserving core public services vital to the state’s overall well-being.

Budget cuts are more harmful to state economies than tax increases during a recession: When budget shortfalls occur, mainstream economic theory suggests that a “cuts-only” approach is the most economically-damaging choice state policymakers can make. During the recession of the early 2000s, Nobel Prize-winning economist, Joseph Stiglitz, and Peter Orszag, former Director of the Congressional Budget Office and the Office of Management and Budget, wrote that large budget cuts produce the most drag on state economies during a recession – reducing overall demand in the economy on a dollar-for-dollar basis. At the same time, Stiglitz and Orszag found that state tax increases reduce economic activity by a lesser extent because some of the money used to pay the additional taxes comes from residents’ savings or from out-of-state taxpayers. As a result, tax increases used to preserve public services – as was done in Washington – is the most sensible course of action for state policymakers. This view has been endorsed by more than 20 economists and public policy experts here in Washington. For more information, read the 2000 report from Stiglitz and Orzsag.

UPDATE: I-1098 Would Fund Improvements in Health Care and Education, Cut Taxes for Homeowners and Small Businesses

Andy Nicholas — 2010-10-13T19:04:31Z

Initiative 1098 offers Washingtonians an opportunity to enact important long-term reforms to our state’s inadequate revenue structure. The measure would reduce taxes for homeowners and small businesses while providing additional resources for education and health care through a new tax on high incomes.

The proposed tax on high incomes would generate some $2.9 billion per year in additional resources for Washington State. The graph below shows how the new revenue would be spent.

As the graph shows, about 55 percent ($1,600 million) of the revenue would be spent on improvements to Washington’s education system. Another 15 percent ($393 million) would be used to lower property taxes for homeowners and businesses. The remaining revenues would be spent on new funding for health care services ($686 million) and lowering B&O taxes for small businesses ($259 million).

For more information on I-1098, see the following collection of reports from the Economic Opportunity Institute.

For information on other measures to appear on the November ballot see the following Budget & Policy Center reports and schmudget posts.

In Perspective: The Potential Cost of I-1107
I-1107 Would Repeal Common and Reasonable Taxes
I-1107 Could Imperil Efforts To Maintain Public and Environmental Health
I-1107 Would Restore Wasteful Business Tax Preferences
I-1053’s Supermajority Requirement is Excessive and Unreasonable
New OFM Analyses Show Potential Costs of 2010 Initiatives
2010 Initiatives Could Impact Public Services

New Census Data Show Importance of Public Health Insurance Programs

Andy Nicholas — 2010-09-24T18:19:33Z

The state-level health insurance data released by the U.S. Census Bureau last week vividly highlight the growing importance of public health programs in our state. At a time when thousands of Washingtonians have lost employer-sponsored health insurance, the data show that public health insurance is providing a crucial backstop for workers and families as the economy recovers. Yet, while the need for state-sponsored health insurance has grown rapidly throughout the recession, policymakers have enacted deep and painful cuts to these services in the current biennium. A new round of cuts announced last week will weaken our public health infrastructure even more.

The graph below shows that share of Washingtonians (population under 65) covered by employer-sponsored health insurance declined by 3.6 percentage points from 66.6 percent in 2006-07 to 63.0 percent in 2008-09. The availability of state-supported public health programs – such as Medicaid, Apple Health for Kids (S-CHIP), and the Basic Health Plan – has enabled many Washingtonians to continue receiving care, however. During the same period, the share of the population accessing public health insurance increased by 2.3 percentage points from 13.2 percent to 15.5 percent.

As the graph shows, public health programs in Washington have been particularly important in preserving coverage for children. Before the recession, about 24.8 percent of children in Washington were covered by public health insurance. By 2008-09, that share had grown to 34.2 percent – an increase of 9.4 percentage points.

Now more than ever, workers and families in Washington are in need of public health services. But new, across-the-board budget cuts announced last week will substantially weaken our state’s ability to maintain this important support system – which has already weathered cuts amounting to 10.6 percent in the current biennium. (For more information, see the latest Budget & Policy Center Policy Brief, A Step Backward: The 2009-11 State Budget.)

Furthermore, several initiatives slated to appear on the November would substantially reduce state resources in the current year and coming years, forcing even deeper cuts in public health and other vital state systems.

Note: Next week, the Census Bureau will release more detailed state-and county-level statistics on poverty, health insurance status, and host of other statistics. Stay tuned to schmudget.