State Revenue

Looming Special Session Provides Choices: Responsible Investments in Education and Jobs OR Gimmicks, Cuts, and Decline

Andy Nicholas — 2013-04-26T16:15:53Z

Earlier this week, lawmakers in the House passed HB 2038, a responsible measure that would narrow tax breaks and extend a small tax increase on business services in order to fund court-mandated improvements to schools while preserving health care, public safety, and other investments that create jobs.

The passage of HB 2038 represents the final component of the two-year spending plan put forward by House leaders. That plan follows the path laid out by Governor Inslee earlier this year, but is very different from the budget proposal from leaders in the State Senate.

Unlike the responsible and balanced approach championed by Governor Inslee and members of the House, the Senate’s approach would only make matters worse by subjecting health care, child care, and other investments that help middle class families prosper and kids learn to yet another round of severe cuts.

As the regular 2013 legislative session draws to close, and as lawmakers begin planning for a special legislative session, the stage has been set for a dramatic show down between these two fundamentally different visions for our state. Which direction will they go? Stay tuned to schmudget as events unfold.

Jobs and Education Should Prevail Over Tax Breaks

Andy Nicholas — 2013-04-24T23:18:26Z

Opponents of legislation that would close wasteful tax breaks to build a better education system for all of Washington state’s children are using flawed arguments to try to derail the effort.

House Bill 2038, which passed the House Finance Committee yesterday, would invest about $900 million in schools and expand opportunities for generations to come. To generate the resources needed to modernize our schools, the legislation would close or narrow about $400 million in tax breaks and continue a tax increase on business services that is scheduled to expire at the end of June.

Investing in education is one of the most effective ways of creating middle class jobs and a vibrant, competitive state economy. Yet, at a recent public hearing on HB 2038, a range of corporate special interests erroneously claimed that if they were required to pay the same tax rates as most other businesses in Washington state, they would be forced to fire some of their workers and not hire others. They ignored several facts:

Education is key to building a strong economy: Consistently, businesses cite an educated and skilled workforce as a primary factor in deciding where to locate and create jobs. Investing in high-quality schools fosters economic growth and creates an economy capable of sustaining a strong middle class with well-paying jobs. Unfortunately, per student funding has been consistently cut since the start of the recession, while spending on tax breaks has remained virtually untouched.
Demand for goods and services creates jobs: Washington state’s economy is not struggling because there are too few tax breaks on the books. If tax breaks created jobs, the economy ought to be booming with 640 tax breaks currently in place. Ultimately, businesses hire workers when they expect an increase in demand for their products or services. Consumer demand remains very weak in wake of the Great Recession, which is a big reason businesses in Washington state are not hiring. Tax cuts for businesses, broad or narrow, do little to spur demand among consumers.
Public investments bolster demand for goods and services: Investments in education, health care, and other public services can help stimulate local demand during hard economic times. State and local governments purchase many products and services from local businesses, hire local workers who spend their money at local stores, and contract with local businesses to provide essential services and to build roads, bridges, and other vital economic infrastructure. All of these things help sustain economic demand during tough economic times while laying the groundwork for a more prosperous state economy in the long run.
Many tax break dollars subsidize jobs and shareholders in other states: It is very difficult to ensure that tax break dollars, and their benefits, stay in Washington state. Rather than creating jobs in local communities, a significant portion of tax break dollars pad the profits of corporations and corporate stockholders in other states. That is very likely the case for a number of tax breaks that would end under HB 2038 – such as a high-tech research and development credit claimed by many large software companies, which created few jobs at a very high cost to the state; a complete business tax exemption for importers; and a preferential business tax rate for prescription drug wholesalers that is available to both in-state and out-of-state businesses.
Most tax breaks under consideration have failed performance evaluations or serve no purpose: Of the 11 tax breaks that would be eliminated or narrowed under HB 2038, seven have been reviewed by state auditors. In four of those cases, the auditors found that the tax breaks should be repealed because they failed to create jobs or serve any other valid public purpose. Auditors were unable to measure the performance of the remaining three tax breaks because they could find no measurable purpose for them whatsoever.
Most tax breaks don’t create jobs: State taxes represent a tiny fraction of business’ overall costs. Nationwide, all state and local taxes combined represent between 2 percent and 3 percent of total operating costs for the average corporation and have only a marginal impact on business investment decisions. Moreover, the resources used to finance these poorly designed tax breaks would be far more effectively used to fund education and other public priorities that have a much larger return on investment.

The bottom line is that HB 2038 is a modest but smart step toward creating middle class jobs and a state economy that works for all Washingtonians. Those who claim that tax breaks are needed to create jobs overstate their effectiveness and fail to recognize the economic benefits of investing in better schools for our children.

An Easy Choice: Invest in Education and Economic Growth For All, Or Continue Preferential Tax Rates For The Few?

Andy Nicholas — 2013-04-16T18:01:10Z

Part 2 in a series on revenue options under consideration in the 2013 Legislature
Following Governor Inslee’s lead, last week leaders in the State House of Representatives sensibly proposed to end costly and ineffective tax breaks to generate additional resources for schools and other investments that grow the economy and help middle class families prosper.

Both the Governor and House leaders propose to rein in preferential business and occupation (B&O) tax rates, many of which have remained in place for decades at the expense of investments in education, health care, and safe communities.

There are 31 special B&O tax rates on the books in Washington state that give an advantage to certain businesses, costing hundreds of millions of dollars each year (see graph below). For example, while most wholesale businesses pay the standard B&O rate of 0.484 percent, companies that sell prescription drugs at wholesale pay less than one-third of that.

Governor Inslee wants to generate about $70 million in additional resources for the state by increasing most of these preferential tax rates by 25 percent, except those for aerospace firms and businesses that clean up toxic waste. That means, for example, the tax rate for prescription drug wholesalers mentioned above would increase to 0.1725 percent, still far below the standard wholesaling rate.

House leaders want to take a slightly different approach. Instead of trimming the tax breaks by the same amount, their plan would eliminate the B&O tax breaks that fail to create jobs or that no longer make sense in the modern economy. Here’s what they propose and the amount of revenue that would be generated in the 2013-15 budget cycle:

Travel agents and tour operators ($15 million): The standard B&O tax rate for service businesses is 1.8 percent, but in 1975, policymakers gave a lower tax rate to travel agents and tour operators of 0.275 percent. Although the preference was intended to make sure travel agents weren’t paying higher taxes than airlines on ticket sales, changes in the travel industry and state and federal policy changes since 1975 have corrected the underlying problem. Because of this, a Citizen Commission that reviews tax breaks recommended that this preference be terminated, as it is no longer needed.
Insurance agents ($46 million): Real estate agents, stock brokers, and other service providers are subject to a 1.8 percent B&O tax rate, but in 1983, policymakers gave a lower rate to insurance agents and brokers and have further lowered it over the years to just 0.484 percent, less than a third of the standard rate. State auditors recently found that there is no justification for this tax break.
Prescription drug wholesalers ($29 million): In 1996, to encourage prescription drug wholesalers to build warehouses in Washington state, policymakers gave these businesses a B&O tax rate of 0.138 percent, compared to the 0.484 percent paid by other wholesale producers in the state. However, this preferential rate is poorly targeted since it is available to all prescription drug wholesalers that do business in Washington state, whether they have warehouses located here or not. As a result, this preference is not helping to increase the number of prescription drug warehouses located in Washington state and should be repealed.
Stevedoring ($28 million): Businesses engaged in stevedoring (loading or unloading cargo from ships) are given a B&O tax rate of just 0.275 percent, which is far below the tax rate of 1.8 percent paid by most other service businesses. State auditors found no evidence that it makes Washington state ports more competitive with those in other states. Furthermore, no competing West Coast ports provide a tax break for stevedoring services. Because of this, the Citizen Commission recently recommended that the state end this tax break.

House leaders should move forward with closing these ineffective tax breaks that are making it hard for our state to invest in the building blocks of Washington state’s economy. These small but sensible changes are the responsible thing to do.

Check out part 1 of this series, which explains proposals to make two temporary tax increases on service businesses and breweries permanent.

Up next, an overview of sales tax breaks that would eliminated under proposals from the Governor and House leaders. Stay tuned to schmudget.

House Proposes Revenue to Rebuild Economy, Grow Middle Class

Andy Nicholas — 2013-04-11T22:35:26Z

Part 1 in a series on revenue options under consideration in the 2013 Legislature.

Yesterday, leaders in the House introduced a sensible budget plan that would preserve investments that are vital to creating jobs and helping middle-class families thrive while taking needed steps toward improving K -12 education.

Unlike the unbalanced budget passed last week by the Senate, the House proposal would ensure there are enough resources to pay for these investments.

Today we examine the proposals from Governor Inslee and the leaders in the House to permanently extend two temporary tax increases enacted three years ago. Later posts in this series on legislative revenue options will examine proposals to narrow or terminate wasteful tax breaks, actions to plug legal loopholes created by State Supreme Court rulings, new tax breaks that have been introduced, and proposals to foster a more transparent and accountable process of scrutinizing tax breaks during the budget development process.

Extending current taxes

To help fund Court-mandated improvements to K-12 education and other important education investments, like early learning and higher education, both Governor Inslee and leaders in the House have proposed permanently extending a pair of temporary tax increases that are currently set to expire at the end of June.

In 2010, facing enormous revenue shortfalls, policymakers enacted these tax increases to help maintain core investments in health care, education, and public safety during the worst part of the recession. Given the sluggish economic recovery and the mandate to fund improvements to schools in Washington state, making these small tax increases permanent is a sound way to generate the resources needed to support middle class families. These two tax increases and the amount of revenue they are projected to raising in the coming 2013-15 budget cycle include:

A 0.3 percentage-point B&O surcharge applied to business services ($534 million):

Prior to 2010, the standard business and occupation (B&O) tax rate applied to range of services, such as legal, accounting , and cosmetic services, was 1.5 percent of gross business income. The surcharge enacted in 2010 raised the B&O rate applied to these services to 1.8 percent. It’s important to note that this rate is still quite low by historical standards, in the mid-1990s the rate was 2.5 percent.

It also makes sense to apply a higher B&O rate to many of these services because, unlike companies that sell appliances, tools, and other tangible goods, these services are not subject to the much higher 6.5 percent state sales tax rate. As we’ve written previously, that’s a problem because consumers now spend much more of their incomes on services than they do on tangible products. And, this shift in consumer spending habits over the last few decades is a major cause behind the decline of state tax revenues relative to the broader state economy.

A surcharge on breweries and beer distributors ($58.7 million - $128 million):

Also in 2010, policymakers adopted a temporary, 50-cents per gallon increase in the beer excise tax applied to breweries and beer distributors in Washington state. The surcharge only applied to beer sold in Washington state by large, multistate breweries – those producing more than 60,000 barrels of beer annually.

The Governor proposed making the 50-cent per gallon surcharge permanent while extending it to include microbreweries, which would raise about $130 million in the coming budget cycle.

House leaders proposed a slightly different approach that would generate about $60 million in the coming budget cycle. Their proposal would also permanently extend this surcharge, but would lower the rate to 25-cents per gallon for larger breweries (14-cents per six-pack) and apply a smaller, 15-cents per gallon (8-cents per six-pack) surcharge to microbreweries. It’s important to note that beer that is exported from Washington state is not be subject to the surcharge, meaning extending the tax to local microbreweries would have no impact on their competitiveness in the national and international beer markets.

On deck: eliminating outdated preferential B&O tax rates. Stay tuned to schmudget.

Revenue Trends in Washington State

Tara Lee — 2013-04-05T18:05:53Z

A new policy brief, "Revenue Trends 1.1: Grow the Economy, Create Jobs, and Protect the Middle Class with New Revenue," is out today. Written by policy analysts Andy Nicholas, Michael Mitchell, and Elena Hernandez, Revenue Trends examines the March 2013 revenue forecast from the state Economic and Revenue Forecast Council (ERFC) and what it means for our state's tax system.

Among the findings:

State tax resources will be $2.7 billion short of needs in the coming budget cycle
Tax collections will remain far below adequate levels
Washington state trails the nation in revenue recovery
Our antique revenue system will prevent a full economic recovery

Revenue Trends 1.1: Grow the Economy, Create Jobs, and Protect the Middle Class with New Revenue can be found here.

Senate Budget Chooses New Tax Breaks Over Students, Seniors, and Families

Andy Nicholas — 2013-04-03T23:59:16Z

Not only does today’s budget proposal from the Senate fail to close a single wasteful tax break to help maintain funding for schools, health care, and other important priorities, it deepens state spending on tax breaks, creating 13 new ones.

These new tax breaks will drain available resources by an additional $11 million in the coming 2013-15 budget cycle. Notable highlights include (see full list below):

A sales tax exemption on the purchase of clay targets by non-profit gun clubs ($29 thousand);
A sales and use tax exemption for the sale of financial information to qualifying international investment management firms ($747 thousand);
A sales tax exemption on cover charges for dance clubs ($892 thousand).

At a time when existing state tax resources are projected to fall $2.6 billion short of the amount needed to sustain existing investments and fund court-ordered improvements to Washington state’s education system, it is irresponsible for policymakers create new tax breaks.

Instead, the Senate should follow Governor Inslee’s lead, who, just last week proposed eliminating more than $500 million in wasteful tax breaks to build a stronger education system for Washington state’s children.

Stay tuned to schmudget for additional analysis on the Senate budget.

Budget Beat: Learn more about the Senate budget—and how it compares with Governor Inslee’s budget— at this week’s Budget Beat call this Friday at noon. Register here.

Movement Towards Tax Break Accountability

Andy Nicholas — 2013-03-22T16:29:52Z

As the Legislative Session progresses all three branches of state government have taken, or are poised to take, actions that could greatly enhance transparency over the hundreds of special tax breaks on the books in Washington state.

Although more needs to be done, there have been several encouraging developments, including:

Eliminating the supermajority vote barrier: Earlier this month, the State Supreme Court struck down the law that required a supermajority – two-thirds vote - for tax increases. Among other problems, the supermajority law allowed a small handful of lawmakers to block any attempt to rein in special interest tax breaks.
Unanimous Senate support for greater tax break accountability: Senate bill 5843 would require most new tax breaks to include key transparency requirements – including a sunset date, a clear purpose and policy goals, and specific performance metrics to help state auditors gauge its effectiveness. This bill was passed unanimously by state Senate earlier this year and is waiting for action in the House Finance Committee.
A Disciplined House Finance Committee: All of the transparency and accountability tools in the world would be useless without a commitment among policymakers to foster accountability. With the newly reconstituted Finance Committee, leaders in the House of Representatives are doing just that. The Finance Committee has shown discipline, passing far fewer tax breaks than the Senate Ways and Means Committee and requiring all newly proposed tax breaks to include sunset dates and performance metrics.
Governor to propose narrowing tax breaks for education: Governor Inslee has announced that he will unveil a strategy for funding education that includes eliminating or narrowing unproductive tax breaks, which have in the past compromised the state’s ability to invest in schools.

Over the last two decades, policymakers have dramatically increased their use of tax breaks to further various legislative goals. As the graph below shows, the number of tax preferences on books has nearly doubled since 1990, rising to 640 from 333 over the last 23 years.

But, unlike direct spending on schools or health care services, tax breaks don’t have to go through the biennial appropriations process, despite the fact that they cost the state a large amount of money. This makes it easier to enact tax breaks and difficult to balance against competing public priorities.

History has shown that most tax breaks are poor mechanisms for achieving policy goals, but they have remained popular with policymakers. According the Institute on Taxation and Economic Policy:

“Administering spending programs through the tax code allows policymakers to simultaneously claim that they are taking action on an important issue while also taking credit for cutting taxes, shrinking government, or deferring to the private sector. In reality, however, selectively shuffling around tax burdens leaves no less of an imprint on the economy than direct government spending.”

More reform needed

While recent developments indicate progress toward a more accountable tax break system, more aggressive steps will need to be made to ensure true accountability is achieved. Notably, policymakers should apply sunset dates to most existing state tax breaks – a reform that was proposed last year under HB2762. Such a reform would help policymakers evaluate tax breaks and balance their costs against the need to invest in schools, health care, and public safety.

For more information on how we can bring greater accountability to tax breaks in Washington state, read the Budget & Policy Center brief, Every Dollar Counts: Why it’s Time for Tax Expenditure Reform.

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.

Bill Would Help Working Families Across the State

Kim Justice — 2013-02-27T21:13:58Z

Today the House Finance Committee heard legislation that would give a tax break to more than 400,000 hard-working Washingtonians. House Bill 1890 would keep a promise to working families by closing a tax loophole for out-of-state shoppers and using the money to finally fund the Working Families Tax Rebate (WFTR).

Policy Analyst Kim Justice testified in support of the bill, here she is on TVW.

The WFTR was enacted in 2008, but never funded. With a small investment, it would make a big difference in the lives of working families.

The Working Families Tax Rebate would benefit families in every legislative district in the state (click on map below). For a table of data by legislative district, click here.

For more information on the Working Families Tax Rebate and HB 1890, click here.

More Ineffective Tax Breaks or Education, Health Care, and Prosperity? The choice is clear.

Andy Nicholas — 2013-02-26T20:07:55Z

By the end of this week, state policymakers must make a fundamental decision about Washington state’s future, and the contrast is clear. Lawmakers are ready to advance more than $400 million in new or expanded tax breaks at a time when state tax revenues are projected to fall about $2.3 billion short of the amount necessary to meet existing needs.

As the deadline approaches for the “fiscal cut-off” on Friday, lawmakers will begin winnowing down legislation passed by the various budget and finance committees, choosing those that will advance to a full vote of the House and the Senate. When making those decisions, it is important to note that more tax breaks will not create jobs or help grow our economy.

As it stands, state tax revenues are far short of the amount necessary to meet existing needs for health care, public safety and other services, while also implementing the state Supreme Court’s mandate to fully fund education. Yet, as the graph below shows, this legislative session has seen a number of proposals to create or expand tax breaks for various businesses. More tax breaks would only expand the current revenue shortfall and force further cuts to important public priorities, which have already been slashed by $10.6 billion since 2009.

As of February 25th, tax breaks that have received, or are scheduled to receive, a public hearing in the Senate Ways & Means Committee would cost about $397 million in the coming 2013-15 budget cycle. On the House side, $58 million worth of tax breaks have received or are scheduled to receive a hearing in House Finance Committee. A list of each of these tax breaks can be found here.

Creating additional tax breaks won’t stimulate Washington state’s economy or spur job creation. Most state tax breaks have little impact on job creation, research shows, while depriving states of resources needed to maintain existing levels of education, health care, public safety, and other proven economic investments.

Business location experts also acknowledge that investments in roads, rail and other infrastructure, along with a healthy and productive workforce, trump tax breaks when it comes to building a strong economy.

This week lawmakers should choose to advance legislation that would improve education, health care, and other investments proven to build a strong economy, not squander scarce resources on more ineffective tax breaks.

Schools, Colleges Would Get a Much-Needed Boost From Plan to Tax High-End Capital Gains

Andy Nicholas — 2013-02-14T19:18:44Z

As policymakers struggle to fund education and other public priorities, a bill introduced yesterday in the State Senate would provide much-needed resources to our schools by creating a tax on high-end investments and other capital gains that could generate more than $1 billion in every two-year budget cycle.

Senate Bill 5738 would ask voters to approve a new tax on profits from sales of stocks, bonds, vacation homes, art, and other capital gains earned by the wealthiest 2 percent of Washingtonians. The question would be on the November 2013 ballot. In the meantime, the bill would generate other new resources for education by temporarily extending small surtaxes on large beer companies (breweries and distributors) and the service industry that are set to expire in June.

This is a common sense solution to help close the sizeable gap between the amount of revenue the state is taking in and what is required to meet basic public needs. The problem has been greatly compounded this legislative session, as lawmakers must comply with the mandate to fully fund basic education under the state Supreme Court’s McCleary decision.

SB 5738 would invest about $1.3 billion every biennium in essential school improvements, ranging from expanded pre-kindergarten education to greater tuition support for college students (see graph below). The measure would also establish performance goals and benchmarks to ensure children make progress under these reforms and are learning what they need to so they can thrive at every stage of life and help build a stronger Washington economy.

As the graph shows, the legislation would fund:

$730 million in increased investments in education from pre-school to college.
$220 million to reduce class sizes.
$175 million to prevent further tuition increases at 4-year colleges and community and technical colleges.
$89 million for all-day kindergarten at every school.
$55 million for expanded pre-kindergarten learning opportunities.
$6 million to help kids at risk of dropping out stay in school.

The 5 percent tax on capital gains voters would be asked to approve would apply to profits from the sale of corporate stocks, bonds, and other high-end financial assets above $20,000 per year for a married couple. Gains from retirement accounts would be exempt along with those on the sale of farmland, livestock, and timber. Furthermore, the vast majority of ordinary home sales would be exempt under this proposal. Only vacation homes and the most expensive primary residences would be subject to any additional taxes.

The legislation would also extend for another two years a 50-cents-per-gallon increase in the beer excise tax and a 0.3 percentage point business tax increase applied to law firms, accounting firms, hair and nail salons, and other services.

The Budget & Policy Center has done extensive research on the advantages of taxing capital gains. Such profits are heavily concentrated among the richest few Washingtonians, so 98 percent of households would pay no additional taxes under the proposal. In addition, capital gains are rapidly growing, meaning they would help Washington state create a more stable and adequate revenue system in the long run.

For more information about the capital gains tax, check out A Capital Reform: Using Capital Gains to Fuel Job Creation and Economic Prosperity in Washington state and Top 10 Graphs About Capital Gains.

Our recent policy brief, A Paramount Duty: Funding Education for McCleary and Beyond provides more information about these and other important education reforms.

More analysis to come. Stay tuned to schmudget.

The Choice is Clear: Washington State Families or an Out-of-State Tax Break?

Kim Justice — 2013-02-14T17:06:15Z

Policymakers can keep a promise to more than 400,000 hard-working Washington state families, by closing a tax loophole for out-of-state shoppers and using the money to finally fund the Working Families Tax Rebate (WFTR).

That’s the idea behind legislation introduced today (House Bill 1890) that would refund up to $206 in state retail sales taxes paid by people working at low-wage jobs in Washington state. To pay for the refund, the legislation would close a loophole that allows shoppers from other states to avoid paying sales taxes on purchases they make here.

The Working Family Tax Rebate has been law since 2008, but it has never been implemented because lawmakers have never funded it. The rebate is a vital supplement that would primarily benefit families with children, and only working families.

The Working Families Tax Rebate is based on the federal Earned Income Tax Credit (EITC), a highly successful tool for helping families move into the middle class that is particularly beneficial to children. Putting more money into the pockets of modest-income families helps boost a child’s overall well-being, leading to better health, more schooling, more hours worked later in life, and higher earnings in adulthood.

As the graphic below shows, that has proven to be the case with the EITC, and the Working Families Tax Rebate would work the same way.

Let’s get our priorities straight. Washington state’s working families need a tax break more than shoppers from out-of-state.

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.

We're Number 1! (But Not in A Good Way)

Andy Nicholas — 2013-01-31T16:40:20Z

Updated January 31, 2013: Income ranges were added to the graph.

While most state tax systems take a larger bite out of lower-and middle-income family budgets than those of high-income households, this gap remains larger in Washington state than any other state. The latest version of the “Who Pays?” report from the Institute on Taxation and Economic Policy (ITEP) finds that, once again, Washington state has the most upside down, or “regressive” tax system in the nation.

The graph below shows that state and local taxes amount to nearly 17 percent of household incomes among the poorest fifth Washingtonians, those earning less than $20,000 per year. Taxes paid by the middle fifth of households ($38,000 - $60,000) account for a bit more than 10 percent of family incomes. But among the richest 1 percent (more than $430,000 per year) of Washingtonians – those who have benefited the most from economic growth of the past four decades, and who suffered least during the Great Recession – state and local taxes amount to less than 3 percent of families incomes.

In addition to the latest edition, Washington state held this dubious honor in each of the three previous editions of Who Pays?. And, we will continue to top the “terrible ten” list of most regressive state tax systems until policymakers act to remedy the situation. The report finds the lack of a state income tax coupled with an excessive reliance on sales taxes to be the major culprits behind Washington’s deeply flawed and inequitable revenue system.

ITEP’s findings are broadly consistent with results of a study performed last summer by Washington state’s own Office of Financial Management. That study found that the bottom 10 percent of Washingtonians pay up to 23 percent of their incomes in state and local taxes while the richest 10 percent pay only 5 percent.

We have put forward a number of reforms – including full funding for the Working Families Tax Rebate and a capital gains excise tax -- that would create a more robust and equitable revenue system for all Washingtonians.

Read the full ITEP report here.

More analysis on Washington state’s outdated revenue system will be coming in the weeks ahead. Stay tuned to schmudget.

Policy Agenda: Framework for Prosperity

Tara Lee — 2013-01-14T23:59:22Z

Investments

•    Education and Opportunity
•    Thriving Communities
•    Healthy People and Environment
•    Economic Security

Revenue

•    Capital Gains
•    Sales Tax
•    Working Families Tax Rebate
•    Strengthening the Rainy Day Fund

INTRODUCTION

This is a crucial time in Washington state’s history. There are choices to be made by our newly elected Governor and state Legislature that will impact millions of Washingtonians.

How to fulfill the requirements of the McCleary school funding decision, which will touch not only education but all areas of the budget?
How to implement the Affordable Care Act, to provide access to health coverage?
What should our priorities be for investing in the building blocks of a strong economy?
How will we pay for all these things?

When I think of the kind of state I want my young son to grow up in, I know every Washingtonian wants the same: a state with safe, thriving communities, healthy people, an environment with clean air and water, jobs that offer economic security for families, and an education that provides opportunities for the next generation. But those values are in jeopardy right now. All of this comes together in one place—the state budget.

It’s a powerful tool for social change and a reflection of our values. In this document, we lay out specific recommendations for targeted investments that would bring our state closer to providing prosperity for all Washingtonians. We also provide revenue options to help pay for those investments.

The measure of our success is a state with the financial resources to invest in what reflects Washingtonians’ values—a state that can create shared prosperity during good times, and during bad times maintains our commitment to progress. This document is a framework to help get us there.

The Washington State Budget & Policy Center staff and I look forward to working with elected officials, advocates, community members, and everyone else who cares about tomorrow’s Washington state to realize this vision.

_Remy Trupin, Executive Director

INVESTMENTS SUMMARY

Widely shared prosperity does not happen by accident. It happens when we deliberately invest in the foundations of a strong economy—broad and equal opportunity to build knowledge and skills, adequate compensation
and support for workers, and targeted investments in conditions that foster
economic growth.

Washington state’s investments should:

Provide opportunity for all. Opportunities that most Washingtonians need to prosper—access to high-quality education, health care, transportation,
clean environment, and work supports—are cost-effective and improve
long-term outcomes for families, communities, and the economy.

Create better jobs. A thriving middle class is dependent on having enough
jobs that allow Washingtonians to get ahead, and policies that reward
workers for their productivity. In addition, jobs that maintain our physical
infrastructure (construction and maintenance on schools, roads, bridges,
transportation) and build knowledge and skills (teachers, job trainers,
social workers) strengthen the foundation of a strong economy.

Bottom Line

When more people have a chance to reach their full potential and enough economic security to make investments in their future, our economy will grow.

Click for specific investment recommendations.

REVENUE SUMMARY

After the worst recession of our lifetime, rebuilding Washington state’s economy must be policymakers first priority. To build a strong state, we need reforms that will create a more robust and stable revenue system that is able to meet the demands of the 21st century economy.

Washington state’s revenue system is:

Behind the times. Our state revenue system hasn’t substantially changed
since 1935. Seventy-seven years ago Washington state’s economy was based
on agriculture, manufacturing, and purchases of tangible goods. Today our
state produces advanced software and other high-tech goods and services that weren’t even imagined in the 1930s.

Losing pace. Just 40 years ago, our revenue system generated 6.9 cents of every dollar of personal income produced in the state. Today it generates only 4.9 cents per dollar of personal income. That’s a 30 percent decline that won’t abate without changes.

Upside-down. State taxes take a much larger bite out of family incomes among lower- and middle-income households compared to the richest households. As a share of their incomes, ordinary Washingtonians can pay up to eight times more in state and local taxes than those at the top of the income scale.

Bottom Line

Instead of de-funding our values with deep budget cuts, Washington state lawmakers should focus on making changes to our revenue system that will rebuild the economy to work for everyone.

State Revenue

Looming Special Session Provides Choices: Responsible Investments in Education and Jobs OR Gimmicks, Cuts, and Decline

Jobs and Education Should Prevail Over Tax Breaks

An Easy Choice: Invest in Education and Economic Growth For All, Or Continue Preferential Tax Rates For The Few?

House Proposes Revenue to Rebuild Economy, Grow Middle Class

Extending current taxes

A 0.3 percentage-point B&O surcharge applied to business services ($534 million):

A surcharge on breweries and beer distributors ($58.7 million - $128 million):

Revenue Trends in Washington State

Senate Budget Chooses New Tax Breaks Over Students, Seniors, and Families

Movement Towards Tax Break Accountability

More reform needed

Supermajority Law Struck Down, Time to Move Forward

Bill Would Help Working Families Across the State

More Ineffective Tax Breaks or Education, Health Care, and Prosperity? The choice is clear.

Schools, Colleges Would Get a Much-Needed Boost From Plan to Tax High-End Capital Gains

The Choice is Clear: Washington State Families or an Out-of-State Tax Break?

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

We're Number 1! (But Not in A Good Way)

Policy Agenda: Framework for Prosperity

Investments

Revenue

INTRODUCTION

INVESTMENTS SUMMARY

Bottom Line

Click for specific investment recommendations.

REVENUE SUMMARY

Bottom Line

Click for specific revenue recommendations.