Schmudget Blog

Three Reasons to Raise the Minimum Wage in Washington State

Posted by Lori Pfingst at Jan 20, 2015 09:15 PM |
Filed under: State Economy, Minimum Wage

3 reasons min wage

Washington State’s Upside Down Tax System Takes A Heavy Toll On Communities Of Color

Posted by Elena Hernandez at Jan 14, 2015 06:20 PM |

By Andy Nicholas and Elena Hernandez

While most Washingtonians agree that everyone has a responsibility to help pay for schools, safe communities, health care, and other broadly shared investments that create jobs and grow the economy, the state continues to have the most upside down state and local tax system of any U.S. state, according to a new report, "Who Pays?", from the Institute on Taxation and Economic Policy.

People with lower and moderate incomes – a disproportionate share from communities of color – pay a much larger portion of their incomes in Washington’s state and local taxes than those at the very top of the income scale, who are disproportionately white.

As the graph below shows:

  • The poorest fifth of Washingtonians, those with incomes below $21,000 per year, pay an average of 16.8 percent of their incomes in state and local taxes.
  • The middle fifth of Washingtonians, whose incomes fall between $40,000 and $65,000 per year, pay 10 percent of their incomes in state and local taxes every year on average.
  • The richest 1 percent of Washingtonians, who earn a minimum of $507,000 per year, pay on average only 2.4 percent of their incomes in state and local taxes.


Washington state’s upside down tax system takes an especially heavy toll on people from communities of color. Washingtonians from communities of color are far more likely to be among the poorest fifth of the population, which face the highest effective state and local tax rates, than among the richest fifth of the population that enjoys considerably lower effective tax rates (see graph below). By contrast, white Washingtonians have a roughly equal chance of being in either the poorest fifth of the population or the richest fifth. 


Governor Inslee has called for a reasonable reforms, such as enacting a new capital gains tax on profits from the sale of high-end financial assets and funding a rebate program for hardworking Washingtonians with children, that would help to rebalance the state tax system while generating additional resources for schools and other investments that benefit all Washingtonians. Policymakers should follow his lead by enacting these proposals while looking for other ways to make the tax system more equitable and dependable.

Senate “Education by Starvation” Proposal Proves that New Revenue is Needed

Posted by Kim Justice at Jan 13, 2015 07:30 PM |
Filed under: State Budget, Education

An education- funding proposal scheduled for a hearing today by the Senate Ways & Means Committee fails in its goal to fund education while also forcing deep cuts to investments that kids and families need to be successful and secure. This measure is a distraction from the central problem facing Washington state policymakers today – the state’s flawed, 1930s era revenue system. Passing it now would simply pawn tough choices off on future policymakers and Washingtonians.

Rather than raising additional resources to meet the needs of our state, Senate Bill 5063 proposes to rearrange existing, insufficient resources by dedicating two-thirds of all state revenue growth to education for the next 10 years. That’s tantamount to rearranging the deck chairs on a sinking ship.

As the graph shows, if this rigid formula were in place in the coming biennium, it would fall $2.5 billion short of making statutory and court-ordered investments in education. Simply diverting two-thirds of revenue growth to education ($1.8 billion) would not come close to providing the $4.3 billion in resources needed to fund increased enrollments, implement voter-approved initiatives, and make McCleary investments.

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Additionally, SB 5063 would result in disastrous cuts to public health, safety, childcare, and services for seniors. The graph shows that resources available for all non-education spending ($900 million) would fall $500 million short of what’s needed to maintain current commitments in these and other investments that support a successful educational experience for kids.

Without raising new revenue, we can’t meet our required spending obligations, let alone make additional investments that make college more affordable, provide high-quality early learning for children, treat people suffering from mental illness, or give public employees a pay increases. 

The real challenge facing lawmakers is our outdated revenue system that fails to keep pace with the state’s economy. Although revenues will be higher in the 2015-17 biennium when compared to the current budget cycle, when it comes to tracking economic activity, tax revenue is in decline and will continue to fall without significant reforms. 

Enacting a capital gains tax, as proposed by Governor Inslee, would significantly boost revenue while impacting less than one percent of Washington households, almost exclusively those earning more than $490,000 a year. That’s the kind of solution Washingtonians need- one that  begins to equalize the playing field for who pays taxes and ensures that we can afford to invest in a high quality of life for everyone in the state. 


Updated! FAQs About Taxing Capital Gains In Washington State

Posted by Andy Nicholas at Jan 12, 2015 06:30 PM |

Updated January 12, 2015. The document below has been changed to reflect Governor Inslee's capital gains tax proposal. It also includes end notes and links to additional resources on capital gains taxes.

In December 2014, Governor Inslee proposed a new excise tax on capital gains as part of a responsible approach to improving schools in Washington state without harming other investments kids need in order to succeed in the classroom, such as health care, child care, and opportunities to pursue higher education at a community college or university. Washingtonians will certainly have many questions about how this tax would work and who would pay it. Answers to a number of key questions are included in the “Frequently Asked Questions” document below.

(click on the image below to view the full document)


Governor Inslee proposes to tax capital gains in excess of $50,000 per year ($25,000 for singles) at a rate of 7 percent. Under his proposal, the tax would generate about $800 million per year in new resources and would be paid by less than 1 percent of Washingtonians.

This proposal would greatly improve Washington state’s flawed, 1930s-era tax system while providing much needed resources for schools and other investments that help create jobs and build a strong economy.

Senate Ways & Means Chair Releases Budget Analysis- Clear Nod to Forthcoming Budget Proposal by Senate

Posted by Kim Justice at Jan 09, 2015 11:05 PM |
Filed under: State Budget

Updated January 12, 2015

Senate Ways & Means Chair Andy Hill has released a budget analysis that turns a blind eye to our state’s revenue problems and fails to reflect the true needs of Washingtonians and our economy. 

Responsible, non-ideological fiscal analysis bears out that we have a budget deficit. Hill’s budget analysis is a clear nod to a forthcoming budget proposal by the Senate.

The proposal incorrectly claims that new revenue is not needed in the upcoming budget cycle. Accepting this myth comes at a great cost- without new revenue, we can’t make needed (and in some cases, mandated) investments in education, health, and the economy. As we have shown, our resources will fall dramatically short of the amount we need to adequately fund schools, health care, child care, and other important investments in the next two years.

What’s the price we pay for failing to raise revenue and neglecting needed investments?

Cost of postponing progress on education funding:  Delayed educational opportunities for over 1 million children and a bigger cost next biennium   

Needed investment in 2015-17: At least $2 billion 

Under the State Supreme Court’s ruling in the 2012 McCleary case, lawmakers are required to invest billions more in K-12 education in order to comply with our constitutional obligation to fully fund basic education. The legislature has repeatedly been chastised by the court for failing to make meaningful progress and is currently being held in contempt. Despite this court-ordered mandate, Senator Hill’s proposal would put off making progress on two important education reforms: providing full day kindergarten and lowering class sizes in grades K-3, which is estimated to cost about $520 million over the next two years to continue phasing-in implementation. 

While the deadline for fully funding these reforms does not come due until the 2017-18 school year, delaying these investments denies opportunities for today’s children and simply kicks the can down the road. Additionally, the State Supreme Court has indicated that failing to make progress on basic education investments will likely trigger sanctions. 

Voters also approved Initiative 1351, which will ultimately add over 25,000 school staff, including teachers, principals, counselors, librarians, grounds-keepers. The initiative is expected to cost $1.6 billion over the next two years, on top of the other McCleary-required education investments.

Cost of neglecting to fund mental health services: Putting the health and safety of Washingtonians in jeopardy

Needed investment in 2015-17: At least $65 million

Our mental health system fails to meet the needs of the most vulnerable Washingtonians, resulting in the warehousing of patients in hospital emergency rooms. Earlier this year, the State Supreme Court ruled that this practice is unconstitutional and is a practice that cannot continue in 2015. In spite of the urgency to meet the needs of those suffering from mental illness, Senator Hill’s proposal does not include additional funding and simply ignores this State Supreme Court ruling.

Cost of failing to invest in our state’s workforce: Compromising our ability to retain and attract skilled workers

Needed investment in 2015-17: Approximately $500 million

Public employees provide care for seniors, people with disabilities and children, help keep children safe from abuse and neglect, and educate our workforce. Most of these employees have not had a pay increase in seven years, and Senator Hill’s proposal puts off increases for at least an additional two years. While pay increases are not mandatory, delaying them any longer will adversely impact retention and the state’s ability to attract workers who provide important services that benefit all Washingtonians. 

Cost of ignoring a failing revenue system that will only get worse: Billions of dollars in lost revenue that should be invested in Washingtonians 

Needed reform in 2015-17: Enact a capital gains tax

Washington state fails to raise adequate resources due to our heavy reliance on a retail sales tax which cannot keep pace with our economy. As the graph shows, economic activity captured by the state’s sales tax is shrinking and will continue to do so unless we make significant changes. The Senate Ways and Means Chair ignores this reality while also pushing significant costs- for education, employee pay, and mental health- into the future. This simply does not add up. Additional revenue is needed to adequately invest in the things all Washingtonians care about- from education, to health care, to public safety. Enacting a capital gains tax, as Governor Inslee proposed in his budget, would significantly improve our ability to raise resources.

sales tax

Cost of neglecting the needs of Washingtonians and our economy: PRICELESS

Buying into the myth that new revenue is not needed to adequately invest in our most important public priorities is harmful to our economy and to all of us. Without new revenue, we won’t be able to provide high quality early learning experiences for children, make college affordable, keep communities safe, or make other important investments that create a strong economy. New revenue is vital to a strong, thriving and prosperous Washington state.



New Report Confronts Racial Inequity in Washington State

Posted by Kim Justice at Jan 07, 2015 09:30 PM |
Filed under: State Budget, Equity

People of color in Washington state are challenged by a system that limits their access to equal opportunities, such as a high quality education, good jobs, and quality health care. A report released today, Facing Race, provides a detailed analysis showing how stark racial inequality is in Washington state and outlines what lawmakers can do to reverse the trends.

The conditions for a strong economy and high quality of life are ripe when our workforce is healthy and engaged, people have opportunities to obtain an education, and all communities are represented in decision-making. But these opportunities are not shared equally. For example:

  • A good job is the foundation for economic security, but Black and Latino workers have higher rates of unemployment and are more likely to be in a job that pays a lower wage than the overall population.
  • Good health is central to a good quality of life, yet nearly one in three Latinos and one in four American Indians and Alaska Natives lack health care coverage.
  • A high-quality early learning experience is crucial to a child’s future, yet three out of four Latino children are not enrolled in preschool.
  • Higher levels of education equate to better job security and increased wages,  but Latinos, American Indians, and Alaska Natives face the biggest hurdles to college enrollment.
  • A strong democracy is dependent on equal representation, but the racial and ethnic composition of the State Legislature does not reflect the state’s diversity. People of color comprise 29 percent of the state’s population, but less than 10 percent of the State Legislature (see graphics). 

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leg by race

The good news is that lawmakers can take steps to increase access to opportunity and reduce inequality. The Facing Race report outlines 20 recommendations for lawmakers in the 2015 legislative session, including raising the state’s minimum wage, fully restoring food assistance, and permanently eliminating the death penalty.

As our state continues to become more racially diverse, we cannot allow gaps in opportunity to continue to limit the economic well-being and quality of life of Washingtonians. Letting any group fall behind is detrimental to the prosperity of our state.

Click here to read the full report.


Governor offers Realistic, Responsible Approach to State Budget

Posted by Kim Justice at Dec 19, 2014 12:05 AM |
Filed under: State Budget

Updated January 15, 2015

By Kim Justice and Andy Nicholas

Governor Inslee proposes to invest in Washingtonians and our economy over the next two years through a healthy balance of revenue, cuts, fund shifts, and reserves (see graph). Over half of the budget solution (57 percent) would come from tax increases that will make our revenue system more equitable and sustainable over time – a much-needed response after years of deep budget cuts undermining progress for workers, families, businesses, and the economy.

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A Budget that Invests in Washingtonians

While the Governor’s proposal does include some cuts, on balance it invests in the most important needs of our state, including:

  • $2.3 billion in new investments in education from birth to career, including resources targeted to closing the opportunity gap;
  • Increased space to treat people in need of mental health services;
  • First wage increase for state workers in seven years;
  • Increased funding for state parks; and
  • Additional staff to respond to reports of child abuse or neglect.

New Revenue Plan Brings Greater Equity and Sustainability to the Budget

The Governor’s sustainable revenue plan would raise $1.4 billion during the upcoming two-year budget cycle. These new resources would be generated by:

  • Adopting a new capital gains excise tax that would be paid by less than 1 percent of Washingtonians, almost exclusively those at the very top of the income scale. For more information see this “frequently asked questions” document about taxing capital gains;
  • Closing ineffective tax breaks for nonresident shoppers, oil refineries, and other products and industries;
  • Dedicating revenues from proposed efforts to reduce carbon pollution; and
  • Increasing taxes on cigarettes and e-cigarettes.

The Governor also proposes to enact about $94 million per two-year budget cycle in new tax breaks, which will be examined in future schmudget posts. Details on each of these actions are included below.

The Governor’s proposal represents a realistic, responsible approach to meeting the educational needs of our children, keeping families safe and secure, and improving our economy. Lawmakers should take the Governor’s lead and raise new revenue. Doing otherwise would be impractical and irresponsible.


Appendix: Tax Action details.

Enacting a new 7 percent excise tax on high-end capital gains ($798 million): Capital gains are profits from the sale of financial assets, mostly corporate stocks and bonds. Similar to the Budget & Policy Center’s proposal, the Governor proposes to tax capital gains in excess of $50,000 per year for a married couple ($25,000 for singles). Less than one percent of Washingtonians have capital gains above this amount. 

Dedicating revenues from proposed efforts to reduce carbon pollution ($508 million): A portion of proceeds from the sale of carbon allowances – part of the Governor’s proposals to reduce carbon pollution and address climate change  – would be dedicated to education programs. Some of these revenues would also be used to fund the Working Families Tax Rebate (link), which is a Washington state version of the federal Earned Income Tax Credit that would reduce taxes for some 435,000 households from Aberdeen to Spokane.

Increasing the cigarette tax by 50-cents per pack ($38 million): The proposed change would increase the cigarette tax to $3.525 per pack from $3.025 per pack.

Enact a new excise tax on “e-cigarettes” and vapor products ($18.1 million): Under current law, e-cigarettes are subject to the general retail sales tax, but not the cigarette tax or the Other Tobacco Products (OTP) tax. The governor proposes to apply a new  excise tax to e-cigarettes equal to 95 percent of their sales price; the same rate applied to cigars, pipe tobacco, and chewing tobacco..

Applying the sales tax to the trade-in value of cars worth over $10,000 ($105.3 million): Under current law, when a used car is traded-in as part of the purchase of new car, the value of trade in is exempt from the state sales tax. The governor proposes to apply the sales tax to trade-ins to the extent the trade-in value exceeds $10,000. The average value of a traded-in vehicle is $7,500 in Washington state, according to the Department of Revenue, meaning the majority of consumers would not be impacted by this change.

Repealing a use tax break for oil refineries ($51 million): A sales tax break originally intended for manufacturers and sawmills is now almost exclusively claimed by oil refineries (link). The governor proposes to eliminate the break for oil refineries but leave the tax break in place for sawmills.

Modifying a sales tax break for nonresident shoppers ($51.5 million): Under current law, residents of other states that have low or no state sales tax are exempt from Washington state’s sales tax (e.g., Oregon). The governor proposes to turn the exemption into an annual rebate program, in which. nonresident shoppers would be able to file for a refund if their total annual state sales tax payments are $25 or more.

Repeal the sales tax exemption on bottled water ($44 million): Until 2004, the state sales tax applied to purchases of bottled water. However, when policymakers enacted a law designed to harmonize Washington state’s sales tax with those in other states, bottled water became exempt. Since then, the agreement between states to harmonize their sales taxes – the Streamlined Sales and Use Tax Agreement (SSUTA) – has been modified to allow states to collect sales taxes on bottled water. Although, specifics are not yet available, it is likely the proposal would maintain the exemption for people that do not have access to potable water.

Repeal the preferential B&O tax rate on royalty payments ($44 million): As of 1998, royalty income – payments from licensing brand names, software, and other intangible property – are subject to a preferential business and occupation (B&O) tax rate of 0.484 percent. In 2010, as part of an effort to prohibit businesses from avoiding paying B&O taxes on royalties altogether, policymakers allowed businesses to pay the tax only on the portion of income that occurred in Washington state, rather than all of their royalty income, as had been the case previously. The governor proposes to continue to allow businesses to pay B&O taxes only on royalty income tied to Washington state, but to eliminate the preferential rate and tax royalties at the 1.5 percent rate paid by other finance-related businesses.


Document Actions

2015-17 Legislative Agenda

Our 2015-17 Legislative Agenda calls for an equitable and sustainable revenue system in addition to state investments that will promote a world-class education system, sustain a strong, inclusive middle class, produce high quality, living wage jobs, and ensure equal opportunity to live healthy and productive lives.  Take a closer look here.

Budget Matters 2014

Thank you to those who made Budget Matters 2014 a success! Stay tuned for pictures, video clips and PowerPoints from this year's conference.

Legislative Testimony

Senior Budget Analyst Kim Justice recently testified before Senate Ways and Means against a bill that would fund education at the expense of other budget investments. Watch it here. 

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