Schmudget Blog


Don’t Let the Talking Points Fool You: Senate Republicans’ Budget Proposal Is a House of Cards

By Andy Nicholas, associate director of fiscal policy, and Kelli Smith, policy analyst
 
The state budget is not just a statement of our values. It is also a foundation and framework for delivering the everyday services that benefit us all – like ensuring everyone has the opportunity to thrive, making sure we have clean water to drink and air to breathe, and keeping school buses and fire trucks running each day. Republican leaders in the state Senate have proposed a two-year spending plan that would profoundly weaken that framework by slashing vital investments that help Washington’s communities and people prosper – and by failing to come up with the revenue needed to fund schools and other key priorities. Their plan would turn the state budget into a house of cards, at risk of collapsing at the first sign of a slowdown in the economy. And the human cost in terms of the well-being of Washingtonians would be staggering.
 

Building a responsible and sustainable budget requires lawmakers to take steps toward fixing Washington’s upside-down tax code, which taxes middle- and lower-income households at significantly higher rates than those at the very top of the income scale. Yet the proposal from Republican leaders in the state Senate offers no meaningful reforms to the state’s flawed tax code.

Far from raising the substantial new revenue needed to fully fund education and protect the programs that help Washingtonians who are struggling to make ends meet, their “levy swap” proposal would actually reduce overall property tax resources for schools in our state. It would also be deeply inequitable, raising taxes on millions of lower- and middle-income homeowners and renters in the Puget Sound region.

What’s more, Senate Republicans actually propose creating or extending nine tax breaks, totaling $13.5 million in giveaways in the 2017-2019 budget cycle.

Rather than working to flip our tax code right-side up and improve our quality of life, Senate Republican leaders propose a state budget that nominally balances, but only with the help of unsustainable gimmicks, such as:

  • Forcing future lawmakers to make deep cuts to non-K-12 investments – such as health care, child care, job training, safe communities, and other important investments – by dedicating all future revenue growth to maintaining K-12 spending and property tax cuts.
  • Draining $700 million in reserve savings from our state’s rainy day fund, the budget stabilization account, which is an essential backstop that prevents severe disruptions in funding for our most important services during recessions and other state emergencies. And Senate Republican leaders offer no plan to replenish it.
  • Sweeping $63 million from Temporary Assistance for Needy Families (TANF) to pay for other unrelated budget items. TANF is an essential resource for families trying to get back on their feet. This proposal would take much-needed resources out of programs that help the people who have the hardest time making ends meet and dole those resources out for other investments. 

As shown in the chart below, the budget proposal from Senate Republicans would boost state funding for education, but at the expense of essential investments in Washingtonians’ economic security and in community development and trust. Within those categories are programs that are essential to many Washingtonians – programs like TANF, Housing and Essential Needs, state retirement contributions for first responders, and the programs we all count on to protect our legal rights. Thousands of Washingtonians’ lives would be severely and negatively affected by these cuts – and in many cases, they are the people who are already struggling just to get by every day.

(Click on graphic to see enlarged version.)

Senate budget 2017 graphic

 

 

 

 

 

 

 

 

 

 

 

 

The proposed changes to funding, according to the major value areas laid out in the Budget & Policy Center’s Progress Index framework, are detailed in the sections that follow.

EDUCATION

The McCleary Supreme Court case’s school funding mandate has been the most prominent issue in the legislative session so far – and for good reason. Excellent schools are one of the foundations of a thriving economy, and the legislature is facing a deadline for fully funding those schools. While the Senate’s proposed budget increases K-12 education funding by $1.8 billion, or by 7 percent, it makes huge cuts to early learning – slashing $36 million from child care programs. This is because the Senate doesn’t actually raise the necessary new revenue to fund K-12 education, despite the speaking points that make it sound otherwise. The proposals include:

  • Undermining the foundations for high-quality early learning, especially for low-income children and families. The Senate plan would limit access to Washington’s Early Childhood Education and Assistance Program – our state’s preschool program that serves families living in poverty – by eliminating 3 year olds from the program and not adding any new slots over the next two years despite 23,000 unserved eligible children in the state. It also guts Early Achievers, our state’s key resource for early learning professionals to access coaching and tools to provide high-quality early care.
  • Repealing voter-approved education initiatives. The budget would repeal initiatives 1351 and 732, measures passed by Washington voters to reduce class sizes and fund teacher cost-of-living raises. Refusing to implement voter-approved teacher cost-of-living raises is out of step with the goal of fully funding K-12 education.
  • Overhauling the current school funding formula to change the way state disburses money to schools throughout the state. Even though the plan would require sizeable and commendable new investments in K-12 schools, the Senate has proposed to pay for its plan with a levy swap proposal that would actually reduce property tax resources for schools compared to the current system.
  • Prioritizing STEM and medical education over the needs of struggling working families. The Senate’s budget provides some increases in the higher education budget. But these investments would come at the expense of the lowest-income working families: $47 million is ransacked from WorkFirst – Washington’s job training and assistance program for families with young children who are trying to get back on their feet – to pay for them. Lawmakers should not be pitting working the needs of families against those of people seeking higher education opportunities.

ECONOMIC SECURITY

A community with a thriving economy fosters great jobs and supports working families, ensures stable and healthy housing for everyone, and provides economic opportunity for Washingtonians to meet their basic needs. The Senate Republicans’ proposal eviscerates the parts of our budget that make these values a reality for residents, particularly targeting those programs that relieve hardship among the lowest-income working people. This budget would cut funding for economic security by $132 million, a staggering 13 percent decrease from the amount necessary to maintain current services. Proposed changes include:

  • Cutting assistance for people with disabilities at risk of homelessness. This proposal would do away with the Housing and Essential Needs program that provides housing-related assistance to people unable to work because of disabilities. It replaces it with a new program that would only be available to people with dependent children, essentially eliminating services for seniors and single adults and all but guaranteeing an increase in homelessness. It also cuts another crucial program for people with disabilities – the Aged, Blind, and Disabled program – by limiting the time people can be on it to 36 months.
  • Ransacking resources from job training programs to plug holes in other parts of the budget. The proposal moves $63 million out of the WorkFirst program and uses the money for other unrelated purposes, such as replacing funding cuts to colleges and universities.
  • Pushing people off basic assistance and making it harder for new people to get on. TANF provides basic supports to families with children who are financially struggling. The Senate Republican budget would cut people off the program who have a disability, or people who are needed at home to care for a family member with a disability. It would also require new applicants to prove that they have been unable to find a job before applying for benefits, but it fails to provide necessary help to applicants in their efforts, such as providing for child care while parents are job-hunting. When other states have implemented similar procedural hurdles for families, they saw increases in hardship and spikes in homelessness.
  • Limiting options for working families to access child care so parents can go to work. The plan makes Working Connections Child Care, Washington’s largest child care subsidy program for families with low incomes, more difficult to access by changing eligibility requirements, capping enrollment, and creating more red tape for participants.

HEALTHY PEOPLE & ENVIRONMENT

Washingtonians enjoy clean air and water and an excellent health care system that supports the wellbeing of a vast majority of Washington’s residents. The state budget provides for those benefits by investing in public health clinics, climate protection measures, and mental health services. The proposal would increase funding in this area by only $75 million, a less-than-1-percent boost. The proposals include:

  • Failing to provide adequate investments in mental health services. Compared to the budget proposed by Governor Inslee, this budget falls short on the immediate investments to address safety and staffing issues at Western State Hospital – in fact, this proposal would close down two entire wards – and fails to make the investments needed to build a strong community system into the future.
  • Missing opportunities to invest in public health, and to safeguard against proposed federal cuts. As the federal government considers cutting back federal support for health care, it is alarming to see leaders in our state Senate propose underinvestment in our public health system and health benefits for state workers. The budget also threatens the health insurance coverage for tens of thousands of home care workers who support our vulnerable seniors and people with disabilities.
  • Threatening health care innovation reforms that are part of the Washington State Medicaid Transformation Project. This initiative is designed to help Washingtonians achieve better health outcomes, to reward high-quality care, and to curb health care costs in the state Medicaid program. The Senate’s budget would create a roadblock to continuing this initiative and to receiving the $1.5 billion in federal funds it was slated to receive.
  • Reducing investments in programs that are protecting our state’s air and water. The proposal fails to provide resources to adequately sustain work to clean Puget Sound, a clean-up project that is also facing a federal funding threat from the Trump administration’s proposed budget. And no state funding is provided to implement the Clean Air Rule, an effort by Inslee’s administration to reduce carbon pollution in our state. The proposal would also cut or fail to fund investments in restoring salmon and protecting habitat.

COMMUNITY DEVELOPMENT & TRUST

Good quality of life for Washingtonians includes safe communities to live in, access to beautiful parks and historical spaces, an open government that runs smoothly and efficiently, and the assurance of transparent and fair elections. This budget would undermine community development and trust by cutting current programs by $107 million, a 1.8 percent decrease from maintenance levels. The major changes include:

  • Failing to invest in tens of thousands of front-line workers, like nurses, home care workers, child care workers, highway maintenance workers, and other public employees by rejecting collective bargaining agreements already negotiated (with the exception of corrections workers and Washington State Patrol troopers and lieutenants). It also exacerbates ongoing issues with recruitment and retention throughout state government by mandating indiscriminate layoffs at state agencies. This would make it nearly impossible for our state agencies to deliver high-quality, timely services to the public.
  • Reducing resources for those who serve to uphold the law for all Washingtonians. Under this budget, state agencies that work to protect the legal rights of everyday citizens would see huge cuts. The Office of Civil Legal Aid would be cut by $10 million (36 percent) and the Office of the Attorney General, which represents our state in legal matters that benefit us all, such as lawsuits against the federal government, would be cut by $20 million (78 percent). The cuts to the Office of the Attorney General in ongoing funding would be temporarily replaced by shifting one-time resources from a lawsuit.
  • Reducing state contributions to retirement systems for first responders. Contributions to retirement systems are reduced by $159 million (a 74 percent reduction from maintenance levels), largely because of a $109 million cut to retirement contributions for police and firefighters.

The state Senate Republican leaders take a page out of the book of Republicans in the other Washington – making deep cuts to the very investments that people throughout our state rely on, and across every area that we use to measure progress. It would be particularly stark for the people who are struggling to make ends meet. And it also includes a host of irresponsible and unsustainable financial stunts that add up to a budget that would collapse under its own weight.

A solid budget framework is the foundation for a strong economic future for Washington and its people. The Senate Republicans should rework their budget with an eye toward strengthening our state’s communities and the foundations that support them.

Lawmakers Must Protect the Wellbeing of Children, Families, and People with Disabilities

Posted by Julie Watts at Mar 23, 2017 01:50 PM |

Senate Republicans have revealed their new budget plan to be a house of cards – a budget with a weak framework that threatens the foundations of a strong economy. The deep cuts they propose to state-funded programs that protect the wellbeing of Washingtonians would hurt our state economy and be devastating to children, families, and people with disabilities. 

This proposal from state Senate Republicans adds insult to injury in the context of the federal policy proposals we’re seeing out of Washington, D.C. President Trump’s budget proposal would leave our state on the hook for coming up with an additional $458.6 million for the next biennium. And Congressional Republicans’ plan to repeal the Affordable Care Act would result in up to $2.5 billion in proposed cuts to our state’s health care.

Unfortunately, the Washington state Senate Republicans’ budget proposal, like President Trump’s, cuts programs that help hardworking people and support those who have been left behind in our economy. If lawmakers care about having thriving communities in our state, they should reject this proposal and instead look at investing in building a strong and vibrant middle class. When lawmakers ensure everyone in our state can pay for necessities like food on their table and a roof over their heads, our economy and our communities are stronger.

Washingtonians with Low Wages Would Have a Greater Likelihood of Falling Behind

The budget would cut $63 million from WorkFirst – Washington’s assistance and job training program for families striving to move out of poverty. The Senate Republicans would account for $17 million of that funding by forcing out of the program parents who have disabilities, people who are required to be at home to care for disabled children or adults, and who are over the age of 55. Studies show that when this group of people leave the program, they have significant barriers to working and seldom get additional help.

The WorkFirst program is funded by both federal and state dollars that are supposed to be used to help low-income parents and their children. The Senate budget proposal would take $47 million of the money they cut from the program to backfill cuts they’re proposing to higher education. The remaining $16 million would be moved into the state’s general budget to pay for other programs that don’t provide for low-income families. 

What’s more, the Senate budget proposal would put a harmful provision in place that would require people applying for WorkFirst to demonstrate they have been engaged in a job search before they can apply for public assistance, without providing them with any child care or other work support assistance to engage in that search. When other states have implemented similar procedural hurdles for families, they saw an increase in hardship and spikes in homelessness.

In addition, the Senate Republican budget rejects the negotiated collective bargaining agreements for most public sector workers and fails to invest in tens of thousands of frequently low-wage front-line service workers like child care workers, home care workers, employees at state hospitals, and social workers. Our research shows that investing in these workers is not only good for families and state services, but that it also provides a boost to local economies across Washington state.

The Wellbeing of Washington’s Families and Kids Are at Risk

Washington’s Working Connections Child Care (WCCC) is a key program for ensuring Washington kids have a solid foundation for early learning and care. Washington families pay, on average, 36 percent of their incomes in child care. Finding affordable child care is especially challenging for parents with lower incomes. WCCC helps them with the costs of child care so they can go to work. The Senate Republican budget would freeze enrollment in WCCC at 31,000 kids. This would force many families onto a waiting list, given that the state has projected enrollment will reach 33,000 as early as this spring.

The budget proposal would also make it harder for families to keep their child care while looking for work if they lose a job and have trouble finding a new one. It also creates more red tape by requiring participants to pursue child support enforcement in order to receive the subsidy.

It is important to note, however, that the budget proposal does offer one good recommendation for saving money on the WCCC program. It would extend the amount of time one of the parents in a family receiving WorkFirst could stay at home with their child, from when the child is age 1 to when they are age 2. Lawmakers expect this would save $19.8 million in WCCC. Of course, while this change is commendable, the money saved should be kept in the WCCC budget rather than being funneled from that program to plug holes in other parts of the budget.

More Washingtonians Would Be in Danger of Poverty or Homelessness

Although the Senate Republicans assert in their budget that they make investments to protect people with disabilities, they actually propose harmful cuts to people with disabilities who are at risk of homelessness. The budget would cut $49 million from the Housing and Essential Needs program, which provides housing-related assistance for people unable to work because of disabilities.

The budget would also cut $3.7 million from the Aged, Blind, and Disabled program by applying a 36-month limit for people to be in the program. The intention of the program is to provide temporary assistance for people while they apply for federal disability benefits. However, the application process often takes more than three years, and the state would leave people to fend for themselves until their federal benefits come through.

The Senate budget would additionally cut $5.4 million from the State Food Assistance Program, which provides food stamps to legal immigrants not eligible for the federal Supplemental Nutrition Assistance Program. It also eliminates several housing and shelter programs including Young Adult Shelters, Homeless Student Stability Program, and the Young Adult Housing Program.

The Senate Republican plan places the entire state on shaky ground. The deep cuts to the many programs that help our communities thrive and secure the wellbeing of all of our residents are simply unacceptable – especially when considering the fact that they are in addition to potential cuts we could see to federal funding for key state programs. We cannot make progress as a state when our legislators allow members of our communities to fall behind. The state legislature can and should do better for the future of our state and its people.

Senate Republican Budget Proposal Puts Washington’s Economic Future on Shaky Ground

Posted by Melinda Young-Flynn at Mar 21, 2017 03:20 PM |

Statement from Misha Werschkul, executive director of the Washington State Budget & Policy Center:

The two-year spending plan proposed by Republican leaders in the Washington State Senate would put the economic security of our state on shaky ground for future generations. This budget would fracture the foundation of our state economy with unsustainable fiscal gimmicks as well as deep cuts now – with even deeper cuts into the future – to investments that benefit all Washingtonians. And it ignores the real problem facing our state: an upside-down tax code that disproportionately and unsustainably relies on the people with the lowest incomes to pay the highest share of their incomes in state and local taxes – while special interests and the wealthy get tax breaks. 

It is the responsibility of policymakers to ensure the budget invests in the protection of our state’s current and future well-being – especially during this time when we face so many threats from the federal level. This proposal doesn’t do that. Instead, it would turn our state’s budget into a house of cards, precariously held together by fiscal gimmicks. For example, it would: 

Drain $700 million from our state’s budget stabilization account (or rainy day fund), which will be needed the next time we enter an economic downturn, in order to make a one-time contribution to a chronically underfunded pension fund. 

Mask deep cuts that legislators would need make in the future to public safety, environmental protection, and a host of other investments, by dedicating all future revenue growth to K-12 education and property tax reductions.

And if enacted, this plan would make devastating changes to some of our state’s most crucial investments. It would:

Eliminate or dramatically cut programs that help keep working families and individuals out of poverty, in stable housing, and with access to safe and reliable child care. 

Do away with the voter-approved initiatives to reduce class sizes and to provide teachers with pay increases to keep up with the rising cost of living. 

That’s not a prescription for economic growth and broad prosperity.

It doesn’t have to be this way. To truly invest in the foundations that make our communities thrive, lawmakers can turn our tax code right-side up and invest in schools and other priorities by closing wasteful tax breaks, including a huge break on capital gains enjoyed by the very wealthiest households in our state. Doing so would build a better future for our communities. Senate Republican leaders would be wise to rework this budget to ensure that it strengthens the economic foundations of our communities and advances the well-being of all Washingtonians.

Five Ways Trump’s Budget Proposal Would Harm Washington State

By Julie Watts, deputy director
 
The Trump administration’s federal budget proposal hurts the very people the administration purported to help and leaves our states on the hook to make up the difference. The budget calls for big increases in military spending and pays for it through deep cuts to programs that help strengthen the economic security of everyday Americans. These cuts are on top of those already being proposed to health care through the repeal of the Affordable Care Act.

 

President Trump has promised to be a champion of people left behind by the economy. However, his budget takes aim at the very programs that serve them. In fact, all of the cuts come from the Non-Defense Discretionary spending area of the federal budget. This part of the budget funds key priorities like job training, education, affordable housing, and basic supports for children, families, and the aging. It also includes funding for border security, veterans' benefits, and the FBI, but since Congress is unlikely to cut these areas, programs that help workers and families would be particularly hard hit. 

Trump’s budget proposal, entitled “America First: A Budget Blueprint for Making America Great Again,” would not, in fact, help the communities in our nation and in our state thrive. Here are five ways Trump’s budget proposals would hurt Washington state and its residents:

1. Shifting costs to our state government and making it harder to balance the state budget: Federal grants make up almost one third of the Washington state budget. (See chart below.) They pay for things like education, human services, the environment, and statewide emergency response. The budget proposal would cut federal grants to states, which would leave our state on the hook for $458.6 million per biennium to maintain these services. (That is not even taking into consideration the $2.5 billion our state would have to cover if the proposed repeal of the Affordable Care Act and cuts to Medicaid go through). 

Federal grants to WA pie chart_2017

2. Making it harder for people to make ends meet: President Trump’s proposed budget would eliminate the Low Income Energy Assistance Program, which helps people who don’t have enough money to pay their light and energy bills to keep the lights and heat/cooling on. This program – which largely serves people with low incomes and the elderly – would provide $113 million to the state in the 2017-2019 biennium. Trump’s budget would also eliminate the Weatherization Assistance Program, which provides roughly $8.6 million per biennium to the state to help people with lower incomes weatherize their homes to save on energy bills.

3. Making it harder for parents to care for their kids: Many working families rely on before- and after-school programs to not only provide educational and enrichment opportunities for their kids, but also to ensure that kids are well-cared for while they work. Trump’s budget proposal would eliminate the 21st Century Community Learning Centers program. This program would provide $36.1 million for before- and after-school programs in Washington state in the next biennium. Eliminating the program could mean nearly 18,000 state children would lose educational, recreational, and enrichment programs outside school hours.

4. Making it harder to get a living-wage job: Whether you are a young person just starting out or you’ve been laid off and are back in the market, job-seeking is a daunting task. The Workforce Innovation and Opportunity Act (WIOA) provides support to help eligible job seekers get education, training, and support services to succeed in the job market. WIOA grants to Washington totaled $137.5 million between 2015 and 2016. The Trump budget proposes cutting WIOA grants to states by 35 percent, which would mean the state would either need to come up with an additional $48.1 million in funds to cover the federal losses or serve 59,000 fewer people with job search and training support in the next biennium. 

5. Making it harder to get affordable housing: Washington state is in the midst of a homelessness crisis. Homelessness increased 15 percent in 2015 and again by 7 percent in 2016. The Trump budget slates the HOME Investment Partnerships Program,  a federal grant program to states to build affordable housing, for elimination. This program provides Washington state with about $38.1 million per biennium to issue to developers to build affordable housing units. Washington also stands to lose funding for Housing Choice Vouchers. These vouchers are an important tool in combating homelessness and providing people with low incomes with assistance to get housing in the rental market. In 2015, more than 50,000 Washington families had a roof over their heads thanks to this important program. Trump proposes to fund the vouchers at $1.7 billion below the amount necessary to maintain the current number of vouchers nationwide. That could mean big cuts to the number of households getting rental assistance in Washington.

And this is barely scratching the surface in terms of the cuts that the Trump budget is proposing.

President Trump’s budget proposal may have a difficult time clearing Congress. However, it represents a stark vision of what it would look like if Congress chooses to pursue a budget along similar lines: dramatic increases in military spending paid for with deep cuts to services and programs that help states support families, individuals, and workers. And again, this whole budget proposal is in addition to the dramatic cuts Washington state could be facing with the potential loss of ACA and Medicaid. 

 

Tax Reform Can’t Wait, New Revenue Forecast Shows

Posted by Kelli Smith at Mar 16, 2017 03:30 PM |
Filed under: State Budget, State Revenue
By Andy Nicholas, associate director of fiscal policy, and Kelli Smith, policy analyst 
 

All too often, certain lawmakers in Washington state who are ideologically opposed to creating a more just and sustainable tax system have leaned on positive revenue growth predictions to justify avoiding their obligation to fund schools and other investments that benefit all Washingtonians. Today’s projected uptick in future state tax resources is negligible compared to what we actually need to build thriving communities in every corner of our state in the years ahead. These projections should not be an excuse for these lawmakers to continue kicking their responsibility to fully fund schools down the road.

State tax revenues are now projected to come in $313 million higher than previously anticipated in the coming 2017-2019 budget cycle, according to the latest forecast from the state Economic and Revenue Forecast Council. But going beyond the headline, a deeper analysis shows that, without action to fix Washington’s flawed, inequitable tax code – by taking important steps that include ending the tax break on capital gains and reforming our property tax system – available resources will remain at untenable recessionary levels.

As the graph below shows, total state tax revenues actually declined by 15 percent between 2001 and 2016, after adjustment for economic growth. They dropped significantly during the last recession and have remained nearly flat since then. And revenues are projected to decline by an additional 7 percent from current levels by 2021.

(Click on graphic to see enlarged version.)

Revenue_Collections_2001_to_2016

Today’s small increase in projected tax collections for the coming years represents less than 1 percent of the amount of funding needed simply to maintain our existing commitments to early childhood education, clean air and water, public safety, and other priorities. The increase is insignificant relative to the billions of additional dollars in funding required by the state Supreme Court to ensure Washington’s kids get the high-quality schools they deserve.

It’s worth noting that these state revenue projections will also not offer any meaningful buffer against the extreme cuts to federal funding proposed by the Trump administration that would devastate many programs here in our state.  

The truth is that today’s forecast means lawmakers won’t have anywhere near the resources needed to help our state’s communities thrive for generations to come. Those resources can only be generated if lawmakers show the boldness of vision required to finally fix Washington state’s tax code.

Washington Should Invest in Thriving Communities Instead of Paying Out Special Interest Tax Breaks

By Andy Nicholas, associate director of fiscal policy, and Kelli Smith, policy analyst
 
To support the foundations that make ours one of the best states to call home, Washington state’s tax code should reflect who we are – a state known for innovation and a commitment to creating thriving communities for everyone. But right now, our state tax code misrepresents our values. It is riddled with nearly 700 tax breaks. And while not all of them are bad, many of them benefit only the most powerful and do little to strengthen our economy.
 

Wasteful tax breaks are depriving our communities of billions of dollars that are instead being funneled to large corporations and special interests that have manipulated the tax code in their favor. Those special interests are receiving money that our state could be collecting and investing in public priorities that benefit us all, like schools, utilities, and emergency services. 

To support the well-being of our state and its people, lawmakers must take long-overdue steps toward cleaning up our tax code so that it serves all Washingtonians and secures revenue to fund important state programs. They can do that by getting rid of budget-busting tax breaks. 

The Budget & Policy Center’s revenue reform plan, Accountable Washington, proposes closing or narrowing 21 of the most wasteful and outdated tax breaks in the code, which would inject $1.1 billion into our communities in the 2017-2019 biennium. They are detailed below.

Narrow the tax break for big oil extractors. Fuel used by manufacturers or extractors in the process of manufacturing or extracting at the same plant is exempt from the use tax. This tax break was originally enacted to benefit the timber industry, but today, it primarily benefits the oil industry. Curtailing this exemption would end the tax break for all fuel extractors, except on fuel from wood byproducts, also known as “hog fuel.”  

Repeal the sales tax break for nonresident shoppers. Residents of states where there is no or low sales tax – primarily Oregon, Alaska, Montana, and certain Canadian provinces – may make purchases in Washington without paying the sales tax. This exemption was originally enacted to make Washington’s border businesses competitive with neighboring states. However, the majority of exempt purchases from qualifying nonresidents occur in King County, which isn’t a border county. That suggests this break is wasted on tourists who would shop in Washington with or without it. 

Apply the sales tax to consumer services. Washington’s sales tax mostly applies to tangible retail goods, such as cars and appliances. It also applies to many “nondurable” goods such as toothpaste and other hygiene products. That worked pretty well back in the 1930s when consumers spent most of their incomes on these kinds of products. But, as the chart below shows, consumers today spend the majority of their income on services not covered by the sales tax. It makes sense to modernize our tax code to reflect this economic reality. Applying the sales tax to consumer services, such as spa treatments, financial advice, and cable and satellite TV packages would accomplish that. 

(Click on graphic to see enlarged version.)

 2017_03_14_consumption_chart

Close the sales tax break on bottled water. Our state’s sales tax applied to bottled water until 2008, when Washington joined a multi-state effort to conform to a single set of sales tax standards, which excluded bottled water. Since then, this exemption has left millions of dollars on the table each year. Not to mention the negative effects on the environment: Not only does packaging and transporting bottled water contribute to global warming, but empty plastic bottles are also notorious for filling landfills and clogging waterways. Policymakers can reapply the sales tax to most purchases of bottled water while ensuring it remains untaxed for people who don’t have access to potable water.

Close the sales tax break on candy and gum. Washington state has a broad-based sales tax. While there are valid sales tax exemptions for some consumer goods, including many grocery items, there is no compelling economic reason why candy, gum, and baked confections should have a tax exemption. Applying the sales tax to these items would generate significant new resources and make the sales tax more broad and sustainable in the long run. 

Eliminate a business tax break for large online retailers. Retailers that have employees and properties located in Washington state pay business & occupation (B&O) taxes on the goods they sell to Washingtonians. However, large online retailers with no employees or offices located in Washington don’t pay any B&O taxes – even though they sell millions of dollars in goods to customers located here. This loophole can be closed by adopting an “economic nexus” approach for the B&O tax. Under this rule, any business that makes at least one quarter of its total sales to customers in Washington state, or that has at least $267,000 in sales here, would be required to pay B&O taxes on their in-state activities. 

Narrow the tax break for trade-in vehicles valued over $10,000. Under current law, the full value of a vehicle trade-in to a dealership is exempted from the state sales tax. We propose limiting this exemption to the first $10,000 of trade-in value. The Citizen Commission for Performance of Tax Preferences notes that this tax break doesn’t stimulate enough additional sales to replace the lost sales tax revenue. Further, the average vehicle traded in at a dealership is valued at $7,500, which means many trade-ins would remain exempt under the proposed $10,000 threshold.  

Eliminate the preferential tax rate for prescription drug resellers. Businesses that warehouse and resell prescription drugs pay a B&O rate that is less than a third of the standard rate for wholesaling. Even though this preference was passed to lure prescription drug wholesalers to relocate to our state, the preference is now available to all drug resellers who do business here, including those operating out-of-state warehouses. This preference no longer serves any purpose except to provide giveaways to prescription drug companies. 

Close the public utility tax break for interstate trucking and rail hauls. Transportation businesses that begin or end their trip outside of Washington state are not taxed on any of their income generated from activities here. Repealing this exemption would subject such businesses to the public utility tax for income received while in the state. 

Eliminate B&O tax breaks that no longer serve us, including for industries such as international investment management services and banking facilities, travel arrangement services like those provided online, and soda sellers. These industries get a break on their B&O taxes even though there’s little evidence that they benefit state or local economies.

The full list of tax breaks we propose to narrow or close can be found in the table below. 

(Click on graphic to see enlarged version.)

Tax Breaks Table

When our state gives away money to big oil, international investment banking companies, and prescription drug resellers, it can’t use those dollars to invest in the things that benefit us all. It’s time for lawmakers to clean up these wasteful and outdated tax breaks and invest those resources into the things that provide the foundations for thriving communities – from schools to public health programs, and from parks to walkable sidewalks.

Working Families Tax Rebate Remains Smart Policy to Fix Our Tax Code, Bolster Washingtonians with Low Wages

Posted by Julie Watts at Mar 02, 2017 08:05 PM |
By Asha Bellduboset, Narver fellow, and Jennifer Tran, senior policy analyst
 
In Washington state, the Working Families Tax Rebate (WFTR) is a powerful tool to help rebalance the state’s tax code and strengthen the economic security of working families. WFTR is the state version of the Earned Income Tax Credit (EITC), a federal tax rebate that lifts more families above the poverty line than almost any other government program. Through the EITC, qualifying low-wage workers can get an annual boost to their income in the form of a tax credit. Nearly all recipients are families with at least one child living at home. The WFTR was enacted by state policymakers in 2008 to build on the EITC and help hardworking Washingtonians meet basic needs. Unfortunately, the program has never been funded. It’s time for that to change.

Funding the WFTR is an important step lawmakers can take to clean up our inequitable tax code while reducing taxes for households with middle and low incomes. Under our current tax code, people with the lowest incomes pay seven times more in state and local taxes as a percentage of their income than the wealthiest 1 percent. The WFTR would help alleviate the disproportionate tax responsibility placed on people with low incomes by providing an extra boost to households already receiving the EITC.

Households that receive an EITC would get an additional 10 percent rebate for the year through the WFTR. For example, a family with two qualifying children receiving the maximum annual EITC credit amount of $5,616 could also qualify for an extra $562 through the WFTR. This extra income could cover the cost of feeding a family of three for one month or pay for a month of care for a school-age child.

Looking at the most current data on EITC filers, we estimate that if the WFTR were funded [1]:

  • Nearly 439,000 Washingtonians across every county who received an Earned Income Tax Credit would also receive a Working Families Tax Rebate, with a slightly higher share of benefits going to rural counties;
  • The WFTR would put $95 million back into the state economy; and
  • Qualifying households would on average receive approximately $2,400 in EITC and WFTR combined.

The EITC has been an extremely successful federal poverty-reduction tool, not only by immediately reducing taxes for working families, but also by supporting their work efforts through rebates that support access to transportation and child care. Our state should capitalize on the many established benefits of the federal program by fully funding the WFTR.

The map below further emphasizes why funding the WFTR is a smart policy choice. It would benefit households in all 39 counties in Washington state. And in particular, working families in rural counties in central and eastern Washington would see an economic boost.

Click on graphic to see enlarged version.

WFTR Map

Click here for a printable listing of total EITC returns and estimated WFTR rebate amounts for Washingtonians by county and legislative district.

And for details about the Budget & Policy Center’s full revenue reform plan, which includes the WFTR, visit our Accountable Washington webpage. The Accountable Washington plan would clean up the tax code, bolster the economic security of people with middle and low incomes, and invest in important statewide priorities

1. Budget and Policy Center’s Analysis of Brookings EITC 2014 Tax Year data, https://www.brookings.edu/interactives/earned-income-tax-credit-eitc-interactive-and-resources/

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