While the Budget & Policy Center does not have a position on this initiative, our research (which is referenced in the Voter’s Guide) supports one aspect of the initiative: the closure of the nonresident retail sales tax exemption. This tax break allows visitors who come from Oregon or other states without a sales tax to avoid paying Washington sales tax on goods when they shop in our state. It costs the state approximately $30 million per year, and there is no evidence that the tax exemption creates jobs or stimulates business activity in Washington state.

This initiative would redirect that $30 million in annual revenue toward helping pay for the changes it proposes in Washington state’s campaign finance law.

The Budget & Policy Center has long supported policies aimed at equitably and effectively reducing carbon emissions and transitioning Washington state to a prosperous, low-carbon economy. Our expertise is primarily in fiscal policy and we have no organizational position on I-732. As such, our analysis focuses only on the revenue and budget implications of Initiative 732.

I-732 includes funding for the Working Families Tax Rebate (WFTR) to help directly offset the costs of transitioning to a low-carbon economy for people with lower incomes – a disproportionate share of whom are people of color or from rural communities. The WFTR was originally championed in this state by the Budget & Policy Center, and we think it’s a smart addition to any policy proposal aimed at reducing carbon emissions. (Of note, the tax rebate was enacted by the legislature in 2008, but the funding needed to get the program up and running has never been allocated.)

This initiative would reduce the state sales tax and business and occupation (B&O) tax to offset the new carbon tax. As such, it has been billed as revenue-neutral. However, we are concerned that by replacing revenue from known sources with less certain carbon tax revenue, this initiative could create a sizable short- and long-term budget shortfall that would put funding for schools, parks, safety net programs, and other state investments at risk. While the authors of I-732 sought to have no impact on the state budget, an analysis by the Office of Financial Management that appears in the state’s Voter’s Guide finds that I-732 will reduce general fund revenue by $797.2 million during the first six fiscal years.

The issue is that I-732 attempts to perfectly offset the costs of reducing the state sales and B&O taxes as well as the costs of funding the WFTR with revenues from a new carbon tax. Even if the authors of I-732 have been able to achieve a perfect balance in the first year or two (the Office of Financial Management’s analysis suggests they haven’t), that balance won’t likely hold. In the long run, sales tax revenues, the number of households eligible for the WFTR, and the B&O tax will grow at different rates. The carbon tax isn’t designed to adjust accordingly.

In addition, while a carbon tax could be a good tool for reducing air pollution and combatting climate change, many economists and public finance experts discourage using carbon taxes, cigarette taxes, and other “sin” taxes specifically for financing schools, health care, services for kids and seniors, and other ongoing investments. If new technologies or other unforeseen events lead to rapid transition to a low-carbon economy, revenues from a carbon tax could decline precipitously, threatening the funding for our schools and other important programs.

Our takeaway is not that I-732 is either good or bad carbon policy; our takeaway is that the concerns being expressed about its potential impact to the state budget and vital social services are valid.

This year’s ballot includes two non-binding advisory votes on fiscal issues. These advisory votes appear on the ballot because of Initiative 960, a 2007 Tim Eyman initiative that established cumbersome administrative requirements when the legislature takes action to close tax loopholes or raise revenue.

These non-binding advisory votes do not actually serve to inform voters. Instead they restrict the scope of the information provided to voters about the purpose and impacts of enacted tax changes. Nor do advisory notes promote a balanced discussion about tax policy changes enacted by lawmakers. Rather, the law includes a required template for writing ballot titles and descriptions that uses biased language specifically intended to skew the vote in favor of repealing any tax change. The Budget & Policy Center would support legislation to remove these advisory votes from the ballots or to provide a greater amount of information to enable voters to make reasoned fiscal policy decisions.

Nevertheless, both of the advisory votes on this year’s ballot reflect common sense fiscal policy changes that the legislature acted on in the 2016 session.

Advisory Vote #14: Clarifying taxation of stand-alone family dental plans 

In the 2016 legislative session, the legislature overwhelmingly approved House Bill 2768, which clarified that some stand-alone family dental plans can be charged an insurance premium tax. This legislation is largely a technical change that allows the Washington Health Plan Finder to offer stand-alone adult dental insurance coverage through the state exchange.

Advisory Vote #15: Modifying tax exemption criteria for clean energy cars

Also in 2016, a broad majority of legislators voted to extend and narrow an existing tax break for customers who buy clean energy cars (House Bill 2778). This tax break is intended to encourage the use of clean alternative fuel vehicles in Washington. The public policy objective of this tax exemption is clearly stated, and a tax preference performance statement is included. While the exemption previously applied to all plug-in and alternative fuel cars, even niche, luxury cars like Teslas selling for $100,000 or more, the 2016 legislation limited the exemption to cars selling for $35,000 per year or less. This change will save the state money by more efficiently targeting the benefit toward consumers for whom a sales tax exemption would make a difference in their purchasing decisions.