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House Democrats’ Budget Shows What Our State Can Achieve by Cleaning Up the Tax Code

Posted by Kelli Smith at Mar 30, 2017 11:30 AM |
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By Kelli Smith, policy analyst, and Andy Nicholas, associate director of fiscal policy


The budget recently proposed by House Democrats is evidence that our state and its people can make real progress when lawmakers clean up the tax code. By taking steps to ensure the tax code is equitable and that it’s set up to invest in the foundations of a strong economy – like great schools and programs that lift up working families – our communities can thrive.

The House Democrats rightly propose to clear out wasteful tax breaks, including the break on high-end capital gains given to the wealthiest individuals in our state. As such, the House's two-year spending plan prioritizes the needs of our communities over powerful special interests and the profits of the ultra-wealthy. And most important, the plan would begin to turn our upside-down tax code – in which people with the lowest incomes pay seven times more in state and local taxes as a share of income than the wealthiest 1 percent – right-side up. When lawmakers make our tax code one in which everybody pays their share, our communities flourish, and we all do better.

This proposal is starkly different from the Senate proposal released last week. The Senate Republicans’ plan relies on fiscal gimmicks to pay for schools and balance the budget, and it also includes a host of harmful cuts to essential programs that support hardworking, low-wage Washingtonians. The House Democrats’ plan, in comparison, responsibly raises new revenue – in an equitable and sustainable way – to account for additional investments necessary to pay for schools, parks, public safety, and other key priorities. The revenue plan in the House's proposed budget would make crucial investments in K-12 schools, front-line workers, and behavioral health services by generating nearly $3 billion in resources in the 2017-19 biennium and $4.8 billion in the 2019-21 biennium.

The House's proposed actions for cleaning up the tax code – and the amount of revenue these actions would generate in 2017-19 – include:

  • Curtailing or eliminating five wasteful business and sales tax breaks ($137 million);
  • Modifying the 1 percent levy growth limit to allow property tax revenues to keep better pace with economic drivers ($128 million);
  • Closing the tax break on profits from high-end capital gains ($715 million);
  • Reforming business taxes to strengthen small businesses ($1.2 billion);
  • Rebalancing the Real Estate Excise Tax to make it more progressive ($420 million); and
  • Creating a more level playing field between in-state and out-of-state retailers ($340 million).

These proposals are a direct response to the reality that the resources our state currently brings in through our regressive sales tax and other sources of revenue cannot keep up with the demands of our growing economy. Closing tax breaks and joining the 42 other states that have a tax on capital gains will help ensure Washington state has the resources necessary to take care of its communities.

One area that could be improved relates to the House Democrats’ use of budget reserves. Their plan to drain more than $1 billion from the state budget stabilization account, or rainy day fund, is risky. Budget reserves (including the rainy day fund) help maintain critical investments when the economy falters or when a natural disaster strikes. Yes, tapping budget reserves now would help lawmakers begin to fund important investments at the outset of the 2017-19 budget cycle, before many of the new resources from their proposed tax reforms would be available. But doing so now would also put those investments at risk of damaging cuts if the funds aren’t replenished before the next recession strikes.

As shown in the chart below, the House Democrats would boost state funding for education, healthy people and environment, and community development and trust. The small reduction in funding for investments in economic security is mostly the result of a proposed transfer of funds out of the general fund, rather than an actual service cut.

(Click on graphic to see enlarged version.) 

2017-03-28_Budget_HouseDemocrat_vs_SenateRepublican

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 House Democrats’ proposal reflects the considerable role K-12 schools have played in the discourse around the state budget this legislative session. It would make its most significant investments in education – an important area of the budget made even more urgent as lawmakers face a state Supreme Court mandate to fully fund K-12 schools per the McCleary decision. The House’s proposed budget would invest an additional $1.9 billion in early learning, K-12 schools, and higher education – a 7.9 percent increase from maintenance levels. The proposals include:

  • Making major investments in K-12 schools. In order to ensure we can attract and retain top-notch educators for Washington’s 1.1 million school kids, the House Democrats’ budget makes its largest investments in boosting pay and professional development opportunities for teachers and other school employees. The House budget would also invest in students in the most under-resourced school districts by increasing funds for districts that are unable to raise substantial local resources, due to low property values. Their plan would also create a ‘breakfast after the bell’ program to ensure that students in the schools with the most low-income students can eat a nutritious breakfast each day.
  • Enacting key enhancements to early education to prepare Washington’s kids for lifelong success. The plan would give more kids the opportunity for a bright future by expanding the Early Childhood Education and Assistance Program – our state’s preschool program that serves families living in poverty – by increasing slots to serve more 3 and 4 year olds and increasing the reimbursement rate so providers can serve more kids and families. But the House’s budget also makes cuts to Early Achievers, which could further limit a key resource for early learning professionals to access tools to provide the highest-quality early care.
  • Providing financial relief for college students and their families. The House Democrats’ budget proposal would build on historic investments in higher education in recent years by expanding our state’s largest financial aid program and freezing tuition at all public colleges and universities.

ECONOMIC SECURITY

Every Washingtonian should have what they need to meet basic needs, like safe and stable housing and food on the table. They also should have the opportunity to get ahead financially. The House Democrats’ budget would reduce investments in economic security from the general fund by $12.1 million, a 1.2 percent decrease in funding from the general fund. Although our analysis shows a small overall decrease in funding, much of this cut is, as mentioned previously, the result of a proposed funding transfer outside of the general fund, rather than an actual cut to services. Proposed changes include:

  • Providing paid time off for family leave. The proposed insurance program would provide workers with help to keep their heads above water when they or a family member is seriously ill, or when they are welcoming a new child. This budget provides startup costs for the program, and ongoing costs of the insurance premiums would be split equally between employees and employers.
  • Investing in early education for kids from families with lower incomes. By increasing subsidy rates for child care providers who serve kids in Working Connections Child Care – Washington’s largest child care subsidy program for families with low incomes –  this budget would help high-quality providers keep their doors open to serve low-income kids. The budget would also fully fund the collective bargaining agreement for in-home family child care providers.
  • Increasing support for working families in poverty. The House Democrats’ budget would provide an 8 percent increase in resources to help families who participate in WorkFirst – Washington’s job assistance and training program for those striving to move out of poverty – meet basic needs. The boost would give them a little more money for essentials like shoes and diapers for their kids. The House plan would also update “asset cap” policies that force families to give up a car or spend all of their savings down before they can access WorkFirst benefits.
  • Increasing resources to prevent homelessness. The House budget proposal would boost basic supports for people unable to work because of a mental illness or physical disability. People who are waiting for federal disability benefits to come through (which can take several years) would get up to $30 a month more through the Aged, Blind, and Disabled program.  People receiving Housing and Essential Needs, which provides housing-related assistance for people unable to work because of disabilities, would be able to get $10 a month in transportation assistance.
  • Taking steps to alleviate intergenerational poverty. The House budget proposal would use an intergenerational approach to addressing poverty by funding a task force whose goal would be to cut poverty by half in Washington by 2025. It would also include a provision requiring several state agencies to report data on Washingtonians participating in federal nutrition assistance programs. This data will provide important information for policymakers to make informed decisions and develop targeted policies to address hunger and food insecurity throughout the state.

HEALTHY PEOPLE & ENVIRONMENT

Washington state is one of the best places in the nation to call home, in part because we live in a beautiful corner of the country where we can enjoy clean air and water and access to stunning outdoor recreation. We are also a state that values supporting the physical and mental wellbeing of all of our state’s residents, so that we can all have opportunities to enjoy a high quality of life. The House Democrats’ budget would increase funding in this area by $660 million, an increase of 6.3 percent. The proposals include:

  • Making improvements to Western State Hospital and enhancing community behavioral health supports. The budget would make important investments in improving safety at Western State Hospital. It would also boost funding for critical supports like mobile crisis teams, housing, and related services – that reduce the need for in-patient treatment at state mental hospitals.
  • Dedicating $40 million in new funding for foundational public health investments. This funding would enable the state Department of Health and local public health agencies to better monitor and prevent communicable diseases and address health inequities among state residents.
  • Moving forward on Washington's Medicaid Transformation Project. House Democrats’ budget would bring in $1.5 billion in federal funding to improve health care delivery and lower costs for Medicaid. It would also offer cost-effective support for family caregivers and help individuals find housing and employment.
  • Strong investment in environmental protection. The proposal provides some much-needed resources to move forward in reducing air and climate pollution, clean up Puget Sound, and protect and restore habitat needed for salmon recovery. The House budget also provides funding for the public to have a voice in cleaning up toxic sites.

COMMUNITY DEVELOPMENT & TRUST

For communities in our state to prosper, residents should feel safe in their homes and neighborhoods, be able to enjoy well-kept parks and historical spaces, and feel confident that government is transparent, fair, and efficient. This budget would increase funding to these programs by $673 million, an increase of 11.2 percent. The major changes include:

  • Supporting the recruitment and retention of Washington's front-line workforce. The budget proposed by House Democrats would provide funding to support adequate pay and benefits for thousands of nurses, public safety workers, home care and child care workers, and other public employees that serve communities throughout our state. It also includes funding to preserve health benefits for state employees. This is an acknowledgement of the important role these workers play in helping our state run smoothly by ratifying the contracts negotiated between the state and its public employees.
  • Reducing barriers to re-entry for people who have been incarcerated. Many Washingtonians – particularly men of color – are saddled by the debt of legal financial obligations (LFOs) after prison release. In their plan, the House Democrats would reform LFOs to make it easier for people who have been incarcerated to get back on their feet and rejoin their communities in a meaningful way.
  • Increasing access to civil legal assistance. Seven in ten low-income households in Washington have at least one civil (non-criminal) legal issue a year, like housing or job discrimination, consumer finance problems, or medical debt. Race and ethnicity also play a role in the number and type of civil legal problems Washingtonians face, especially when it comes to discrimination and unfair treatment. But low-income residents are less likely to have the resources to pay a lawyer to represent them in these matters. The House budget would provide $5.2 million in funds to expand civil legal services in Washington and ensure that more low-income people have access to a lawyer in civil legal matters.
  • Enhanced efforts to reduce homelessness. The budget proposal from House Democrats would provide funding to increase temporary rental assistance and related services for those at risk of falling into homelessness. Their budget would also provide resources to help youth exiting state facilities, such as a juvenile detention center, find safe and stable housing. 

The House Democrats’ budget proposal is a strong effort to move Washington forward. It shows how cleaning up the tax code produces the resources our state needs to make investments that help families, kids, individuals, and communities thrive. With this plan, House Democrats would trade wasteful tax breaks that benefit special interests for concrete investments in communities that help us all do better. That’s a set of priorities we can get behind.

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HIGHLIGHTS

Our Seattle Policy Summit

You can watch our Budget Matters 2017 Seattle Policy Summit, which took place on December 6, online. The first part of the day (watch here) featured Washington State Lt. Governor Cyrus Habib and Race Forward President Glenn Harris. The second part of the day (watch here) featured Budget & Policy Center Senior Policy Analyst Jennifer Tran, and a panel of local leaders moderated by Michael Brown of the Seattle Foundation. 

Our Policy Priorities

Washington state should be a place where all our residents have strong communities, great schools, and the chance for a bright future. Our 2017-2019 Legislative Agenda outlines the priorities we are working to advance to build a better Washington.

Testimonies in Olympia

To advance our legislative priorities, the Budget & Policy Center team was in the state capitol throughout session testifying on a wide range of bills. Watch our testimonies on TVW:
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