Schmudget Blog


Five essential truths about our state tax code

Posted by Melinda Young-Flynn at Apr 12, 2018 12:40 PM |

We’re hearing a lot of conversations these days about a topic previously off the table at most social gatherings: our state’s tax code. As an organization that advocates for the important role that taxpayers’ investments play in the well-being of our state, we welcome the interest in this topic of conversation. 

Unfortunately, many myths permeate the public discourse about our state tax code. At the Washington State Budget & Policy Center, we are committed to making sure you know the truth about that tax code – and the real solutions that must be enacted in Olympia to make it work for everyone. Because it is a tax code that doesn’t live up to our values. It isn’t set up to invest in our communities in the short and long term. And it is set up to favor corporations, special interests, and the ultra-wealthy over everyday Washingtonians. As a result, the tax code creates additional barriers to economic opportunity for many communities of color and people with low incomes. 

Here’s the truth about the ways our tax code is failing our state:

1. Yes, Washington state really does have the worst tax code in the nation for working people. Specifically, those with the lowest incomes pay almost 17 percent of their incomes in state and local taxes, while those in the top 1 percent pay less than 3 percent. That’s completely upside down. And this takes a particularly heavy toll on many people of color in our state who have low incomes as a result of generations of systemic racism. 

2. The tax code is too dependent on regressive sources of revenue that aren’t growing with our modern economy. Our tax code relies way too much on the super regressive sales tax. Further, by mostly taxing goods (like household necessities and toiletries) and not high-end services (like many spa services and financial advising services), the tax code also misses out on a major opportunity for growing revenue (see chart below) that primarily comes from higher-income people who already get better deals in the tax code. 
 
Goods vs services 2017

3. The property tax system doesn’t support the needs of people with middle and low incomes. Although our state’s property taxes are an important source of revenue for our schools and community services, they are structured in a way that makes homeowners with middle and low incomes shoulder too much responsibility to support community needs – like schools and public safety. Property owners often pass the cost of increased taxes onto renters through higher rents. Without targeted safeguards or rebates in place to offset some of these taxes for homeowners and renters who cannot afford them, the system stays broken. 

4. Our state has hundreds of harmful and unnecessary tax breaks on the books for corporations and special interests. Those tax breaks are funneling money away from investments that serve all our communities, like our schools, our parks, and our public transportation systems.

5. Overall, our tax code is simply not providing reliable revenue to pay for critical services. As of 2018, our state revenues are still well below the levels from before the Recession, when adjusted for economic growth (see chart below). In a growing state with a strong economy, that is simply unacceptable – especially given the challenges we face with issues like homelessness and unaffordability in our communities. 

Revenue trend 2018

But there are solutions.

We’ve laid out commonsense solutions to these problems. To start turning the tax code right-side up and creating new revenue, our state legislators should:

These policies would also importantly take some steps to help undo some of the racial inequities in our tax code. For example, if the WFTR were enacted, it would strengthen the economic security of many families of color with low incomes throughout our state. And the largest rebates would go to Latinx people, Asians or Native Hawaiian/Pacific Islanders, and American Indians/Alaska Natives.

In the work to clean up our state’s tax code, let’s make sure that accurate information is drowning out the myths and half-truths. With a real understanding of what we want our tax code to look like, we can work to make sure it is equitable and invests in all of us. 

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House budget smartly proposes capital gains tax, but ignores Supreme Court’s order to fund schools this year

Posted by Melinda Young-Flynn at Feb 20, 2018 07:03 PM |
Statement from Executive Director Misha Werschkul

In their just-released budget proposal, House Democratic leaders revealed a plan that would improve equity in our state tax code by closing the capital gains tax break enjoyed by 2 percent of the wealthiest Washingtonians. We applaud the House’s move toward a more balanced tax code, but there are some drawbacks to the plan – including putting off funding teacher salaries another year and drawing from the state’s rainy day fund – which could threaten the long-term well-being of our communities.


Expanding on a similar proposal from their counterparts in the Senate, House leadership proposes a nearly $1 billion withdrawal from the state’s rainy day fund to provide property tax cuts across the state for the next two years. As we noted in our response to the Senate’s plan, this is a short-sighted use of the state’s emergency savings, which are meant to help keep schools, hospitals, and other critical services running when the state experiences an economic downturn. The rainy day fund should not be used to pay for tax cuts – especially during these good economic times.

Moreover, while closing the tax break on capital gains is a significant step toward rebalancing our upside-down tax code – in which low- and middle-income Washingtonians pay up to seven times more in taxes as a share of income than the top 1 percent – dedicating that revenue to across-the-board property taxes is a missed opportunity to generate additional revenue to strengthen our communities. Higher-income households do not need more tax breaks. 

Instead, lawmakers should focus on investments that lift up Washingtonians with low and middle incomes who already pay more than their fair share of taxes to support the community investments that serve us all. They should also prioritize meeting the state Supreme Court’s deadline to provide critical support for teachers and students by the start of the 2018 school year. 

Lawmakers in both chambers have an opportunity to set our state on a path toward a stronger and more equitable tax code to fund thriving communities. Closing the tax break on capital gains is an excellent start. 

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Our testimony on House Bill 2967 and the need to close the capital gains tax break

Posted by Melinda Young-Flynn at Feb 16, 2018 02:54 PM |

Executive Director Misha Werschkul testified on February 16 at the House Committee on Finance in support of closing the tax break on capital gains in our state. Below is the testimony she prepared.

Misha cap gains testimony 2018Thank you Madame Chair and members of the committee for putting forward this proposal and for your commitment to promoting equity in our state tax code.

As you know, Washington state has the most upside-down tax code in the country – in which low- and middle-income households pay up to seven times more in taxes as a share of income than the richest 1 percent. The Budget & Policy Center supports closing the tax break on capital gains because:

  • It would take a first step toward rebalancing our tax code, by requiring the very wealthiest Washingtonians to pay a tax on profits from the sale of high-end financial assets. This proposal excludes middle-class investments like the sale of homes, farms, and small family businesses, as well as assets in retirement accounts or college savings accounts. As a result, fewer than 2 percent of the very wealthiest Washingtonians would be impacted by this proposal. This is a modest tax increase for the richest – only 1.5 percent of their incomes on average – but it would constitute a significant step forward in rebalancing our tax code.
  • It makes the tax code more sustainable. This is common-sense fiscal policy to provide new resources for the investments that help our communities thrive. This is not a new concept. Forty-one states have enacted capital gains taxes, and every one of those states has a tax code that is more equitable than Washington state’s. Because of our overreliance on a handful of relatively regressive taxes, our tax code also suffers from structural inadequacies. We’ve seen the effects of that structural deficit as we’ve grappled with how to fund public schools. Enacting a tax on capital gains would diversify our state’s revenue streams and make the tax code more sustainable in the long term.

That said, we believe that using the revenue from closing the tax break on capital gains to provide across-the-board property tax cuts is a missed opportunity to address the structural inadequacies of our tax code. Our state’s property tax is a core pillar of funding for public services like public schools. Higher-income households do not need another tax break. A better approach to promote family economic security is to enact targeted reforms to help low- and middle-income families and raise needed revenue to invest in schools, effective mental health services, and other areas. 

We encourage lawmakers to use revenue from closing the tax break on capital gains to:

  • Strengthen investments in schools and early learning, health care and mental health, work supports, senior services, or a host of other priorities that would provide a brighter future for all of our communities.
  • Fund the Working Families Tax Rebate to help keep working families out of poverty and take an additional step toward rebalancing the tax code; and/or
  • Enact a property tax safeguard rebate (or circuit breaker), a targeted approach to keeping property taxes from taking too large a chunk out of family budgets for low- and middle-income homeowners and renters.

Thank you for your work on this. We look forward to continuing the discussion.

 

President Trump’s budget won’t strengthen the economy. It will harm Washington state

By Misha Werschkul, executive director

President Trump’s 2019 budget does nothing to bolster the economic security of people with middle and low incomes – which is critical to create a thriving economy. Instead, his budget actually threatens the economic security of millions of Washingtonians who rely on federal programs to be able to pay for food on the table, a roof over their head, health care, and other basic needs. Further, it will have profound ripple effects on Washington's local economies. 

While this budget is largely symbolic, since the U.S. Congress just approved a two-year budget deal, these extreme proposals should not be ignored. They are an important signal of the president’s priorities. Many of the specific proposals included in the budget have been introduced before and could be incorporated in future budget proposals or stand-alone legislation this year.  

On the heels of the passage of harmful new federal tax breaks that benefit the wealthy and corporations to the detriment of people with low and middle incomes, President Trump laid out a recipe for increased poverty, homelessness, and inequality. Specifically:

  • He again calls for repealing the Affordable Care Act (ACA) and drastically cutting Medicaid, putting health insurance for millions of Washingtonians at risk.
  • He calls for huge cuts in nutrition, housing, and other basic assistance for millions of Americans below or close to the poverty line, most of whom work for low wages, are elderly or have disabilities, or care for young children. For example, the president cuts nearly 30 percent over 10 years from the Supplemental Nutrition Assistance Program, which currently helps put food on the table for more than 900,000 Washingtonians.
  • He proposes deep cuts to the non-defense discretionary budget that funds education, scientific research, job training, and other core government functions. This would result in massive and unsustainable cost shifts to state governments.  

Instead of pursuing the policies proposed by President Trump, federal leaders should take common-sense steps to support families and grow the economy. They can do this by investing in high-quality job training and apprenticeships; increasing access to safe, affordable, dependable child care and care for family members with disabilities; and advancing policies that create jobs and raise wages for working families. 

For more analysis about this harmful budget proposal, see this statement from Bob Greenstein, president of the Center on Budget and Policy Priorities: "Trump budget offers stark vision."


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Lawmakers must reinvest in WorkFirst to restore the promise of basic support to families facing poverty

Posted by Melinda Young-Flynn at Jan 30, 2018 04:15 PM |
Filed under: Poverty, Economic Security
By Julie Watts, deputy director
 
We all want to live in a state where, when people fall on hard times, they don’t go without the basics – food, shelter, and necessities of daily life that allow them to look for jobs and get back on their feet. WorkFirst, Washington state’s Temporary Assistance for Needy Families (TANF) program, is the main way our state protects children and families from the trauma and debilitating effects of poverty.
 
WorkFirst not only provides basic assistance to families in crisis, but it also is supposed to ensure they can move out of poverty through job training, child care, mental health, and support services.(1)

However the program is headed in the wrong direction. As a result of harmful policy changes and budget cuts over the last decade, the program is serving a smaller portion of families in poverty than it was a decade ago. Lawmakers must make investments in WorkFirst to reach more families living in poverty and provide families with more help.

Today, WorkFirst helps only 25 families with children for every 100 living in poverty, down from 50 families for every 100 in 2008. (See graphic below.) The sharp, alarming decline in the number of families being helped by WorkFirst has been driven by dramatic cuts in funding. Since 2008, lawmakers have cut state funding for the program by 47 percent (adjusted for inflation), or $179.6 million, and used those funds to plug holes in other parts of the state budget.

Click on image to enlarge.

 WorkFirst

Further, beginning in 2010, the governor and the state legislature made changes to the program that made it harder for families who were playing by the rules and meeting program requirements to get extensions to time limits. The changes also punished whole families (including children) when a parent failed to meet program requirements and gave families less time to come into compliance before they are cut off the program. Policymakers also cut the amount of cash assistance families could receive even as the cost of living was rising.

These decisions had a far more damaging impact than anyone anticipated. They sent the caseload into a free fall that continues today.

State lawmakers should make sure any new savings in the WorkFirst program that result from fewer families being served are reinvested to serve more families this legislative session. They must make sure that when families fall on hard times in Washington, they don’t go without the basics.

For more detailed recommendations on how to improve WorkFirst, see our policy brief, "Reinvest in WorkFirst: How we can restore the promise of basic support to Washington families facing poverty." 

[1] In addition, a portion of the state’s WorkFirst caseload are “child-only” cases – children who are living with a family member other than their parents or children who are living with parents who are not eligible for TANF.

 

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State legislators should focus on advancing shared prosperity during 2018 legislative session

By Misha Werschkul, executive director

As legislators convene in Olympia for the start of the 60-day state legislative session, the Washington State Budget & Policy Center encourages them to approach every budget-related policy decision this year by answering one critical question: Does this policy help put our state on a path toward an inclusive economy that promotes shared prosperity and advances racial equity?

At the Budget & Policy Center, our 2017-19 legislative agenda aims to meet that goal. We know that in order to build prosperity and to advance equity in our state and our economy, policymakers must keep the well-being and economic security of all Washingtonians top of mind. 

We are pleased that a number of our policy priorities advanced during the 2017 legislative session. In particular, elected leaders rightly strengthened supports for families to meet basic needs, closed outdated tax breaks like the sales tax exemption for bottled water and a tax break that largely benefited oil refineries, and approved paid family and medical leave. This progress is thanks in no small part to the work of community organizations, advocacy groups and everyday Washingtonians from across the state. [See the links at the end of this post for more details about our policy priorities that advanced in the 2017 session.]

Now, in 2018, elected leaders must take additional steps to ensure our state budget delivers on the values of our great state. They can no longer leave undone the important task of cleaning up our upside-down tax code – in which the wealthiest people pay the least state and local taxes as a share of their incomes. Cleaning up the tax code will help ensure our state has the revenue to pay for investments in great schools and strong communities. The stakes are higher than ever given that the U.S. Congress has passed new tax breaks benefiting the wealthy and profitable corporations and hasn’t acted to reauthorize funding for the Children’s Health Insurance Program.

When legislators convene in January, they should:

  • Ensure there is ample and equitable funding to raise the salaries of public K-12 teachers, as required by the state Supreme Court, in time for the 2018-19 school year.
  • Support strong investments in our communities and the well-being of Washingtonians into the future by: helping more kids get access to our successful state preschool program, the Early Childhood Education and Assistance Program, by expanding eligibility; passing “breakfast after the bell” legislation that supports student health and readiness through nutrition; increasing supports for people experiencing economic insecurity, homelessness, and behavioral health challenges; protecting health care funding provided by programs like the Affordable Care Act and Apple Health for Kids; and taking steps to correct the short-sighted fixes and accounting gimmicks from the 2017-19 biennial budget.
  • Enact long-term solutions to fix our upside-down tax code by: closing the tax break on capital gains; making the tax on sales of real estate more equitable by reducing the tax rates on the sale of lower-valued properties and increasing the rates applied to properties that sell for more than $1 million; and boosting the incomes of hardworking families through the Working Families Tax Rebate

As a result of the special election in November, the makeup of the legislature, the leadership in the Senate, and the people on the budget-writing committees are different than at the close of the last legislative session. This legislature has a fresh opportunity to set our state on a path toward prosperity and an inclusive economy through our state budget. 

See our Progress in Washington 2018 report, “Building an Inclusive Economy,” for more details on how our state is faring when it comes to building an inclusive economy. And read more about our policy priorities that advanced in the 2017 legislative session in the following schmudget blog posts:

 

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Statement: Washington’s Representatives must reject tax bill that would devastate the middle class and our state economy

Posted by Melinda Young-Flynn at Dec 02, 2017 11:28 AM |

From Misha Werschkul, executive director of the Washington State Budget & Policy Center, regarding the U.S. Senate passage of the GOP tax bill:

“Both the Senate and House tax bills are costly new giveaways to the wealthy and major corporations at the expense of working families, including tens of millions of low-income and middle-class Americans who actually would face a tax increase. Senator Patty Murray and Senator Maria Cantwell did the right thing for Washington state by voting against this dangerous bill. We now call on Washington’s 10 Representatives to stand with their constituents, demand a full conference process, and reject the final tax bill.

Both tax bills would explode deficits, strain our state budget, and almost certainly force cuts to everything from nutrition assistance for families to education, Medicare and Medicaid, and infrastructure. The Senate bill goes further, increasing the number of uninsured people by 13 million to pay for even larger corporate tax cuts. Both bills also eliminate the state and local income and sales tax deduction, which would only make matters worse by increasing pressure on our state budget, making it harder for state legislators to make investments in kids and strong communities. 

Small changes won’t fix the bills’ fundamental flaws. And the merged tax bill that comes out of a conference committee will be more of the same – offering nothing to most working families and ultimately hurting many. Instead of tax cuts that help those who need it the least, legislators should work to advance tax policies that invest in working families while ensuring that any tax bill is paid for by closing tax loopholes or other responsible tax changes.”

 

Media Contact: Melinda Young-Flynn, melinday(at)budgetandpolicy(dot)org 

 

                                                                                                               

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Our policy priorities

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Testimonies in Olympia

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Watch our 2018 legislative session testimonies on TVW: