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Showing blog entries tagged as: State Revenue


State Revenue Forecast Doesn’t Change the Facts: Washington State Needs Equitable New Revenue

Posted by Kelli Smith at Jun 20, 2017 01:45 PM |
Filed under: State Budget, State Revenue
Statement from the Washington State Budget & Policy Center:
 
The updated state revenue forecast, which projects a small increase in the amount of tax resources available to fund schools and other priorities in the coming years, should signal to lawmakers that it’s time to get to work on cleaning up the state’s flawed tax code. Failing to do so would make it impossible for lawmakers to amply fund schools without forcing harmful cuts to health care, higher education, and other investments that promote a strong state economy and thriving communities.
 

Lawmakers in Olympia have until June 30 – just 10 more days – to finalize the state budget before state agencies are forced to begin shutdown procedures. A state government shutdown would put thousands of Washingtonians at risk of losing access to child care, public health resources, and job supports, and it could cause interruptions to business, environmental protection, and utility services. That’s not even to mention the loss of income for state workers during the shutdown.

With the latest revenue forecast, lawmakers now have all the information they need to come to an agreement on a budget that invests in strong communities. The Washington State Economic and Revenue Forecast Council’s final revenue forecast for the fiscal year (which ends on June 30) projects state tax revenues will increase over the next two years by just $80 million (less than 0.2 percent of the current budget) relative to the previous forecast – a mere blip on the state budget radar. 

In the past few years, lawmakers in Washington state have passively relied on revenue growth from the shaky economic recovery in order to make sluggish progress toward fully funding schools, per the state Supreme Court’s McCleary mandate. This approach has been both inadequate – the legislature is currently being held in contempt for failing to fully fund schools – and irresponsible, since most or all of the revenue growth will vanish when the next recession strikes. Today’s inconsequential revenue projection doesn’t change that.

As we wrote after the last revenue forecast in March, when adjusted for economic growth, state revenues have actually declined since 2001 and have remained nearly flat since the end of the last recession. This means Washington state is still funding many programs and agencies at levels far below what is necessary to serve our communities. Negligible growth in revenues is not enough to maintain current obligations, let alone enough to provide for stronger investments that help our state thrive. 

Lawmakers must take this opportunity to enact smart, long-term reforms by raising new revenue from equitable, sustainable, and adequate sources. They can start by closing wasteful tax breaks for corporations and by eliminating the tax break on high-end capital gains. Doing so would improve the wellbeing of our state and its people for generations to come, and begin to turn our upside-down tax code right-side up.

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Lack of a State Capital Gains Tax Means Wealthiest 1 Percent Get a Huge Tax Break in Washington State

Posted by Kelli Smith at Apr 19, 2017 05:45 PM |
By Andy Nicholas, associate director of fiscal policy
 

Currently, our state tax code caters to the wealthiest Washingtonians by giving them generous tax breaks on their capital gains – which are the profits they make from the sale of corporate stocks, bonds, gold bars, and other high-end financial assets. Such financial assets are exempt not only from state and local sales taxes, but also from property taxes, and most business & occupation (B&O) taxes. The simplest and most equitable way to effectively close these state tax breaks is to enact a state excise tax on high-end capital gains. Doing so would generate substantial new resources for Washington state’s schools and other investments that foster thriving communities. Eliminating the tax breaks on profits from capital assets in this way would represent a significant step toward turning Washington’s inequitable, upside-down tax code – in which people with low incomes pay seven times as much in state and local taxes as a share of income as the wealthiest 1 percent – right-side-up.

 

Click on graphic to enlarge.

Capital_gains_revenue_by_inc_pie


Democratic leaders in the state House of Representatives have sensibly proposed to close the loopholes on most profits from capital assets in Washington state’s tax code with a new 7 percent excise tax on capital gains above $25,000 ($50,000 for a married couple). As the chart above shows, 92 percent of capital gains taxes would be paid by the wealthiest 1 percent of Washington’s families – those with incomes above $600,000 per year. By contrast, virtually none of the additional tax revenue would come from families with incomes below $119,000 per year. Only 0.03 percent of households in that group would pay any additional taxes.

Closing the capital gains tax break would generate more than $700 million per year in new resources for schools, child care, environmental protection, and other priorities that serve Washingtonians. And the additional payments from the few households that would be impacted would be relatively small. As the chart below shows, on average, taxes would increase by only 1.5 percent as a share of annual incomes among the richest 1 percent of households in Washington state. This is a small price to pay for the people who have benefited most from our economy to ensure that all kids have access to great schools and all Washingtonians can have thriving communities.

Click on graphic to enlarge.

Capital_gains_tax_as_share_of_income

The excise tax on capital gains proposed by House Democrats is the most sensible way to address the numerous tax breaks for capital assets on the books in Washington state, which include exemptions and exclusions from the sales tax, property tax, and B&O tax (Washington's three major revenue sources). When it comes to the sales tax, for example, people don't have to pay it when they buy or sell stocks, bonds, and other high-end financial assets (or intangible goods). But Washingtonians do pay sales tax when they buy tangible goods, like cars, appliances, soap, and toothpaste. Because stocks and other financial assets are heavily concentrated among the wealthiest households, their exclusion from taxes gives a huge advantage to wealthy Washingtonians.

The capital gains proposal in Washington state would be simple for taxpayers and cost-effective for the state to administer because it would be based on the federal capital gains tax. Further, it would be almost impossible for the few wealthy households subject to the tax to evade it. That’s because liability for the tax would be based on where the taxpayer lives, not where their stock trades occur.

As the regular legislative session comes to an end, the budget writers in Olympia who are seeking to fund schools and other key priorities need to close the capital gains tax break.

The House Revenue Plan Shows How to Make Smart, Long-term Investments in Communities

Posted by Kelli Smith at Apr 14, 2017 03:15 PM |
Filed under: State Budget, State Revenue
By Andy Nicholas, associate director of fiscal policy, and Kelli Smith, policy analyst
 

The package of tax reforms included with the budget proposal from Democratic leaders in the Washington state House of Representatives would provide nearly $3 billion in the coming 2017-19 budget cycle in equitable, ongoing resources for schools and the other foundations that foster thriving communities. Because of these important reforms, the budget proposal from House Democratic leaders is the only sustainable two-year investment plan currently under consideration in Olympia. The House’s plan would also begin to take important steps toward flipping Washington’s inequitable, upside-down tax code right-side up.

While Republican leaders in the state Senate also have a budget plan, it does not take meaningful steps toward cleaning up the state’s flawed tax code, and it pencils out only with the help of unsustainable accounting tricks, harsh cuts to critical state programs, and empty promises to our kids.

Washington state has the most upside-down tax code in the nation. Families with middle and low incomes pay up to seven times more in state and local taxes as a share of their incomes than the wealthiest 1 percent. The House Democrats’ proposal shows that it doesn’t have to be this way. The revenue package they propose would raise resources to invest in the foundations that let us all thrive, and it would do so equitably and sustainably by beginning to clean up the tax code so that everybody pays their share. Here’s how they would do it.

Closing the tax break on profits from the sale of high-end capital gains ($715 million in 2017-19). Every year, Washington leaves hundreds of millions of dollars on the table by giving a tax break to those who profit when they sell their corporate stocks and bonds. House Democratic leaders propose to eliminate this tax break by enacting a new tax on capital gains – profits on the sale of corporate stocks, bonds, and other financial assets – above $25,000 ($50,000 for married couples) at a rate of 7 percent. If our state joined the 42 other states that tax capital gains, as the House proposes, we could instead put those resources into the foundations that help our communities flourish, such as recruiting the best educators to teach Washington’s kids and maintaining the beautiful state parks we all enjoy. The tax would not be levied on common middle-class investments. Capital gains within retirement and college savings accounts would be exempt, along with those from the sale of family homes, timberland and farmland, timber, livestock, and small business assets. 

Curtailing or eliminating wasteful tax breaks ($144 million in 2017-19). Washington’s tax code is riddled with tax breaks, some of which are outdated, and others of which only benefit the powerful few who have manipulated the tax code in their favor. Limiting or closing some of the most wasteful tax breaks would begin to clean up our tax code and turn it right-side up. The House Democrats’ plan would allow our state to put resources to good use in our communities instead of providing giveaways to special interests. The plan proposes to close the following breaks: 

    • Sales tax break on bottled water. The negative impacts of bottled water on our environment are well documented, so there’s no good policy rationale to incentivize the purchase of bottled water by providing a tax break for it. Under this proposal, the tax break on bottled water would remain in place for those who don’t have access to potable water. 
    • Sales tax exemption claimed by oil refineries on fuel used to power their operations. This exemption was originally enacted to help the timber industry when companies used their own “hog fuel” in their operations, but now this break goes almost exclusively to the big oil industry.
    • Preferential business tax break for international investment management companies. Financial firms in the business of managing international investments receive a preferential business tax rate which is less than one-fifth the general rate paid by other service businesses, such as janitors, dentists, mediators, and optometrists. 
    • Preferential business tax breaks for prescription drug wholesalers. The tax break for prescription drug wholesalers was originally put in place to lure businesses to Washington state. But because the exemption is available even to companies that aren’t located in our state, it provides no competitive advantage for our state.
    • Real estate tax exemption claimed by banks on sales of foreclosed homes. When Washingtonians buy a home, they pay a real estate excise tax (REET). But when a piece of property is sold as part of a debt proceeding, such as a foreclosure, the REET is not applied. Closing this break would put investors and banks that buy up foreclosed homes on equal footing with everyday homebuyers.
    • Sales tax giveaway for out-of-state shoppers. Our state currently allows shoppers who come from no- or low-sales-tax states to shop in Washington without paying our sales tax. The original purpose was to encourage shoppers in border counties to choose to shop in Washington instead of going across the border to avoid sales tax. But the data shows that this break is claimed most often in King County, which isn’t a border county – strong evidence that the break is being wasted on tourists who would shop in Seattle anyway. The plan from House Democrats would convert this to a rebate program, under which qualifying shoppers could apply once a year to have their sales tax reimbursed. This change from an automatic break to an application process would shrink the sales tax giveaway significantly.

Reforming business taxes ($1.2 billion in 2017-19). The House proposal would eliminate business & occupation (B&O) taxes for about 260,000 small businesses in Washington state with annual gross business incomes below $250,000. Another 33,000 small businesses with between $250,000 and $500,000 of gross income would be able to reduce their tax bills by exempting their first $100,000 in income from the B&O tax. In addition, a 20 percent B&O tax surcharge would be applied to a broad range of businesses categories, mostly impacting larger businesses. This reform would not only help small businesses by providing a targeted B&O deduction, but it would generate over $1 billion per budget cycle in new resources for schools and other priorities.

Reforming the 1 percent property tax levy growth limit ($128 million in 2017-19). As we’ve written about in the past, the 1 percent levy growth limit artificially holds down state and local property tax revenues. The cap starves communities across our state of the resources they need to maintain basic services, like providing 24-hour police and fire services. Lifting this limit would allow towns and cities, especially those in small and rural communities, to raise resources in a way that allows them to meet essential community needs.

Creating a more equitable Real Estate Excise Tax ($435 million in 2017-19). Under current law, a flat, 1.28 percent REET is applied to the total selling price of most real estate sold in Washington state. This proposal would change the tax from a flat rate to a progressive rate, resulting in a higher rate for the very highest-valued properties, and a lower rate for the lowest-valued properties. This would help create a more equitable tax code by requiring those who can afford to buy properties worth more than $1 million to pay a little more to support schools and other important community investments. 

    • For properties selling for less than $250,000, the rate would be reduced to 0.75 percent. 
    • For properties selling for between $250,000 and $1 million, the rate would remain at 1.28 percent. 
    • For properties selling for between $1 million and $5 million, the rate would be increased to 2 percent. 
    • For the most expensive properties – those selling for more than $5 million – the rate would be increased to 2.5 percent.

Creating a more level playing field between in-state and out-of-state retailers ($330 million in 2017-19). Because of a United States Supreme Court decision, many out-of-state internet retailers are not required to collect sales taxes on purchases made to Washington state residents. While these retailers can voluntarily collect sales taxes, few have chosen to do so. As a result, Washington communities lose out on hundreds of millions of dollars in resources, because our state doesn’t receive sales tax revenue on a significant portion of purchases made by Washingtonians. House Democrats propose to follow actions taken by Colorado and other states that would encourage these businesses to change their ways and start collecting sales taxes on goods sold to Washingtonians. Under their plan, out-of-state businesses that choose not to collect sales taxes would be required to send information on each taxable sale to their customers (and the state Department of Revenue). Then the onus would be on the customers themselves to pay the sales taxes not collected by the company. If enacted, many businesses would choose to simply start collecting the taxes rather than placing that responsibility on their customers. 

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

Posted by Kelli Smith at Mar 30, 2017 12:30 PM |
Filed under: State Budget, State Revenue
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.

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.

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.

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