There was a time – not so long ago – when bipartisan majorities of legislators worked together in the face of tough times.
They responded to recessions with a recipe of policies that worked – a balanced mix of targeted cuts in spending and some tax increases. That reasonable approach lessened the severity of past downturns by maintaining crucial investments in health care, education, child care, and job training while the economy recovered.
But since the state’s first “supermajority” law was enacted in 1993 – meaning that taxes couldn’t be raised unless two-thirds of legislators approved – Washington state has been forced to endure an over-reliance on the cuts side of the equation. The result: damaging cuts to public services that cost jobs and make economic recovery take longer.
Some put forward an odd, history-defying argument (see here and here) that policymakers would have relied on a cuts-only approach to the most recent recession even without the supermajority law. Those who say that seem to suggest the law isn’t necessary because raising taxes is already extremely difficult.
But the record shows otherwise. Before the supermajority law legislators were able to unite behind raising additional revenues when the only alternative meant unacceptably deep cuts to core public health, education, and safety services. For example:
- Facing a severe recession in the early 1980s, policymakers (including Republican Governor John Spellman), enacted spending cuts and tax increases to preserve essential health and education investments. The package included a one-cent sales tax increase as well as more than $230 million in budget cuts.
- During the recession of the early 1990s, Washington state faced a $2.1 billion shortfall between the amount needed to maintain key public investments and available tax revenues needed to pay for those investments. Again, legislators responded with a balanced approach consisting mainly of spending cuts, drawing upon reserves and funds other accounts, and some Businesses and Occupation (B&O) tax increases.
That’s a sharp contrast from the last time around, when the supermajority law in essence took important tools out of the hands of legislators and left them fumbling for a solution that only made things worse.
The bottom line is that without the overly-restrictive supermajority law, history clearly shows that Washington state has been able to come together during recessions and negotiate reasonable solutions to economic problems.
For more information on the toll the supermajority law has taken on Washington’s economy check out our latest policy brief, "Supermajority Law’s Damaging Legacy: I-1185 Would Renew a Policy That Has Eliminated Jobs and Thwarted Economic Recovery in Washington State."
As part of our role to evaluate fiscal policies, we will continue to provide independent, unbiased analysis on this and other gubernatorial proposals as they arise.
Gubernatorial candidate Jay Inslee proposes tax cuts for a variety of industries in Washington state, but this approach is unlikely to boost investments in public health and education that are proven to create jobs and help build a strong economy.
Inslee argues that targeted tax breaks – including breaks for small businesses, aerospace, clean energy, life sciences, and technology companies – would stimulate the economy, which would in turn boost revenues needed to pay for public health and education priorities. But in reality, that approach would force policymakers to further cut these job-creating investments by eliminating tax resources needed to pay for them.
Inslee’s proposed tax cuts could stimulate the economy to some degree. But any benefits associated with the tax breaks would be more than offset by another round of damaging cuts to Washington’s core education, health, and public safety systems – which have already been slashed by some $10.6 billion since the start of the recession.
Former Federal Reserve Board Economist Robert Tannenwald and Iris Lav, former Deputy Director of the Center on Budget and Policy Priorities, concluded that tax breaks are ineffective tools for stimulating state economies. According to Lav and Tannewald:
“State balanced-budget requirements prevent states from stimulating their economies by cutting taxes. If a state cuts a tax, it generally has to make an offsetting cut to expenditures for a program or service in order to maintain balance. This spending cut is likely to reduce demand in the state just as much as the reduction in taxes may stimulate demand. It is at best a zero-sum game, where the gains in one area are offset by the losses in another.”(1)
In the race for the Governor’s seat, neither candidate has offered a viable solution to boost our economy and strengthen our state’s investments. As noted in previous schmudget posts (available here, here, and here) gubernatorial candidate Rob McKenna has an unrealistic budget plan that would significantly damage Washington’s public health and safety investments.
To create jobs and get Washington’s economy moving again, policymakers should invest in job training, child care, education (pre-school through university), adequate health care, and other proven public services.
Making these critical investments won’t be possible without addressing Washington’s outdated and inadequate revenue system. Reforms like updating the state sales tax to include consumer services that didn’t exist when the sales tax was enacted in 1935, and enacting a new tax on high-end capital gains would go a long way towards building a strong economy in the coming years.
Unfortunately, neither candidate has addressed the 800-lb. revenue gorilla.
Stay tuned. More analysis to come on proposals from the gubernatorial candidates.
1. Iris J. Lav and Robert Tannenwald, "Zero-Sum Game: States Cannot Stimulate Their Economies by Cutting Taxes," Center on Budget and Policy Priorities, March 2010, http://www.cbpp.org/cms/index.cfm?fa=view&id=3100
By forcing deep cuts to job-creating investments in health care, education, public safety, and transportation, instead of allowing a balanced approach that would have included some new revenue, the supermajority requirement has stifled Washington’s economic recovery.
The requirement, which has been on the books in various forms since 1993, bars policymakers from raising taxes without a two-thirds vote of the legislature or a vote of the people. Initiative 1185 would lock the requirement into place for at least another two years.
Throughout the course of the Great Recession, a small number of ideologically extreme lawmakers have used this onerous law to block legislation needed to maintain investments essential to a strong state economy.
The impact on Washingtonians has been devastating:
- More than 60,000 Washingtonians have lost health coverage, forcing them to go without care or seek expensive ER services that make the system more costly for all of us.
- Too many aspiring students have been unable to receive financial aid, depriving them of the opportunity for a college education they’ve earned.
- Double-digit tuition increases have made a four-year college education out of reach for thousands of students and unemployed workers looking to retool their skills to find a job.
- Thousands have lost assistance to get and keep a job, when it should be our top priority to get people back to work
- Many seniors must pay more for prescription drugs, increasing financial hardship for many who are already struggling to get by.
And that’s just the tip of the iceberg.
It didn’t have to be this way. Without the onerous supermajority requirement, policymakers could have responded to the recession with a mix of targeted budget cuts and modest tax increases. That approach would have preserved many of the job-creating public health, safety, and education services that were eliminated.
By continuing the supermajority requirement, I-1185 would hurt our economic recovery and further tie the hands of our elected officials.
Earlier this year, a King County Superior Court found that the supermajority requirement violates the State Constitution. The State Supreme Court will review the lower Court's ruling later this year, with oral arguments scheduled to take place on September 25th.
Whatever the Supreme Court rules, now is the time to make investments that create jobs, not keep bad laws that eliminate them.
Stay tuned. In the coming weeks the Budget & Policy Center will release more detailed analyses of the supermajority requirement and the damage it is done to Washington’s economy.
By Andy Nicholas and Kim Justice
June 21, 2012 update: Several of the inflation rates used to calculate future shortfalls were corrected this morning. This post has been updated to reflect the revised estimates. The change resulted in a modest downward revision of the shortfall estimates, but the overall story remains the same: without reform, we're headed for years of severe revenue shortfalls.
Washington will bring in just enough revenue over the next year to cover our current commitments to health care, education, and other public priorities, but the longer-term picture is not as rosy. If we don’t reform Washington’s revenue system, funding will consistently fall short of the amount needed to sustain these and other vital public investments that boost our economy and create jobs.
Despite deep cuts to health care, public safety, and other shared priorities since the start of the Great Recession, the State Economic and Revenue Forecast Council projects state tax revenue will barely cover current investments through June 30, 2013. After that, our ability to maintain public investments will quickly start to unravel.
As shown in the graph below, the Budget & Policy Center projects revenues will fall short of spending needs by $811 million in the two-year budget cycle that begins on July 1, 2013. This revenue shortfall will increase to $1.6 billion in the 2015-17 budget cycle.
To address these revenue shortfalls, policymakers must make tough choices in the years ahead. Continuing down the current path – one that relies almost exclusively on cuts to core public services – would be a disaster for Washington. It would further weaken our economic recovery by eliminating the very public health and education investments needed to create jobs and build long-term prosperity.
It doesn’t have to be this way. Lawmakers can adopt reforms that will create a more robust and stable revenue system capable of supporting the demands of the 21st century economy. Long overdue reforms, such as enacting a state capital gains tax and increasing scrutiny of state tax breaks, would go a long way toward building a prosperous future for all Washingtonians.
By Kim Justice and Andy Nicholas -- As the candidates for governor head into their first debate, they should be telling Washington voters how they will reverse the state’s course of consistently failing to come up with the resources needed to make needed investments in education, health care, and public safety.
The bottom line is that without reform Washington state is headed for sizable shortfalls in the next four years, ranging from $1.6 billion to $3.4 billion.
While we would all like to believe that future revenue projections will be enough to rebuild our state and put people back to work, the facts are clear: the troubled economy is only part of our problem. The rest comes from the fact that Washington has what’s called a structural deficit — year in, year out we don’t take in enough money to meet our needs because we haven’t created a tax system that can do the job.
As the graph below shows, revenues will continue to fall short of meeting our needs for the foreseeable future.
At a minimum, revenue will fall $850 million below needs in the next biennium (FY 2014-2015), based on existing revenue estimates from the State Economic and Revenue Forecast Council.
Beyond 2015, budget shortfalls according to three different scenarios for revenue growth are as follows:
- Optimistic: revenues grow by 6.2 percent each year, the average rate of growth during the last economic cycle from 2002-2007 (following the dot-com bust recession).
- Moderate: revenue grows by 4.7 percent each year, the average rate of growth from 1995-2000 (economic expansion of late 90s).
- Pessimistic: revenue grows by 2.5 percent each year, the average rate of growth over the last ten years.
In the wake of the worst recession since the Great Depression, unprecedented service cuts have cost more than 70,000 people their health coverage, brought college tuition increases as high as 16 percent per year, and launched a law suit confirming that Washington state is failing to meet our constitutional obligation to fund basic education.
To get people back to work and build a strong economy, it takes first-rate schools, affordable colleges and universities, and a healthy, productive workforce. Washington needs a revenue structure built to do the job. That means eliminating wasteful tax breaks, modernizing our sales tax to include more consumer services and taxing capital gains of the wealthiest three percent of Washingtonians.
The estimates in this analysis are preliminary but conservative. In the coming weeks, we will refine our analysis and update it to include revised revenue forecasts from the Economic and Revenue Forecast Council.
Spending is based on enacted budget for FY 2013, adjusted by Consumer Price Index for Seattle/Tacoma/Bremerton and annual population growth. Where available, population growth for specific populations was used. Spending includes estimated costs of Basic Education Reform/ HB 2776. Revenues assume 1% are dedicated to Budget Stabilization Account each year.
State tax credits for lower- and moderate-income workers result in healthier children, according to a new study by the Carsey Institute. Unfortunately, Washington’s version, the Working Families Tax Rebate, hasn’t been funded since it was created in 2008. Until policy makers do so, our state will continue to miss out on the rebate’s many benefits, which also include stronger local economies and reduced poverty.
The federal Earned Income Tax Credit (EITC), which the state tax credits are modeled on, lifts more families out of poverty every year than any other federal initiative. It makes working families with children eligible for tax credits of up to $5,891 each year. The EITC is designed to encourage and reward work in lower-paying fields, providing families with critical resources to help pay bills and purchase necessities like clothing, school supplies, and medicine.
Building on the success of the federal EITC, 24 states have wisely implemented their own versions of the credit. That investment is paying off. Among other benefits, the Carsey study found that states that enacted EITCs between 1990 and 2006 saw significant increases in the number of children covered by private health insurance and reported to be in excellent health by their mothers. Children in these states were also 24 percent more likely to have visited a dentist’s office in the past year compared to those in states without EITCs.
Washington enacted an EITC in 2008. The Working Families Tax Rebate (WFTR), which was based on a proposal from the Budget & Policy Center, would give about 400,000 Washingtonians a state tax rebate of up to $589 per year.
Yet, policymakers have repeatedly failed to fund the WFTR. That’s a penny-wise and pound-foolish decision, since the rebate would reduce poverty and get more people into the workforce and spending money. The rebate would also help address inequalities in Washington’s revenue system, since modest-income households pay a larger share of their earnings in taxes than the wealthy.
Also, check out the Carsey study for more details on how state EITCs help make children healthier.
Tomorrow morning, a King County Superior Court judge will rule on Initiative 1053’s “supermajority” requirement – a law that has prolonged the recession in Washington by forcing unnecessarily deep cuts to health care, education, and other job-creating investments.
While the ruling is unlikely to be the last word on whether it is constitutional to require a two-thirds majority vote of the legislature to raise new revenue, the law’s impact is abundantly clear: In just three year years, vital economic investments have been cut by more than $10.6 billion. Meanwhile, state spending on special-interest tax breaks – many with dubious economic value – has grown.
Why? Because the supermajority requirement enshrined a deeply distorted budget process that gives an excessive amount of power to a small minority of legislators. Raising revenues through tax increases or closing tax loopholes can only be accomplished by a two-thirds (66 percent) vote of the legislature or a vote of the people. That means as few as 17 legislators can block efforts to maintain funding for education, health care, public safety and other important priorities. At the same time, it takes only a simple majority (51 percent) vote of the legislature to cut these investments in our economy.
This lopsided, cuts-only budget process created by the law couldn’t have come at a worse time. In the midst the worst recession of the post-World War II era, cuts to public investments have meant that:
- 25,000 parents have lost child care, job training, and assistance finding a job.
- 50,000 seniors can’t afford prescription drugs.
- 60,000 workers have been kicked off the state Basic Health Plan (BHP), which provides health insurance for lower-income singles. The number of people on the wait list for BHP now exceeds 150,000.
- Tuition has increased by as much as 20 percent per year since 2009, placing college out of reach for thousands of would-be students.
And that’s just the tip of the iceberg.
Despite the heavy cost of this law, supporters of unlimited tax breaks are currently collecting signatures for the “son of I-1053.” If approved, the new Initiative 1185 would lock the supermajority requirement into place for another two years.
Tomorrow’s ruling will only be the first of several, with appeals expected. The State Supreme Court will likely give the final word on whether the supermajority requirement violates the state Constitution.
Constitutional or not, the supermajority requirement is simply bad public policy. Going forward, the requirement could prohibit lawmakers from addressing Washington’s outdated revenue system, which is a huge barrier to future growth and prosperity.