The federal estate tax provides billions a year for essential priorities like education, the environment and national security. It’s also the most progressive of federal taxes, applying to only the wealthiest two of every 1,000 estates.

But misconceptions surround the tax. And efforts are afoot in Congress that would weaken it.

The tax has already been steadily weakened since the Bush tax cuts in 2000, as rising exemptions have meant that less of an estate’s value is subject to the tax. In 2000, the exemption was $675,000. Only two of every 100 estates nationally were subject to the tax. The exemption is now $3.5 million for an individual, and only one in every 500 estates across the country owes any tax.

While, the rhetoric is that the estate tax hits the little guy, the reality, according to an analysis by the Tax Policy Center (TPC), is this: only about 110 small farms and businesses across the country would owe any estate tax in 2011, if the 2009 parameters were made permanent. In Washington State, only two small family farms or businesses would owe any estate tax in 2011, under those parameters.

Now some proposals in Congress would weaken the tax even more. According to an analysis by the Washington State Budget & Policy Center, only the wealthiest estate owners would stand to benefit from a proposal by Senators Blanche Lincoln and John Kyl (along with a similar proposal from Representative Shelley Berkley in the House).

For estates valued at $20 million, it would mean an average tax cut of $3.5 mil¬lion. This would cost the nation $153 billion more in lost revenue and increased interest on the higher national debt than a more fiscally responsible proposal by President Obama.

Read the entire report here.

Even with the specter of I-1033 behind us, the state budget situation is bleak because of the lingering impact of the economic recession. The deficit facing the Governor as she prepares her budget could be as high as $1.8 billion.

A recent memo from the Department of Social and Health Services' Health and Recovery Services Administration —- written in response to the Governor’s request for budget reduction proposals -- helps illustrate the size of the problem. Acknowledging that "these are serious cuts, and cuts on top of cuts," the Department proposed deep reductions in key health care programs:

• The largest reduction ($69.2 million) would come by eliminating important benefits for lower income adults receiving Medical Assistance, including maternity support services, hospice, hearing, non-emergent dental, vision, podiatry, physical therapy, occupational therapy, speech therapy, interpreters for medical services, and Medicare Part D (prescription drugs) copays. Funding for school-based Medicaid services would also be eliminated ($5.6 million).
• The proposal would eliminate access to state programs that provide health care to lower income children between 205 percent and 300 percent of the federal poverty line, taking a step backward on the state’s commitment to "Cover All Kids" in order to save $11.6 million.
• Reductions in mental health care ($12.9 million) would include eliminating funding for the Program for Adaptive Living Skills and eliminating funding for community support services for individuals discharged from state hospitals.
• The proposal would also eliminate drug and alcohol treatment for all low-income adults not enrolled in a separate DSHS program ($5.5 million).
• There are also $8.3 million in administrative cuts and staff reductions included in the proposal.

The reductions in state spending are only part of the story. These proposed cuts would cost the state an estimated $101.4 million in federal matching funds.

Yesterday the Budget & Policy Center issued a report detailing the impact of budget cuts on public health in the state. The report was co-released by the Washington State Public Health Association and the Washington State Nurses Association.

The Budget & Policy Center and the Washington State Association of Local Public Health Officials independently surveyed local public health agencies to get a sense of the impact of recent budget cuts on public health programs and services, staff, and funding. The Budget & Policy Center received responses from 15 of 35 local health jurisdictions; WASLPHO received answers from 31.

As the map below indicates, 24 of 31 local health jurisdictions, which are the primary providers of public health services, have cut vital programs as a result of budget cuts. These include services to support the health of lower income pregnant women, vulnerable children, and seniors through prevention and education programs.

Other key findings from the report include:

• Lay-offs of public health professionals in 23 of 31 LHJs
• Drops in funding for 24 of 31 LHJs, for example, over $780,000 in Spokane, $1.4 million in Snohomish, and $1.75 million in Thurston Counties

The Budget & Policy Center released a new report today on the impact of state and local budget cuts on public health in Washington State. Public health programs help to promote healthy communities and lifestyles, reduce the spread of communicable diseases and provide rapid responses to public health emergencies.

Local health jurisdictions (LHJs) across the state are feeling the effects of millions of dollars in reduced public health funding from the state and local governments.

The Budget & Policy Center and the Washington State Association of Local Public Health Officials independently conducted surveys of officials at local health jurisdictions--the primary providers of public health services in the state--to get a clearer picture of the impact of these budget cut decisions.

The paper, which was co-released with the Washington State Public Health Association and the Washington State Nurses Association, discusses the findings, including details of cuts in programs, lay-offs in staff, and reductions in funding.

Initiative 1033 proposes to limit revenue collections at the state, county, and city levels according to a formula based on the rate of population growth plus inflation. A key feature of Colorado’s TABOR amendment, this formula is deeply flawed because it fails to keep pace with the costs of providing essential public services such as health care and education. Under I-1033, the inflation component of this formula would limit revenue growth according to the “implicit price deflator for personal consumption expenditures” (IPD).

A new analysis from the Center on Budget and Policy Priorities shows that using the IPD to restrict revenue growth would do great harm to basic public structures in Washington. The report explains that the IPD only reflects changes in costs faced by consumers; it does not reflect the ongoing costs of providing state and local public services. The costs of education, for example, rise faster than the general rate of inflation. Education accounts for only two percent of expenditures for the typical consumer. For the state government, however, K-12 and higher education account for 53 percent of expenditures in Washington. As a result, restricting state and local revenues to growth in the IPD would lead to severe cuts in education and other core public services.

The CBPP report also shows that the IPD is even more restrictive than the measure of inflation that was used in Colorado under the TABOR amendment. Under TABOR, state and local spending was restricted to the rate of inflation as measured by the Denver Consumer Price Index (CPI). The graph below shows that from 1993 to 2005 – the period in which TABOR was in effect – the CPI grew at an annual rate of 3.4 percent while the IPD averaged 2.2 percent.

Yet even under the faster-growing CPI, TABOR lead to devastating cuts in education, health care, and other vital services in Colorado, prompting voters to suspend the amendment in 2005. According the CBPP report, “if Colorado had been operating under an I-1033-style IPD-based formula, the state would have had to cut services by an additional 10 percent beyond what the state enacted under the actual CPI-based formula.”

The view the entire report, click here.

I-1033 would do great harm to basic public services in Yakima County. An analysis of historical revenue data from the Yakima County Auditor’s Office shows I-1033 would have cost the county nearly $45 million, had it been in place from 1996-2008. In particular, investments in public safety and criminal justice would likely have been significantly reduced, as 80 percent of the current operating budget in the county is dedicated to these essential services.

The graph below shows how I-1033 would have lead to progressively higher revenue losses each year from 1996 to 2008 in Yakima County. In 2008 alone, the county would have lost $5.9 million, or about 11 percent of the general fund budget.

To put this into context, $5.9 million in the 2008 Yakima County general fund budget would have been equivalent to:

• Two-thirds of expenditures on the Sheriff’s Office ($8.3 million);
• Eighty-four percent of the combined budgets for the District Court, the Superior Court, and the county clerk ($7.0 million);
• More than the combined general fund expenditures on indigent defense, juvenile justice, and the Washington State University extension program ($5.0 million).

As a result of the ongoing national recession, revenue collections among local governments in Washington have fallen dramatically in the past year. In Yakima County, officials had to draw down reserve funds and eliminate more than 30 vacant positions in order to keep the 2009 budget in balance.

Revenue collections continue to decline in Yakima County, however. The county also faces rising costs and increased demand for services. For example, the county jail has experienced a recent influx of new inmates which drives up the cost of providing corrections services. Together, lower revenues and increased costs are resulting in a $3.3 million deficit going into the 2010 budget cycle in Yakima County. To fill this gap, county officials may have to lay off as many as 60 county government employees.*

It is important to note that 2009 would become the basis for all future budgets in Yakima County under I-1033. As a result, all of the cuts enacted this year and in 2010 will be locked into place, making it impossible to restore services even after the economy recovers.

Editor’s Note on Methodology: There has been much debate about which revenue sources would be subject to the population-growth-plus-inflation cap under I-1033. For this analysis, we assumed that general fund revenue -- including general fund tax revenues, revenues from permits and licenses, and revenues derived from charges for government services -- would have been subject to the I-1033 limit. It is important to note that expanding the scope of revenues subject to the I-1033 limit would substantially increase the estimates of annual revenue losses as well as expand the scope of county services negatively impacted under the initiative.

*David Lester, “Budget gap may force Yakima County to make 60 layoffs,” Yakima Herald-Republic, October 10, 2009.

This year, Clark County officials have struggled to maintain basic county services amidst the deepest national recession since the 1930s. If I-1033 is enacted, spending on law and justice, public safety, and other essential county services would be frozen at 2009 levels. And in future years, Clark County would face rising revenue shortfalls, forcing deep cuts in these services.

Clark County would have lost more than $115 million had I-1033 been in place from 1995-2008, based on an analysis of historical general fund revenue data from the Clark County Office of Budget and Information Services. As the graph below illustrates, during the 2007-08 biennium the county would have lost about $30.3 million (11 percent of the general fund budget).

In the 2007-08 Clark County general fund budget, $30.3 million would have been equivalent to:

• Nearly 60 percent of expenditures on the Sheriff’s Office ($51.5 million);
• Eighty-seven percent of the budget for the county jail ($34.7 million);
• More than the combined expenditures on parks and public works ($7.0 million), community corrections programs ($11.6 million), and indigent defense services ($9.6 million).

The national recession has caused severe budget deficits, impacting local governments throughout Washington. During the current crisis, Clark County officials have struggled to keep the county budget in balance without reducing essential services or laying-off scores of county government employees. So far, this has been accomplished through the use of across-the-board budget cuts and one-time measures -- such as extending the lives of county patrol cars and diverting revenues from the county road fund.

Yet even with these actions, Clark County continues to face a projected $12.7 million budget deficit for the remainder of the 2009-10 biennium.* With few remaining options, county officials may be forced to completely eliminate services in order to fill the current gap. Under I-1033, the 2009-10 budget would form the basis for all future budgets in Clark County and it would be virtually impossible to restore services even after the economy recovers.

Editor’s Note on Methodology: There has been much debate about which revenue sources would be subject to the population-growth-plus-inflation cap under I-1033. For this analysis, we assumed that general fund revenue -- including general fund tax revenues, revenues from permits and licenses, and revenues derived from charges for government services -- would have been subject to the I-1033 limit. It is important to note that expanding the scope of revenues subject to the I-1033 limit would substantially increase the estimates of annual revenue losses as well as expand the scope of county services negatively impacted under the initiative.

* Clark County Office of Budget, General Fund 2009-10 Projections, October, 2009.