Increasing the Sales Tax and Funding the Working Families Tax Rebate
In our new Policy Brief, the Budget & Policy Center recommends temporarily increasing the sales tax and fully funding the Working Families Tax Rebate. If enacted, this proposal would help maintain our shared investments in education, health care, the environment, and safer communities, while reducing costs for low-income working families.
Increasing the sales tax
In Washington, the retail sales tax is our primary instrument for financing basic public services like education and health care. In order to maintain these services, the Budget & Policy Center recommends a temporary (3-year) increase in the state sales tax rate to 7.5 from 6.5 percent.
This approach would generate a sizable amount of new resources (about $1 billion in FY2011) and would be simple for the state to administer and for businesses to comply with.
Mitigating the impact for working families
Raising the sales tax would generate a sizable amount of revenue, but without the WFTR it would also increase costs for vulnerable families in Washington. The graph below shows that, alone, a one-percentage-point increase would have a large impact on low-income families, raising taxes as a share of their incomes by 0.8 percent.
Full funding for the Working Families Tax Rebate -- a tax rebate for low-income working families based on the federal Earned Income Tax Credit -- would significantly reduce costs for these families. In fact, the bottom fifth of Washington families (those earning under $29,000) would actually see a net decrease in sales tax. The rebate would also significantly lower the cost of the sales tax increase for the next bracket of earners (those earning between $29,000 and $54,000).
Click here to view the entire report.