New Sales Tax Measure Would Prevent Damaging Cuts

Essential public services like health care, education, and child care assistance face severe cuts or complete elimination as a result of the national recession.  In dealing with the economy's impact on the state budget, policymakers should take a balanced approach that includes new revenues. A new bill introduced yesterday could be a component of such an approach.

House Bill 3183 would generate over $1 billion in new resources by temporarily increasing the state sales tax by one percentage-point, and the motor vehicle fuel excise tax by 1.5 percentage-points.* These actions would entail minimal compliance costs for the state and for businesses, and could be implemented quickly and efficiently.  Both increases would phase out as the economy improves.  The advantages of using the sales tax to preserve services are discussed more fully in the BPC analysis "Increasing and Modernizing the Sales Tax."

While new revenues are needed to preserve essential services, lawmakers should also consider policies that would reduce costs for lower-and moderate-income families. Pairing the revenue enhancements included in HB 3183 with full funding for the Working Families Tax Rebate (WFTR) -- a tax rebate program based on the federal EITC -- would accomplish both of these objectives.

The graph below shows the impact of a one-percentage point increase in the sales tax (similar to HB 3183) coupled full funding for the WFTR.

As the graph shows, the WFTR would substantially reduce costs for poorest fifth of families with kids in Washington.  The next fifth of families would benefit as well.  Click here for a calculator to see how much the WFTR would be worth to families.

* An official revenue estimate is not yet available.