Revenue Forecast Shows Full Recovery Will Remain Out Of Reach Without Reforms
Although today’s revenue forecast adds $345 million to projected budget reserves for the current two year budget cycle, available tax resources remain far below pre-recession levels. Without significant reforms, Washington state's current revenue system will not be able to adequately support important investments like health care, schools, and public safety.
The graph below shows that state tax collections, which finance schools, health care, child care, and many other essential services that support a strong state economy, will remain below pre-recession levels at least through 2016, after adjusting for inflation.
Based on today’s projections from the state Economic and Revenue Forecast Council (ERFC), tax collections for the current fiscal year, which ends in June 2014, are estimated to be $1 billion below 2008 levels, once rising fuel and energy prices and other factors of price inflation are taken into account. Revenues are not projected to reach pre-recession levels again until 2017.
The sluggish national economy is a major contributor to the slower-than-adequate growth of tax resources in Washington state. However, no matter what happens in the broader national economy, policymakers in Washington state will never be able to adequately finance public investments that underpin a robust and competitive state economy unless steps are taken to address serious structural flaws inherent to the state’s 1930s era revenue system.
Reforms such as taxing high-end capital gains and extending the sales tax to include modern goods and services would go a long way toward building a more adequate and equitable revenue system in the long run.
Stay tuned. Next week we will release the third edition of Revenue Trends, a quarterly publication that details how recent projections impact long term economic and historical trends in Washington state.