Washington State's infamous anti-taxer, Tim Eyman, is up to his usual shenanigans. Initiative 1033 was approved by the Secretary of State's office last week and will appear on the ballot this fall. If approved, this sweeping "measure would limit the growth rate of state, county, and city general fund revenue, not including new voter-approved revenue, to inflation and population growth. Excess revenue collected above these limits would be used to reduce property taxes." The Washington State Budget and Policy Center points out that the real impact of I-1033 would be to constrict government's ability to provide for the needs of residents, increase the current deficit, and exacerbate the impact of economic downturns. Watch the Budget and Policy Center's slide show on the substantial flaws of the ballot initiative.
Recently in Washington Category
Earlier this week, Washington Governor Christine Gregoire signed into a law a measure providing a 40 percent reduction in the state's business & occupation (B&O) tax for newspapers. Thousands of barrels of ink, millions of column inches, and billions of bytes have been expended in recent months lamenting the state of the newspaper industry, as newspapers such as the Boston Globe (and its parent, the New York Times) struggle to cope with -- or, in the case of the Seattle Post-Intelligencer and the Rocky Mountain News, are completely overwhelmed by -- advertising revenue losses and consumers' preferences for information that they can access any time and any place.
Given this long-term transition from one media platform to another, it's hard to see what this measure will accomplish, other than the waste of tax revenue. After all, if Governor Gregoire and other officials in Washington are concerned about the possibility of an ill-informed populace, why not use the funds lost to the tax cut to forestall cuts to schools or to improve government transparency still further?
In the end, the inefficiency of this tax subsidy will probably only be matched by the irony it has achieved. As at least one observer has already noted, the Seattle Times, one of the subsidy's principal beneficiaries, offered the following editorial solution to the state's budget woes earlier this year: "Efficiency will be the watchword. Lawmakers will have to find numerous savings and new, less expensive ways to do business." Apparently, that advice extends only so far.
Washington state legislators, struggling to fill a huge budget gap, are officially considering the enactment of an income tax. The tax would only apply to "high earners", specifically those with income of over $500,000 for single filers, and over $1 million for married couples. Although the tax would be a mere 1% and would affect only a tiny fraction of state residents, the Governor has come out in opposition to the idea.
Nonetheless, talk of raising revenue in a progressive manner is especially encouraging coming from Washington state, where the idea of enacting an income tax has traditionally been greeted with hostility. As numerouseconomists have pointed out, raising taxes on more fortunate state residents is the best way to prevent cuts in the state services needed most during an economic downturn. Washington joins Illinois,Wisconsin,New York, Connecticut, and Delaware as states where progressive income tax increases have received serious attention.
For more on this topic, see the Economic Opportunity Institute's recent op-ed on "high incomes" taxes.
In too many states facing terrible budget shortfalls, proposals to cut vital services and even poorly targeted tax cuts are receiving a lot of attention from lawmakers. Progressive research groups are pointing out that states cannot escape their fiscal morass simply by cutting public services. This week, the Washington Budget and Policy Center released a letter to Governor Gregoire, the Speaker of the House and the Senate Majority Leader, which was signed by twenty economists urging them to consider all options when trying to balance the budget, including tax increases. The economists agree that, "Implementing deep cuts in government spending and declining to raise revenue through tax increases is not an effective strategy to guide Washington State out of this recession. The best strategy is to continue our long-term investments in education, health care, community vitality, and economic security."
Speaking of putting all the options on the table, the Minnesota Budget and Policy Project recently released their report Revenue-Raising Options to Help Close Minnesota's Budget Deficit. In a state where the Governor has repeatedly taken tax increases off the table, it's important that policymakers and the public realize that there are progressive revenue-raising options available. Read about the menu of options presented in the paper, including sales tax base-broadening, enacting an income tax surcharge, and the creation of new income tax brackets.
Washington state residents are in for a heap of trouble if Governor Christine Gregoire has her way when it comes to balancing the state's budget. To remedy their budget shortfall, Governor Gregoire has proposed this week to slash valuable state services, and has expressed no interest whatsoever in increasing any taxes. $6 billion worth of cuts in children's health care, unemployment benefits, education, and other key services have been put on the chopping block. The Washington Times reports that some of the Governor's cuts would even "violate voter-approved initiatives and previously negotiated labor contracts."
Thankfully, the Washington-based Economic Opportunity Institute presented more responsible ideas this week that add a much-needed progressive voice to the otherwise bleak landscape. Among their proposals are a variety of expansions in the state's sales tax base, a tax on high-income earners, and a tax on oil companies' profits.
Along similar lines, as Florida's budget situation continues to worsen, Republican legislative leaders have announced a special January session to deal with a $2.3 billion budget deficit for the current year. Options on the table include spending cuts and raiding trust funds -- but tax hikes have been explicitly ruled out by legislative leaders. Democratic lawmakers are showing renewed interest in hiking the state's cigarette tax -- even though the projected yield of such a hike has fallen dramatically in the last year. One editorial observer points out that avoiding sensible tax-raising solutions amounts to "eating the seed corn."
As the fiscal contagion spreads among the states, policymakers are clearly casting about for ways to close large and growing budget deficits. In Nevada, Governor Jim Gibbons may be open to tax increases in light of a shortfall that is projected to reach $1.8 billion over the next two and half years, but he has also floated the idea of 'voluntary' payroll reductions of 5 percent. New Hampshire faces an approximately $600 million budget gap over the same period, with lawmakers weighing such options as selling state properties, legalizing gambling, or deferring needed payments to the state pension fund. Florida may have to confront an eye-popping deficit of $6 billion over just 18 months, driving elected officials to think about raiding a variety of trust funds and imposing a 4 percent across-the-board cut in agency budgets.
Of course, these three states have more in common than difficult days ahead. They also share a steadfast refusal to levy a personal income tax. Rather than continue to cast about for half-measures and temporary fixes -- or, worse, policies that would undermine working families' already precarious economic situations -- policymakers in states like Nevada, New Hampshire, Florida, Washington, and Tennessee need to acknowledge the elephant in the room and consider whether the tax policies that brought them to this point are the ones that will carry them to a better future.
From coast to coast, state and local governments are coming face-to-face with the consequences of turmoil in the nation's housing and financial markets, as tax collections are falling well short of expectations and are opening up substantial budget gaps. The country's two Washingtons -- the city of Washington, DC and the state of Washington -- provide two troubling examples. Last month, Washington State's Economic and Revenue Forecast Council announced that it was reducing its revenue projections by $530 million, bringing the anticipated 2009-2011 budget deficit to $3.2 billion. Similarly, Washington, DC's Chief Financial Officer, Natwar Gandhi, revealed at the end of September that the District would likely face a deficit of roughly $131 million in fiscal 2009. Fortunately, sensible solutions to these problems are available. Both the Washington Budget & Policy Center and the DC Fiscal Policy Institute have offered outlines for addressing the respective shortfalls, including using a portion of existing reserve funds, reconsidering ineffective tax exemptions or incentives, and at least temporarily raising taxes. You can read their recommendations here and here.
Seattle's City Council approved a 20 cent disposable bag tax last week for grocery, drug and convenience stores across the city, scheduled to go into effect on January 1. Seattle residents use about 360 million paper and plastic bags per year, a number city officials hope to cut in half.
There are persuasive arguments on both sides as to whether this is a good idea. While a tax on disposable bags is inherently regressive, essentially an additional sales tax, many stores do offer cloth bags as alternatives to disposable ones or allow customers to bring their own. The city plans to provide all residents with a few reusable cloth bags for free. Another argument against the tax is it will require the purchase of disposable bags by many families who formerly acquired them for free to use as trash can liners, to transport food, and to pick up pet waste. This could diminish the positive environmental impact of the tax.
Supporters of the disposable bag tax say the tax provides a strong incentive for recycling which doesn't exist when bags are free. For example, Los Angeles estimates that its residents use nearly 2 billion plastic bags per year and only about 5% are recycled. There is solid evidence that disposable bag taxes have a strong effect on consumer behavior. Ireland implemented a plastic bag tax in 2002 and plastic bag consumption subsequently fell more than 90%.
Department stores are strangely exempt from the bag tax, even though they contribute nearly a quarter of disposable bag usage in Seattle. As Holly Chisa of the Northwest Grocery Association told the Seattle Post-Intellegencer, "If you're going to try to change behavior, everyone should be involved." Equally strange is where the proceeds of the tax are slated to go. Seattle allows large stores to keep 5 cents per bag for administrative purposes while the other 15 cents will go to the city to finance utility rate reductions and to purchase reusable bags. But businesses that gross less than $1 million get to keep the entire bag tax they collect. This amounts to a large unjustified subsidy for small businesses.
Whether Seattle's January 2009 bag tax is likely to be "successful" or not is certainly debatable, but there are several pressing issues that should be resolved to improve the likelihood of success. The tax should not be used to provide a small business subsidy and large retailers should not be exempt from the tax. The city should also consider reducing the regressivity of the bag tax by creating a positive incentive, such as mandating a rebate for not using disposable bags rather than a fee per bag. While this might not be quite as successful at reducing disposable bag usage, it would eliminate the potential burden on low-income families.
Washington State appears to have joined the majority of states with fiscal problems. According to the Center on Budget and Policy Priorities, over half of the states are expecting to face a budget shortfall in their FY09 budgets. Estimates are that Washington could face a budget shortfall for the 2009-2011 biennium of $2.5 billion. Governor Chris Gregoire has said that she's not interested in tax hikes. "I said it four years ago, I'll say it again now: The last thing you want to do is go for taxes when you've got an economic downturn." Instead she has asked state agencies to tighten their belts and identify ways to cut spending. Yet, during an economic downturn state services become even more important to those in need.
Washington has one of the most regressive tax structures in the country and relies more heavily on regressive sales and excise taxes compared to other states. Washington is one of only nine states without a broad-based income tax. Perhaps now is the time to consider restructuring the state's tax system. Lawmakers and advocates should spend a few minutes reading a series of fact sheets released this month by the Economic Opportunity Institute, which provide detailed prescriptions to Washington's tax policy problems. The fact sheets include information on changing the tax structure through implementing a tax on Washingtonians with high incomes, expanding the sales tax base, and closing tax loopholes.
Clearly there are some in Washington, namely anti-tax zealot Tim Eyman, who prefer gimmicks over real solutions. This week Mr. Eyman's initiative to curb traffic congestion received approval from the Secretary of State's office. The proposal will be placed on the November ballot and would further constrain the state budget by taking 15 percent of the sales and use tax on vehicles and devoting the revenue to ease traffic congestion. The initiative would mandate that high occupancy vehicle lanes are open longer hours, stop lights are synchronized, and increased funding is available for road side assistance. While nobody likes traffic congestion, this is not the sort of problem that should be solved through a ballot initiative that will permanently put congestion reduction first in the queue for funding. Mr. Eyman's proposal would constrain the budget without offering solutions to the larger issues facing residents.
On Tuesday the Washington State Legislature passed the Working Families Credit (WFC), modeled after the federal Earned Income Tax Credit (EITC), and sent it to Governor Chris Gregoire for her signature. Qualifying families would claim a credit equal to 10% of their federal EITC. The EITC is a highly regarded program that has lifted thousands of families out of poverty. If the WFC becomes law, Washington would join 22 states and the District of Columbia in implementing similar programs. Washington would also be the first state that doesn't have an income tax to offer the credit. Even in states that do have income taxes, it's the sales taxes and property taxes that are really a burden for the poorest families, and the EITC can counter the regressive effects of those taxes. For more on this groundbreaking credit check out this policy brief from the Washington Budget and Policy Center.
Advocates in Kentucky have long been pushing for the implementation of a state Earned Income Tax Credit (EITC). The EITC is a popular, targeted tax credit that offers assistance to working families. Similar credits have been enacted in 22 states and the District of Columbia. The House Budget Committee passed a bill that would introduce a credit equal to 7.5 percent of the federal EITC, coupled with a broader state estate tax. The bill will now go before the full House.
Policymakers in Connecticut have revived their efforts - stymied by a veto by Governor Jodi Rell - to enact a refundable EITC equal to 20 percent of the federal credit. A bill creating such a credit was approved by the General Assembly's Human Services Committee in late February; see this recent testimony from Connecticut Voices for Children on the measure's potential impact.
The state of Washington, despite lacking a personal income tax, could also be moving towards adopting a version of the EITC. Called the Working Families Credit, it would provide as many as 350,000 Washington residents with a credit amounting to 10 percent of their federal EITC, thus offsetting some of the impact of Washington's highly regressive tax system.
In more low income tax relief news, the Idaho House Revenue and Taxation Committee voted this week to increase the state rebates offered to offset the state's sales tax on groceries. Currently Idaho residents receive a $20 credit as an offset to the sales tax on groceries (more for seniors). The proposal being debated in the House would provide increased and targeted tax relief. For example, the new expanded credit would offer $50 per family member if the family's income is less than $25,000. The value of the rebates would increase each year until the maximum credit of $100 is reached. By 2015 the proposal is expected to cost about $122 million. Read more about options states have to provide targeted tax relief in ITEP's policy brief.
Nine states currently have no broad-based income tax and, as a result, their tax systems are among the nation's most regressive. This week, legislation was introduced in the most regressive of them all, Washington State, to create a "Working Families Tax Credit." According to the Washington State Budget and Policy Center, the credit would reduce taxes for more than 350,000 Washingtonians by allowing workers to claim a refundable earned income tax credit (EITC) that would be equal to ten percent of the federal credit. While several state have implemented EITCs, Washington could be the first where lawmakers are figuring out that the EITC is an effective measure even in a state with no income tax. The Seattle-Post Intelligencer is right to say that the implementation of this credit would help to offset the regressivity of the nation's most regressive tax structure. For more on this ground breaking legislative priority, read the Budget and Policy Center's full report here.
Not content to allow the state's Supreme Court to restore some degree of sanity to the state's property tax system, legislators in Washington last week voted to reinstate a property tax cap that the Court had recently found to be unconstitutional. The cap, initially imposed as a result of a 2001 ballot initiative, had prevented - and, now, will continue to prevent - certain property taxes from growing by more than 1 percent per year, a rate less than the rate of inflation and well below the rate of growth necessary to maintain public services. In fact, the Legislature's vote occurred during a special one-day session hastily called by Governor Chris Gregoire, a move that seems at least partially motivated by a desire to keep localities from doing something rash, like taking the opportunity to increase property taxes and spend them on such luxuries as police or fire departments.
During the session, the Legislature also approved a change in law that will allow homeowners with incomes under $57,000 to defer payment of as much as half of their property taxes until they sell their homes. The Washington State Budget and Policy Center has produced a series of short papers examining property tax caps, deferrals, and other related issues; read them here.
Last Tuesday voters made their voices heard on a variety of tax related issues. In Washington State it appears that anti-tax radical Tim Eyman won another initiative battle. The passage of Initiative 960 makes it more difficult for the state to raise needed revenue, but does little to increase government transparency or encourage economic development. Opponents of the measure rightly say that I-960 will increase dreaded red tape and bureaucracy. Read an FAQ about the initiative from the Washington Tax Fairness Coalition here.
But in a victory for tax justice, an earlier Eyman initiative has been ruled unconstitutional. This 2001 initiative, I-747, capped state and local property tax collections at 1 percent each year, unless a higher increase was approved by voters. Be on the lookout for more on how Washington responds to the passage of I-960 as courts may get involved again.
Elsewhere in the Pacific Northwest, a ballot initiative to raise cigarette taxes and to use the funds to provide universal health care for children was defeated in Oregon, due in large part to the $12 million spent by RJ Reynolds and other tobacco companies to oppose it. Governor Ted Kulongoski, one of the initiative's key backers, has vowed to continue the fight for expanding health care.
To read about the outcomes of ballot measures across the country check out this report from the Ballot Initiative Strategy Center.
The latest weapon for people who believe in making it as difficult as possible to invest in the public good is rearing its ugly head in Washington State. Initiative 960 would change the state constitution to require two-thirds approval in both state houses, or voter approval, for all tax increases. The initiative would also broaden the definition of a "tax increase" to include "any action or combination of actions by the legislature that increases state tax revenue deposited in any fund, budget, or account." In a bizarre twist, any revenue change that was not approved by the people would earn a spot on the ballot - allowing voters to have their say in a non-binding advisory capacity. The description of these complex fiscal proposals in voter pamphlets would be limited to 13 words! For more on this confusing and harmful initiative, take a look at this report from the Washington State Budget and Policy Center.