Building an Economy that Works for Everyone

Don’t just patch Washington’s revenue lifeboat. Build a better budget ship to sail in.

The key question confronting state policymakers next year (and, if the Governor’s budget transformation project is moderately successful, the voting public this November) is this: how will we keep the public structures that underpin our communities and our economy – like public education, transportation, higher education, health care, and public safety – intact during the recession and on into the recovery?

Washington’s economy has shrunk dramatically as a result of the recession – and so has state tax revenue. Sales tax receipts have fallen sharply because people have slowed or stopped purchasing many goods, and property values have dropped as a result of the real estate bubble implosion, driving down property tax receipts. All told the damage has (so far) cost $12 billion over the 2009-11 biennium.

So far, state leaders have patched together a mix of budget cuts (37%), federal recovery funds (31%), transfers and other changes (24%), and revenue increases (8%) that have not only helped to balance the 2009-2011 state budget, but also forestalled an additional $2.4 billion shortfall through FY 2013.

However, as Columbian editor John Laird recently wrote, the steps taken so far are mostly one-time or temporary fixes, not a solution for long-term stability:

  • Most of the new tax increases will expire in 2013. Of course, critics scoff at that promise, but wise voters will keep the pressure on during legislative elections this year and in 2012.
  • More than one-third of the revenue enhancements “will not increase taxpayer liability compared to previous years.” These include tougher auditing and compliance efforts, technical clarifications and other wonkish tweaks.

There’s a limit to what baling wire and duct tape can fix. Even taking this year’s legislative actions into account, state revenue is forecast to be as much as $3 billion less than needed for the 2011-13 budget. And much of the federal stimulus funding, which has been critical to supporting Washington’s economy through the worst of the recession so far, is set to expire soon. With elections looming this fall, political maneuvering has put federal support to states for unemployment insurance and Medicaid at risk.

We’ve already seen that budget cuts are a lose-lose-lose proposition for our kids, our parents, and our economy. So what can we do differently?

One approach is to make our existing taxes more stable and equitable. Last year, we noted that $2.2 billion in revenue could be recouped just by closing special tax loopholes and exemptions. In other words, simply by ensuring all taxpayers were on a level playing field (instead of giving special exemptions to a privileged and politically-connected few) we can ensure public structures have a stable source of funding that grows at the same rate as our economy over the long run.

Another approach is exemplified in Initiative 1098, which would re-balance our tax structure by eliminating business taxes for 80% of Washington’s businesses (and reduce taxes  for another 12%); cutting the state portion of the property tax by 20% for residential and commercial property alike; and taxing income over $200,000/single-filer or $400,000/joint filer. The net income (just over $1 billion/year) would be invested in public education and health care.

Looking for more information about Initiative 1098? Visit the Economic Opportunity Institute website.

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