At first glance, Governor Jay Inslee’s proposed 2019-21 biennial budget seems like a bold pitch. The budget, which he unveiled Thursday, includes much-needed and long overdue public investments in education, mental health, and the environment – including:
- Creating 2,385 slots for kids in the Early Childhood Education and Assistance Program, and funding newborn screening assessments and home visiting services.
- Maintaining funding levels for basic K-12 education, while boosting investments for special education, and for nurses, psychologists, social workers and guidance counselors in elementary and middle schools (with priority given to low-income districts).
- Fully funding the State Need Grant, so that by the 2020-21 school year, every high school graduate who qualifies for a college grant can actually get one.
- Adding capacity to treat mental health patients in smaller, community-based facilities so they can be closer to their loved ones and friends.
The governor’s proposal is on the right track – but it’s not enough. The state is still spending proportionately much less in in education, health and other critical areas than it has historically. As a percentage of total state personal income, state spending is even below what it was prior to the Great Recession.
The culprit here is legislators’ unwillingness to face up to the politically difficult task of changing Washington’s tax structure. The state’s system dates back to the 1930s, when the economy was largely goods-based. Today, services like accounting, architecture, law, consulting and real estate are a much greater share of our economy. While some services pay a modest business and occupation tax, in general, services aren’t taxed like goods in Washington. The result: even as our economy has grown, tax revenue hasn’t kept up.
The state’s over-reliance on sales taxes also creates a very regressive tax code: low- and middle-income residents (who tend to spend more of their income on goods, or lower-priced services) pay a higher share of their income in taxes than those with high incomes do. With the bulk of income growth going to those who pay the lowest tax rate, public services remain starved despite the great wealth that flourishes in our state.
We can’t rely on an outdated and inequitable tax structure to generate more public dollars. And without new revenue, our state faces continuing budget shortfalls, putting education, infrastructure, health care and other priorities at constant risk. To his credit, Gov. Inslee proposes several progressive revenue reforms to address state funding needs, including:
- A new capital gains tax on the sale of stocks, bonds and other assets. Designed to affect only very large capital gains, just 1.5 percent of Washington’s households (with an average income of about $660,000) would be subject to it. Retirement accounts, homes, farms and forestry are exempted. Salaries and wages are not capital gains, so would not be taxed.
- An increase in the business tax rate for services, ranging from professionals like attorneys, accountants and architects to janitorial services, beauticians and massage therapists.
- Making the real-estate excise tax more progressive by reducing the tax rate on lower-value properties, maintaining the existing rate on middle-value properties, and increasing the rate for properties valued at over $1 million.
However, the state will need to make additional public investments in order for our residents and communities to thrive – for example:
- Quality early learning and care: State support for increased compensation is required for early learning jobs – where frontline staff earned an average $27,800 in 2017 – to reach parity with K-3 teachers with similar education/experience, who earn an average $54,998.
- Healthcare: High costs are driving people to drop health coverage and forego care. Washington needs a state-sponsored plan on the Exchange to ensure high quality care, leverage federal funds, and provide additional subsidies to ensure affordability.
- Higher education: While tuition for public higher education has declined since its 2012-13 peak, it still costs 3 to 4 times more to attend a college in 2018 than it did in 1980, due to years of state budget cuts. It’s way past time for legislators to put the cost of college back within reach.
Taxes pay for the public investments needed to build and sustain a high quality of life for all Washington’s residents: excellent schools, well-maintained infrastructure, protecting the vulnerable, quality health care, responsive public services, and stewardship of the state’s natural resources.
When legislators convene in January to write the state’s 2019-21 budget, they should build on the Governor’s budget by closing tax loopholes and finding additional sources of progressive revenue to support new public investment.
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