Building an Economy that Works for Everyone

Washington’s budget deficit: wax on, wax off

Paul Guppy, vice president for research at the Washington Policy Center, has buffed and glossed his criticisms of the state budget to such a high finish, it’s no wonder the facts don’t stick very well.

Scrape some of the wax off one of his opening lines: “Olympia leaders have racked up a $5.1 billion deficit.” Underneath is an inconvenient truth for Guppy: State policymakers passed a balanced budget last year. Of course, when the economy soured, revenue fell off dramatically.

In October, the shortfall was predicted to be $3.2 billion. In November, it was forecast to be just over $5 billion. It could top $6 billion by 2009. Guppy writes that “the cause of the deficit is overspending.” The sheen on that sentence implies the state spent an extra $6 billion somewhere, when nothing of the sort actually happened.

The budget lawmakers passed this spring was balanced. But now a shrinking economy has reduced tax revenues dramatically, and the state is facing a major revenue shortfall. It’s up to policymakers to write a new budget for 2009-11, and that’s where Guppy’s column really glistens.

No doubt referring to the fact that low- and middle-income families in Washington pay far higher shares of their incomes in state and local taxes than do the richest Washingtonians, Guppy says it’s “not fair to turn to working citizens and businesses that already shoulder a heavy tax burden and make them pay even more…”.

Too true. Perhaps Guppy will join the call for a tax on high incomes, which would be a very fair way to boost revenue. Exempting the first $200K of adjusted gross income for joint filers ($100K for individuals), with a 3% rate on incomes between $200K and $1 million, and a 5% rate on incomes over $1 million would net $2.58 billion, or about half of the current shortfall. We could roll back some tax breaks and expand the sales tax base too, which would net another$1 billion.

But no. Instead, he gets out the no-new-taxes-scented-Pledge to write: “tax increases depress economic growth.” The shine on his finish masks the sound advice of two highly regarded economists — Nobel Prize winner Joseph Stiglitz of Columbia University, and Peter Orszag, now the director of the Congressional Budget Office, who write:

Basic economy theory suggests that direct spending reductions will generate more adverse consequences for the economy in the short run than either a tax increase or a transfer program reduction.

Rather than let good advice stand in the way of a bad idea, Guppy goes on to recommend cuts to programs for the poorest (Earned Income Tax Credit), youngest (full-day kindergarten), and newest (family leave) residents of Washington. For good measure, he advocates that state workers pay more for their health care, somehow failing to note that skyrocketing health care costs are a major problem for working families. Guppy reasons that since everyone else pays an exorbitant 28 percent, why should anyone pay less?

He closes by saying lawmakers should thank us for the tax revenue that supports the state budget, which is not a bad idea. Personally, I’m more thankful to have a democracy where our tax money buys medical and public assistance, health care, prisons, K-12 schools, higher education,  transportation and other important public structures no one can provide on their own.

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