Smart Bombs: Myths burden budget

So Washington state will now begin the process of implementing an all-cuts budget. No sales tax hike. No income tax on the wealthy. Polling showed that both ideas were non-starters. Legislative leaders held out the possibility of revisiting the revenue issue next year. If so, they better start campaigning now, because public perception is that the state taxes and spends too much.

The best way to measure a state’s tax burden is to total up personal income and divide it by how much money the state collects. The Washington State Budget and Policy Center has done that and found that the percentage (about 6 percent) was fairly level from the 1995-’97 biennium to the 2005-’07 biennium. Since then, it has plunged to 5.5 percent in 2007-’09 and will drop even further for 2009-2011. The only significant increase in revenue came in 2005-’07, but that haul was courtesy of the housing bubble mirage.

The same holds true for spending, which was about 6 percent of total income for a decade, then declined. That’s probably surprising to most people given the Republicans’ drumbeat on “out-of-control” spending. Spending has increased in recent years, but a lot of that was to make up for budgetary hits after the economic swoon of the previous recession and the Sept. 11 terrorist attacks. The state then began making up for lost funding on voter-approved initiatives on teacher pay and class sizes and had to backfill pension payments that were delayed to help balance the previous budget.

To get an idea how much the “spending burden” has declined, it was 5.9 percent of total income for the 2003-’05 budget. This is the much-ballyhooed “tough” budget shepherded through the Legislature by then-Sen. Dino Rossi. Now we’re looking at 5.18 percent. And, yes, even the “Rossi budget” spent more than the state collected.

It’s the tax code, stupid. The problem with measuring the affordability of taxes and spending against total income is that the state doesn’t have an income tax. The above calculations help explain why it should. The state is relatively rich, but it has a tax code that’s unsuited to tapping that wealth. The result is that high-income households send relatively large sums to the feds and relatively paltry amounts to the state. Conversely, the state taxes the poor at the highest levels in the nation because of the heavy reliance on our regressive sales tax.

If the state instituted an income tax and lowered the sales tax, it could begin to address its chronic budget deficits and lower the tax burden for most Washingtonians. It’s the same argument that was laid out by the Gates Commission several years ago, but lawmakers failed to act.

They better get started, because the amounts raised by the current taxes clearly do not match the needs of the state. And as Dr. Phil might ask lawmakers, “How’s that workin’ for ya?”