November 24, 2012 in City

Reality lost in state’s taxing discussion

By The Spokesman-Review
 

Are we all full up on “revenue” here in Washington? Is our problem – as the unending cliché goes – a spending one, and not a revenue one?

As we head toward another budget bloodbath, with Gov.-elect Jay Inslee pledging to defend our collective top priority of never raising a tax, it’s an open question. Budget hawks like to contend that the problem with state government is one of utter spendthriftiness, a failure to properly corral the abundance of money flowing into the state coffers.

Thus, despite very real evidence to the contrary: We have cut teachers, health care and education in recent sessions, even as that bottom line has inched upward. Some argue that the cuts have been overstated. Part of their logic rests on the simple – and simplistic – argument that the state revenues, after all, mostly keep going up. Especially if you forget that whole pesky business about calculating in constant dollars to offset inflation.

The Evergreen Freedom Foundation – a conservative think tank – charted it recently: state revenues in the 2003-’05 biennium were $25.4 billion; they are forecast to be $32.8 billion in 2013-’15. There was a recessionary dip in the middle, but you get the idea.

On the spectrum of “lies, damned lies and statistics,” this is a “statistic”: misleadingly true. Accurate in a void. The state is collecting taxes from more people, but people aren’t paying more taxes.

According to a recent report by the Washington State Budget & Policy Center – a liberal think tank – if you measure state revenues as a proportion of personal income, we’re paying less than we have. In 1995, the state took 7.6 percent of Washingtonians’ personal income; in 2010, it was 5.4 percent. That’s a 30 percent drop.

As the state’s population has grown, budgets have mostly gotten bigger. The state population has grown, and the costs associated with providing services have, as well. Fixed employment costs are rising. Schools, roads, prisons – none of these cost what they did in 2003. How much fiscal innocence does it take to expect them to? Meanwhile, the typical Washingtonian turns over less of his or her income.

That’s the way we like it. Once again this fall, the supermajority requirement for raising taxes in the Legislature was approved by a large majority (but not, ironically, a supermajority). In the recent debates over the city of Spokane’s budget, the mayor and City Council now consider an average increase of $4.50 per year in property taxes – 1.2 cents per day – too much to ask, while eliminating 100 positions from the city payroll. Raising that tax, the mayor assures us, would have “no appreciable positive impact on services to citizens.”

The notion that taxes don’t really pay for anything – that they make no appreciable positive impact – resists all factual intervention, as does the regular refrain that we are taxed to death, in an era when federal income tax rates are at historic lows. In Washington, the truth is that we are on a path to collect less in taxes. It’s built into the system.

The Washington State Budget & Policy Center’s report argues that the state’s tax system is a regressive machine built for the 1930s. This is by no means a new idea or one that is the center’s alone. We fund the government through sales taxes, and most services are exempt from sales taxes. Over time, though, the economy has shifted dramatically from a goods-oriented one to a services-oriented one; we spend far less of our money on goods, and far more on services, than we used to, and tax revenues have declined proportionately.

There is a range of consequences to this system. One is this: The very poorest residents of Washington, those earning $20,000 or less a year, spend 17 percent of their income on state taxes; those making $99,000 or more pay 5 percent.

The center offers a range of proposals for addressing this, and for investing in the education and other programs that can lay the groundwork for more opportunity for everyone. These include proposals that have proven politically unpopular in the past, such as taxing capital gains and adding some services to the sales tax.

I’ll go out on a thick, sturdy limb and predict we won’t see anything faintly like that passing muster in Olympia, even as education costs steepen significantly. We might shut down parks or lay off more workers or stop treating schizophrenic homeless people or just turn over higher ed to the University of Phoenix – whatever we do, it’s a spending problem only, forever and ever.

At least until the marijuana taxes bail us out.

Shawn Vestal can be reached at (509) 459-5431 or shawnv@spokesman.com. Follow him on Twitter at @vestal13.

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