Arrow-right Camera

The Spokesman-Review Newspaper The Spokesman-Review

Thursday, February 21, 2019  Spokane, Washington  Est. May 19, 1883
Clear Day 25° Clear
News >  Column

Shawn Vestal: If you think tax cuts are unleashing the economy, wait till you see the pot numbers

Shawn Vestal (Dan Pelle / DAN PELLE)
Shawn Vestal (Dan Pelle / DAN PELLE)

The new federal tax cuts should add a jolt to the state’s economy, a new revenue forecast says.

Not a huge jolt. Not a marijuana-sized jolt.

But a little jolt, nonetheless. Whether this amounts to “unleashing” the economy, as the tax-cut sales forces insist, is another question.

An estimated increase in jobs and business investment is expected – at least until most of the tax cuts expire in a few years. A bump in state revenue is forecast – at least until the phase-out of a couple of business deductions a couple years from now. As a percentage of all personal income, individuals are expected to see an average drop of 0.8 percent in their tax burden for 2018 and corporations are expected to see a drop of about 4 percent, according to the latest forecast from the Washington State Economic and Revenue Forecast Council, which relied upon the congressional Joint Committee on Taxation.

A jolt, for sure. No one should turn up their noses at a little jolt, even if it’s not expected to last very long. Skeptics have outlined persuasive arguments that the cuts are aimed overwhelmingly at the top earners and corporations, with most of the personal tax cuts for the middle class and below scheduled to expire within several years. Which is to say nothing of the budget deficits they create, and the likelihood that subsequent cuts will be focused on services for the most vulnerable members of society.

But at the front end, most people will see a tax cut. And that’s where we are. The state forecast, presented to a Senate committee last week, predicts the result will be $3.3 billion left in the hands of the Washingtonians who earned it; as a percentage of all personal income, that’s an increase of 0.8 percent.

That’s the equivalent of a family earning $50,000 a year – about Spokane’s median – getting another $400 a year. You’d be a fool to claim this wasn’t significant for that family; you’d also be a fool to treat it as a life-altering event for that family, ignoring the fact that they are expected to gradually pay more in taxes every year for several years, a trend that ends with them paying more than they were paying to begin with.

The longer-term idea behind the cuts, of course, is that this income then fuels wider economic growth, which produces an increase in tax revenues. This is, to put it mildly, an arguable claim, and critics like to point out that such expectations were not even close to met when Kansas gave trickle-down a try recently.

But Washington forecasters do call for an additional $500 million to $700 million in capital investment in 2018 by state businesses as a result of the cuts. Also, since we rely on sales and property taxes, any additional consumer spending resulting from the cuts would ripple into state bank accounts sooner.

The state forecasting council made a ballpark estimate of $85 million in increased state revenue for 2018. It also noted that the figure might be higher if there is more investment and spending than expected or lower if there is less.

One reason there might be less: “Income tax cuts are largest for high income households, who are likely to save more and spend less of their tax cuts than average household.”

Eighty-five million bucks is nothing to scoff at. Nor is $3.3 billion in extra personal income. Nor is an addition of about 20,000 jobs.

So is the economy thus unleashed?

Well, if the state takes in $85 million more in taxes next year, that will be an increase to the state’s general fund of about 0.1 percent. General fund revenue was projected to increase 7.1 percent in 2018 before the unleashing.

If personal income grows by 0.8 percent for a year, it’s worth noting that personal income in the state grew by nearly 5 percent in 2016. If capital investment increases at the predicted rate, that would be an increase of 0.9 percent. If the ripple effects include 20,000 more jobs, that amounts to about a fifth of the number of new jobs statewide in 2017.

So the state foresees initial positive results from the tax cuts. Positive, modest results. A little jolt, at least at the start, before everyone’s taxes start going back up. What’s interesting is how this jolt plays out in comparison to another relatively new factor in state budgeting: Marijuana.

Marijuana is expected to contribute $741 million to state revenues in the next biennium. The industry has produced more than 1,600 new licensed businesses with employees; employment numbers are hard to find, but one estimate last year said more than 22,000 full-time jobs had been created. The industry has reported sales of nearly $3 billion since 2014, growing each year.

Talk about unleashed.

Subscribe to the Morning Review newsletter

Get the day’s top headlines delivered to your inbox every morning by subscribing to our newsletter

There was a problem subscribing you to the newsletter. Double check your email and try again, or email

You have been successfully subscribed!