Political Claims About Cuts Tax Imagination Both Sides Are Greatly Exaggerating Benefits And Dangers Of State Tax Cuts

Tax-cut talk ringing through the marbled halls of the 1996 Legislature does sound grand. If you believe all you hear, you might be expecting millions and millions of dollars returned to taxpayers.

Arguments for the election-year cuts sound compelling - an economic boost, help for the little guy, a way to shrink government.

The arguments against them cite dire consequences, calling the cuts as a tragic mistake in the face of looming federal budget cuts, a blow to the poor, disabled and elderly.

But hold the phone, Mabel, and get out the calculator.

The size of the tax cuts - and their impact on taxpayers and on the state budget, too - could be less than advertised.

In a political year, facts can be useful campaign fodder. But not just any fact will do, only those that support a point of view.

So homeowners are unlikely to see buttons on a legislator’s lapel that make clear the $92 million property-tax cut in the works in both House and Senate will be worth about $20 a year to the average homeowner.

Nor are they likely to see one noting that the state Department of Revenue estimates about 45 percent of the reduction would go to business.

Here are a few other facts that probably won’t show up on campaign posters:

The state’s largest 25 companies would get about 80 percent of the savings under a legislative rollback of the state’s main business tax, according to data from the state Department of Revenue. The rollback would cost the state treasury at least $130 million through July 1997.

Small business would see little real money. A business generating $60,000 in gross income pays $1,254 a year in B&O taxes under current law. The rollback would cut that tax by $156.

Foes of big tax cuts will point out the information gaps. But the opposition, whose ranks are led by Gov. Mike Lowry, are selective in the facts they’re offering, too.

For example, in their view, the proposed cuts - $224 million by the Senate and $326 million-plus by the House - are huge. Scary, even, especially when compared with Lowry’s $79 million proposal.

But when considered as a percentage of the $17.6 billion general-fund budget, the reductions are, well, teeny. The House package represents about 1.85 percent of the budget and the Senate’s about 1.27 percent. The governor’s comes to less than half of 1 percent of the budget.

Both camps contend their particular cuts would be a boon for business.

But State Revenue Forecaster Chang Mook Sohn has this fact: A $200 million tax cut is less than one tenth of 1 percent of the total annual personal income in Washington, which comes to about $130 billion.

The proposed tax cuts “will not make or break the economy,” Sohn says.

Another issue generating campaign rhetoric is how much of a $700 million tax surplus should be used to finance tax cuts and how much should be saved to cover economic downturns and the still-undetermined cuts in federal funds for the states.

But the warring legislative camps all want to spend a large chunk of the money, from $200 million to $400 million.

Nobody discusses saving all of it in the face of forecasts showing the state will lose nearly $2 billion in federal aid over the next seven years and will need every dime of the surplus and then some to make up the difference.

Instead, lawmakers and Lowry all point to their own “revenue projections,” which show their tax packages are sustainable over the next several years. But economists say projections beyond a year or two are risky.

“When you go out more than two years, the errors tend to increase, and of course if you’re at all familiar with our state tax system, it’s pretty evident that our tax system, our sales taxes, are quite volatile,” said Seattle economist Dick Conway.