Asia, Boeing Problems May Cool Tax-Cut Plans New Forecast Also Could Mean Reduction In Spending Hikes

Economic advisers on Friday amplified what Gov. Gary Locke and lawmakers already believe - the Asian economic crisis and a downturn at Boeing probably will put a damper on spending and tax-cutting proposals.

Both the governor’s budget writers and legislative leaders say the emerging economic picture probably means there will be some scaling back of earlier tax-cutting and spending plans.

Just how much must await the Feb. 19 quarterly forecast from Chang Mook Sohn, the state’s revenue forecaster, said Locke’s budget chief, Dick Thompson, and Senate Ways and Means Chairman Jim West, R-Spokane.

Thompson and Sohn spoke after emerging from a closed-door meeting of the Governor’s Council of Economic Advisers, where economists discussed the possible effects of turmoil in the Asian financial markets and Boeing’s plan to cut the Washington payroll by 12,000 this year.

Sohn, a Korean-American who reads Korean newspapers daily, said he was convinced Korea, Malaysia and Indonesia have yet to hit bottom following a debt crisis that already has hurt the world economy.

Based on what was said, the governor “is expecting to scale back” on a tax-cut package that would cost $285 million this biennium and more than $600 million in the next two-year budget, Thompson said.

Locke’s proposals range from a $35-per-car reduction in license plate tabs to a sales tax exemption for transportation construction costs.

Thompson also said the governor may have to look for ways to cut proposed spending increases, depending on the revenue forecast.

West said lawmakers will stick with their proposed $40 cut in license plate tabs. But he said $75 million in other proposed tax cuts probably will be “dialed down” to about $20 million. Among possible casualties would be a plan to give a tax break to merchants to help cover their costs in collecting state sales taxes.

The Republican Legislature plans to send the license-tab tax cut proposal to voters in November as part of a $2.4 billion bond package to fund road construction and maintenance. Locke opposes the plan, saying the way to finance transportation needs is through a 5-cent increase in the 23-cent-a-gallon gas tax. He also would allow the tax to rise with inflation and population growth, boosting the total increase to about 11 cents within five years.

Republicans have declared his proposal dead. The House has approved sending the transportation bonding package to voters. The Senate is expected to act on the measure after the Feb. 19 revenue forecast.