The remarkable resilience of Washington state’s economy is a bright spot amid the chaos and pain of the last 10 months. It continues to grow and provide more money for state government to spend, despite the pandemic and economic shock.
State budget forecasters now expect revenue to keep growing faster than population and inflation, even without tax increases.
That changes the calculus for the state Legislature, which convenes Monday. Its primary job is writing a budget, taking into account all the turmoil of the last year and challenges of recovery.
Nevertheless, many Democratic leaders, who control the governor’s mansion and both legislative houses, are enthusiastic about raising even more money. Lawmakers should measure any such proposals of any new taxes or fees against a high bar. In this fragile recovery, increasing the burden on households and employers, many of which still are struggling, could be detrimental.
Lawmakers should be especially skeptical of Gov. Jay Inslee’s budget proposal.
Despite Washingtonians’ ongoing challenges, Inslee is calling for multiple new taxes. He’s proposing to increase spending 10.5%, or $5.5 billion, in the 2021-2023 biennium.
This reveals a disconnect between state leadership, riding revenues boosted by a few giant companies, and what ordinary residents and businesses are experiencing.
General-fund revenues are expected to grow about 7% over the next two years. That’s down from the 11% gain over the last two years, but still phenomenal.
Early fears of a pandemic budget catastrophe faded. Washington can easily cover this year’s temporary dip with its $1.7 billion rainy day fund.
In the 2021-2023 biennium, current taxes are expected to generate enough to cover current spending programs and anticipated cost increases, with around $1 billion left over, Inslee’s Office of Financial Management confirmed.
So can legislators make do with a few years of modest gains, like everyone else? Or should they continue the state’s hearty, 2019-style spending growth, by raising the cost of living for families and employers?
This editorial board believes legislators should hold the line and consider tax increases only as a last resort. First look to improve outcomes and increase efficiencies from current spending.
Because the state will have more to spend, tax-increase proponents suggest a false choice between either raising taxes or cutting services to the needy.
Any proposals to collect and spend even more require strong arguments for why they are worth the harm they’ll do to Washingtonians and recovery.
There are many needs. But Inslee and the Democratic leadership didn’t think they were great enough to pause billions in new spending and raises for state employees by calling a special session last year.
Besides, the now Democratic-led Congress will surely provide more relief and economic stimulus. Only the federal government can afford the substantial assistance needed for recovery.
The state’s resilience doesn’t mean everything is fine.
Thousands of businesses permanently closed, and more than 1 million workers received unemployment benefits last year. Christmas week, 497,370 state residents filed for unemployment assistance.
Recovery remains uncertain for many. Manufacturing faces long-term decline unless the state can grow and attract companies.
Yet employers must pay billions more to the state even without tax increases.
That’s because unemployment insurance rates are soaring. Yes, the state lost several hundred million dollars to fraud, but rates are leaping because $13 billion in benefits were paid as unemployment surged last year. Inslee’s budget offers some mitigation that legislators should advance.
Health insurance costs may also rise under a new tax Inslee is proposing. Insurers would likely pass at least some of the cost — $548 million over three years — to customers.
Inslee is also proposing environmental policies that seek to curb the state’s greenhouse gas emissions, but would increase the cost of energy and goods such as food. Financial impacts of the low-carbon fuel standard and cap-and-trade industrial proposals must be clearly explained, in layman’s terms, before debate on their merits begins.
There’s more. Inslee is again calling for a capital-gains tax, 9% on transactions above $25,000 for individuals and $50,000 for joint filers. That’s broader than legislative proposals targeting the ultrawealthy, on transactions above $100,000, that failed to pass in recent sessions.
The capital-gains tax wouldn’t take effect until 2022. It would collect $1.1 billion in 2023, then $2.4 billion in the next biennium.
Additionally, legislators are considering a Seattle-style tax on large employers. Taxing jobs is a horrible idea during a recovery. Legislators angling for more dollars shouldn’t incentivize moving or creating jobs outside Washington.
It is time for a tax-reform conversation. Legislators are doing just that with a task force scheduled to propose tax options and conduct hearings statewide over the next two years. Why start that process, then pass taxes before public involvement starts?
Meanwhile, state forecasters expect general-fund revenue to grow 4.9% this year, 3.2% in 2022 and 3.6% in 2023. Population is expected to grow around 0.8% annually and inflation to average just over 2% through 2025.
Pain endures for many households, and recovery is uncertain for most employers. Yet the overall strength of Washington’s economy is providing ample tax dollars to balance the state budget and more.
This precarious situation should make legislators wary of any new tax or fee proposal.