On Wednesday, Washington’s chief economist forecast that state revenue will drop by $8.8 billion through 2023. If history is any guide, some will respond by somberly arguing that we simply have no other choice than to make deep, painful and immediate cuts to the state budget.
But these people would be wrong.
In fact, no state is better positioned to invest in a quick and robust recovery than Washington. Our secret weapon? Taxing the rich.
Most states, including all our neighbors, already tax their wealthy citizens. We do not. But at this moment of unprecedented economic crisis, this weakness can become a strength. By sensibly reforming our tax code to tap into our state’s immense reserves of untaxed income and wealth, we could raise the billions necessary to help working families and small businesses get back on their feet, without increasing taxes on 99% of Washingtonians.
Of course, some will argue that with the economy crashing, now would be the absolute worst time to raise taxes on the rich. But this too is wrong. Rather, now would be the absolute worst time to slash critical public services and desperately needed government aid. Now would be the absolute worst time to compound record private sector job losses with massive public sector layoffs. Now would be the absolute worst time to enslave our policy options to the failed neoliberal economic theories that helped create this crisis in the first place.
Pathogens are inevitable, but pandemics are not — and neither is the economic catastrophe our pandemic response threatens to bring. Through intensive public health investments in testing, contact tracing, quarantine and treatment, we can carefully reopen our economy without inviting wave after wave of infection and death. And with substantial public aid to the workers and businesses most severely harmed by the shutdown, much of our economy could largely pick up where it let off.
Yet everything we know we need to do to ensure the health and welfare of the people of Washington will cost money — lots of it — exactly at a time when state and local tax revenues are falling off a cliff. But the question isn’t whether we can afford to do what’s necessary to address this crisis. Of course we can. The question is whether we can afford not to.
A decade ago, in the wake of the Great Recession, Washington adopted what amounted to an all-cuts budget that exacerbated the downturn and slowed the recovery through public sector layoffs that put downward pressure on job and wage growth long after the private sector started to rebound. And by any meaningful metric, our state budget has never fully recovered: Government expenditures as a percentage of total personal income remain near a 20-year low, while state tax revenue per $1,000 is at its lowest level in more than 60 years. Between 2009 and 2018, Washington’s population grew by an astonishing 12.9%, yet the number of state government workers grew by less than 2.2%.
Yes, the budget has grown. But much of that growth is an accounting trick: a “levy swap” that shifted local school taxes to the state. The result is a government that has failed to keep pace with growth in demand for crucial government services — a structural failure that already hampers our ability to respond to the scale of this crisis.
If Washington state’s wealthiest households were already highly taxed, the budget hawks might have a better case. But we’re not. Lacking an income tax, Washington has the most upside-down tax system in the nation — if you are poor or middle class, you devote between 9 and 18% of your income to state taxes. Those of us in the top .01%? We pay next to nothing.
And this is our secret weapon: for no other state has more fiscal space to ask its wealthiest residents to contribute more.
The budget hawks are wrong. We have a choice. Austerity is not our only option. If we finally choose to tax our state’s plentiful reserve of income and wealth, we can avoid the painful mistakes of past recessions. We can afford to choose to invest in a quick and broad-based recovery.