WashACE Blog

They Call This "Progressive" Taxation?

Backers of Initiative 1098. the proposed state income tax claim that the rich don't pay their fair share. (I wrote about the issue in this Tax Cay column.)

John Hinderaker, at the invaluable Power Line blog, looks at some data from the Congressional Budget Office. Please follow the link for a graphic illustration of just how steeply progressive - punitive might be more accurate - our national tax system has become. I've copied one graph below.

This one shows the total of all federal taxes paid by each quintile, compared to income. Note how upper-income taxpayers subsidize all other groups:

Hinderaker makes the right point:

One can argue about whether this sort of progressivity is immoral, but it is certainly bad public policy. As we noted here, the U.S. has the most progressive federal tax system of any developed country.

Our state should not compound bad tax policy. Defeat 1098.

"Transforming the State Budget"

This morning I weigh in on the governor's budget transformation process in this column.  Bottom line (literally):

Believe Gregoire when she says she’s ready to transform the budget. She has no alternative.

As Kim Bradford points out in TNT's Inside Opinion blog, it's not going to be easy. 

The state is now fighting 50 lawsuits, grievances and unfair labor practice complaints from employees and their unions, according to Gov. Gregoire's budget director, Marty Brown. Many of the claims arise from steps lawmakers have taken to balance the state budget, including layoffs and changes to employee health care plans.

Bradford comments that the resistance will increase significantly if the governor succeeds in reshaping state government.

In an effort to buy some time, Gregoire heads to D.C. to lobby for more federal aid. According to the Seattle Times, she's expected to appear at a press conference later today.

In New Jersey, Gov. Chris Christie posted a budget victory Elected with a pledge to right the state's fiscal ship, Christie has shown an unusual enthusiasm for budget cutting, and pulled this off initial legislative win bipartisan support. How things play out in the Garden State may be instructive to us here. Wish him and Gov. Gregoire well.

Dedicated Taxes, Cap-and-Trade, I-1098 and the Plugging Budget Holes

We've seen it here. Lawmakers earmark taxes to fund popular programs, then raid the accounts when times get tough. I wrote about it early this year in this column.

Stateline.org has a cautionary report today about how states in the Northeast have used "cap-and-trade" revenue to supplement the state budget. It has to do with an auction of carbon credits.

The auction, a quarterly feature of North America's only working cap-and-trade regime for greenhouse gases, raised $80.5 million. It was the latest installment of a windfall that the ten states have largely committed to promoting energy efficiency.

 Lately, however, a few of the cash-strapped states have had other designs on the money. The same day as the most recent auction (June 9), New Hampshire lawmakers voted to take all of the state's expected $3.1 million share of the proceeds and use it to help plug a $295 million budget hole. That move came after New York and New Jersey had staged even bigger raids on cap-and-trade funds.

Reportedly, the raids have environmentalists queasy. Really. Join the club.

As Congress debates cap-and-trade legislation of its own, the RGGI raids would seem to confirm the fears of critics. ... Now, with three states stashing extra auction proceeds in their general funds, there’s evidence to support the view that cap-and-trade regimes amount to just another tax.

 

...Kenneth Green, a resident scholar at the American Enterprise Institute in Washington D.C., is not surprised to see the three states raiding the money. “There’s no such thing as a dedicated tax when the government has the money in its hands,” he says. “Congress makes the law and they also make the budget, so just because they say the money has to go somewhere doesn’t mean they’ll put it there.”

Just so. Remember that when the sponsors of the I-1098 income tax initiative claim the new money is "dedicated" to health and education programs. There's no such thing as a dedicated tax.

More Editorials Weighing in on State Budget

At the Wenatchee World, Tracy Warner neatly outlines what must be done:

Start over. Match the state’s spending to the state’s revenue — for today and what reasonably can be expected in the future. Base the decisions on cold, realistic analysis. Don’t count on what will not be.

Don’t wring more revenue from a suffering economy merely to satisfy the clamoring constituencies accustomed to the receiving end. Keep all eyes fixed to the goal of returning state government to long-term solvency. Make the tax burden on the productive economy consistent and predictable, to give us the confidence necessary to rebuild. Don’t cling to false expectations for political gain. As for state programs, give us what we need, not what we want.

The Bellingham Herald also believes time's awasting.

Something has to give. We suggest it is time for legislators to follow the lead of their citizens by putting everything on the table and cutting everything we can't afford.

That's why [Rep. Kelli] Linville's long-talked-about plan for a real list of government priorities is a necessary and fundamental part of real reform. Spending on low-priority items and pet projects must end. Priorities must be set and followed.

Stateline.org reports that the Medicaid money states counted on remains in doubt. That's some $480 million for Washington in the current budget. According to The Hill, Democrats continue to make the funding a priority, but ... no deal yet.

While the money pales in comparison to the Medicaid gap, the state may also take a hit from Washington Federation of State Employees, which is suing to block the 10-day furloughs. According to the Olympian,

The union’s request for an injunction is aimed at freezing the furloughs until a grievance filed Tuesday by the union can be aired. The federation filed an unfair-labor-practice complaint Thursday against the state and wants that resolved, too.

Tight times, getting tighter.

Resetting State Spending - Governor's New Commitment is the Right First Step

Early editorial reviews are positive for the governor's plans for transforming the state budget, though all acknowledge the process and talk are the easy part. There's an understandable element of "what took so long" and "we told you so" in Sunday editorials in The News Tribune, Seattle Times, and Spokesman-Review. Still, all welcome the governor's resolve. While the process looks good, process won't get the job done. Ultimately, the results matter, and results begin with gubernatorial leadership.

The News Tribune:

Much will depend on whether Gregoire walks the walk. Her initiative must be more than an exercise in getting the public to recognize how tough the choices are. It has to produce real reforms that shape her own budget proposal.

Seattle Times:

GOV. Chris Gregoire is saying the right things about the state budget. Tough things. Of course, action is what finally matters, but if the talk is not right the action will not be. And the talk is right.

The Times concludes:

State lawmakers' tough budget talk the past couple years was not backed up by action. The governor's talk must be followed by real action.

Spokesman-Review:

Time to face facts. Washington state government is going to shrink. Actually, it’s past time the state’s political leadership accepted this reality. The governor and Legislature are facing their third consecutive budget hole. This one is $3 billion at present. After two years of difficult budget cutting, finding that amount would be next to impossible without a dramatic restructuring of government.

The legislative/executive budget practices through the recession remind of Chuchill's famous line about  Americans. 

Americans can always be counted on to do the right thing...after they have exhausted all other possibilities

We're out of options. Time to do the right thing and reset.

Defeat 1098 Announced - Stop the State Income Tax Initiative

It looks like the I-1098 campaign has the signatures to qualify the "tax the rich" income tax initiative for the November ballot. They've scheduled a turn-in on July 1, according to the Olympian. The Spokesman-Review's Jim Camden puts the measure in context.

Income tax proposals on the ballot have generally failed, the exception being the first such proposal during the Great Depression, which was overturned by the state Supreme Court. There’s a debate among lawyers whether an  income tax by initiative is even possible without a change in the state constitution, but that’s a discussion for Nov. 3, if the initiative passes.

A good overview story on Washington State Wire explains why business groups have united to defeat the measure. I urge you to read it. (The story also mentions this Washington Research Council analysis.)

The proposal for a high-earner income tax has created alarm among high-tech entrepreneurs, venture capitalists and others on the high end of Washington business. Because of the peculiarities of the tax code, the measure would hit small business owners hard.

Here's more from the story.

Initial support for the business campaign has come from the [Washington] Roundtable, which voted last week to oppose the measure and has been sounding the alarm among its membership. The measure will have an enormous impact on the smaller businesses that have fueled the growth of the state’s high-tech industry, said Roundtable president Steve Mullin. It also will hamper national employee-recruitment efforts by the state’s larger businesses. What it would mean, he said, is that investment would go elsewhere.

 

“We’d be among the highest tax rates in the country, and we’d really be killing innovative and technological companies,” he said.

A truly bad idea. If it qualifies, it must be defeated.

Budget Office Releases Bleak Six-Year Outlook

The Office of FInancial Management has released its Six-Year Outlook for the state general fund. We won't be singing "Happy Days are Here Again" for a while. For the 2011-13 biennium, the state faces a $3 billion shortfall. Looking to 2013-2015, the gap swells to more than $8 billion.

Of course, the $3 billion gap will be closed somehow and the $8 billion assumes an extension of an unsustainable trend. These projections are useful, because they underscore the consequences of budget decisions.

There's more bad news. The Washington Federation of State Employees is suing to block furloughs. As the Olympian reports, furloughs were part of lawmakers' strategy to find savings in the current budget. 

The Washington Federation of State Employees has filed suit to block state government's plan to temporarily lay off upward of a third of state workers on 10 separate days over the next year. It says it has a court hearing next Friday, July 2, to consider its request for an injunction blocking furloughs of state workers, which is supposed to save $38 million in general-fund payroll and about $35 million from other accounts.

(It could be worse. In California the governor wants to pay state workers' minimum wage.)

And then the Senate failed again to provide the extra Medicaid money the state budget counted on receiving. 

So, despite the slight bright provided by the caseload forecast, things look grim again.

The governor's new reset plan will get a workout.

Governor Announces Expanded Budget Review

Gov. Gregoire has announced formation of the Governor’s Committee on Transforming Washington’s Budget. (The link takes you to a 20-page outline of the process.) The AP notes that a

... pool of nearly three dozen outside experts will help guide the governor’s new budget planning, including representatives from government, business, labor and nonprofits.

Along with AWB president Don Brunell and Washington Roundtable president Steve Mullin, I'll be participating, as I have with similar efforts beginning with Gary Locke's first Priorities of Government process. Although I say "similar efforts," that's probably incorrect. Gregoire envisions a deeper review, with much broader public participation, including the greatly expanded advisory pool.

Here's out she describes it in her letter unveiling the process:

First, we are going to challenge every program in state government with a series of tough questions to ensure we are getting the best value and paying for the most essential functions of state government. 

Second, we will conduct several public hearings this summer in locations across the state. We will show you the decisions we face and the money that will be available to us. At the same time, we want to hear from you about what services you expect state government to deliver. 
 
Finally, I have invited leaders from all walks of life to serve on the Governor’s Committee on Transforming Washington’s Budget. I have asked these individuals to jumpstart the questioning of assumptions underlying the current budget — in effect, to serve as a sounding and advisory board for hard budget decisions.

We've regularly called for a reset of government spending, most recently here. Don Brunell's column in the Columbian this week points out that voters may take the reset button in their own hands this November, privatizing liquor sales and allowing a private option for workers' compensation insurance. So, I welcome the governor's approach.

There's no magic in the process, as we've learned from past experience. Ultimately, the difficult decisions are in the hands of the executive and legislature. After three years of tough budgeting, the easy stuff ... and a lot of stuff that wasn't very easy ... has all been done. If the process builds consensus for the structural reforms, outsourcing, compensation rightsizing, and program reductions/eliminations that are necessary to align state government with the new fiscal realities, we will all have been well served.

For more, go to the governor's website, the Capitol Record, the Spokesman-Review, and the Seattle Times.

State Budget Requires Reset ... And Soon

The national reports on state budget problems all sound eerily, wearily, similar. Here's the lead from Deborah Solomon's Wall Street Journal story this morning.

Already-strapped states are about to face a new squeeze as the boost from federal economic-stimulus spending draws to a close and Washington looks increasingly reluctant to widen the nation's budget deficit.

Stateline.org carries the same theme: Shrinking revenues, depleted reserves, bailout fatigue, furloughs, layoffs, stingy reimbursements rates, and tentative steps toward the necessary reset. Our state is among those featured.

Governor Chris Gregoire has said that if additional federal support does not come through, an additional 6,400 employees may have to go. Most of them would come from a single agency, the Department of Social and Health Services, an agency with 19,000 employees.

As we've mentioned before, there are other choices. In its Reset 2010 series, the Seattle Times cites Rep. Reuven Carlyle's blog post. 

...it’s time to move beyond the rhetoric of ‘seizing the opportunity of this crisis‘ and embrace the dignity of a zero-based budgeting project to begin anew.

Senate Majority Leader Lisa Brown defends the Legislature's tax hikes in her blog.

... certain choices made may have been unpopular, but they were made out of a sense of responsibility to our families, our communities and our economic future.

It looks like voters in those families and communities will get a chance to express their approval or disapproval of at least one of those choices - extending the sales tax to soda and candy - this fall. Initiative 1107, to repeal the taxes, appears headed to the ballot. A successful repeal blows another hole into an already-leaky budget, what with the Medicaid extension in doubt and revenues coming in below the previous forecast. 

When legislative candidates come knocking at your door, ask them how they plan to handle the problem. Will they say no to increased spending?

A Brief Roundup of Statewide Ballot Initiatives

The Seattle Times editorial board made its position clear on three measures likely to qualify for the November ballot. No on I-1098, the state income tax initiative, yes on I-1053, reinstating the 2/3 supermajority requirement for tax increases, and yes on I-1100 to privatize liquor sales. What's not to like about those stands?

The Tri-City Chamber likes the notion of offering a private option for workers' compensation insurance. So it endorsed I-1082.

Speaking of I-1098, which we're likely to do a lot over the next few months, Erik Smith at Washington State Wire reports on an Elway Poll showing a tie - 46 percent for the income tax, 46 percent opposed.

I offer some thoughts on the raft of initiatives in this column in the Puget Sound Business Journal.