There have been a lot of conversations in Olympia the past few months about adding new taxes. But taxpayers are already going to pay $3 billion in additional taxes in this two-year budget cycle, which is an 8.6 percent increase.
House Republicans believe with this new revenue, and by prioritizing our spending, we should have enough to add more money to K-12 education, per the McCleary decision, and add funding for our mental health system and for our most vulnerable.
Unfortunately, what you often find in government is that no matter how much money there is, for some people there is literally never enough and tax increases, or new taxes, are the first and only recourse when faced with a challenging budget situation.
Sure enough, even the additional $3 billion hasn’t stopped House Democrats from claiming that the state doesn’t have enough tax revenues. They argue that the taxes we are taking in aren’t enough to fund all the programs of Washington state.
The House majority party’s budget proposal would increase taxes by $1.5 billion. They want to increase the B&O tax by 20 percent, and it would increase taxes on most everyone who works in the service professions. I am guessing most people in Washington don’t feel undertaxed and we should not be trying to regain our status as the 11th most taxed state in the nation.
Now, to be fair, the people arguing in favor of new and increased taxes are also saying that Washington’s whole tax system is unfair, and I agree we do have a regressive tax system. Both parties in the Legislature would like to see some serious reforms.
But one of the tax increases masquerading as a “reform” by the House majority is to eliminate “tax loopholes.” They argue eliminating unfair tax breaks would help fund education and other programs.
However, let’s remember that the party in power in the state House and the governor’s office have run the show in Olympia for most of the last three decades. They have fought hard to preserve our tax system the last 30 years. And for all their current rhetoric against what they call tax loopholes, over the past decade, Democrats have prime-sponsored 86 percent of the tax exemptions, and Republicans only 14 percent – that’s 120 out of the 140 tax exemption bills since 2005. If tax exemptions are a problem, then it is a problem the Democrats created. This type of hypocrisy is what drives voters crazy.
Closing tax incentives may generate more revenue in the short-term, but long-term it doesn’t address the problem. Without some important tax breaks, businesses will leave for better economic environments in other states. We will have driven away the businesses that create jobs and generate tax revenue for our schools.
We are not a business-friendly state. The so-called loopholes are in place so our state can stay competitive with other states and attract employers. Outside of the I-5 corridor the economy is still slow to recover. King and Snohomish counties have unemployment rates of 4.9 and 5.3 percent respectively, but there are 12 counties with unemployment rates of over 10 percent and most are at eight or higher.
Tax reform is not the ultimate solution, spending reform is. Revenue has not been the problem in Olympia. Our operating budget has grown from approximately $18.4 billion to a projected $39 billion in 20 years. Maybe the priorities have been out of line much of the last few decades.
Taxpayers should not have to foot the bill when lawmakers can’t make ends meet with an 8.6 percent increase in revenue.
House Democrats want accountability and transparency with tax exemptions, but shouldn’t that apply to the budget?
A quick review: our friends across the aisle are criticizing our tax system and the tax preferences we have in statute – a problem they have created. Yet, their solution is to get rid of tax incentives that keep many employers competitive and in Washington state. This is not a real solution.
How thick is the hypocrisy? About 30 years’ worth since they have been in control for most of that time and have yet to offer a meaningful solution.
Let’s stay on task and be responsible with our taxpayers’ money and we can start by using $3 billion efficiently, effectively and control spending…rather than use a regressive tax system as an excuse to tax and spend more.
Rep. Matt Manweller, R-Ellensburg, serves on the House Finance Committee.
Snohomish County is looking pretty good at 5.3%, as is Whitman at 5.7%.
Many areas still economically depressed
The statewide unemployment rate, though, continues to lag behind the national rate, clocking in at 6.3%. Throughout Washington, many counties are faring much worse than the national 5.5% rate.
The upper northeast counties, long-troubled, continue to lag behind. Ferry County leads the state in unemployment at 14%. The coastal counties too, still suffering the decline of logging and other resource industries, have high unemployment. Grays Harbor is at a 10.8% rate, and Pacific is at 11%.
Not just outlying areas
But it’s not just outlying areas that aren’t sharing in King County’s explosive economy. Major population centers have high numbers of jobless.
Pierce County features a 7.7% unemployment rate, while Yakima has a whopping 11.3% rate. Even prosperous Benton County, home of industry and the never-ending Hanford clean-up, has an 8.6% rate.
Spokane County, with Washington’s second-largest city, is at 8.3% unemployment. Clark County, across the river from Portland, is stuck at 7.8%.
What’s being done to help every area of the state?
We ask again, is the state doing enough to help every county in the state grow and prosper? Despite talk of streamlining and lean management, Olympia still tends toward more regulation, more oversight, more taxes. And Gov. Inslee campaigned for the job promising a laser-like focus on jobs. To many, it seems the laser is pointed in other directions now.
Legislators moved quickly to secure Boeing work in the state. What will it do for the businesses and counties that don’t have that kind of clout?
Click here to see the unemployment rate in your county.
Ever since Washington’s renewable energy law, I-937, passed in 2006, lawmakers have been talking about how to tweak the law to make it less punitive to ratepayers. Sen. Doug Ericksen shepherded a bill through the Senate earlier this session to update the law; its fate now lies with the House.
The drive to improve I-937 may have renewed urgency after the Daily News in Longview highlighted this weekend what wind power investments have meant for Cowlitz P.U.D. customers.
Wind power costly for Cowlitz customers
I-937 requires utilities to hit targets for power by renewable sources. Next year, that mandate jumps to 9%; by 2020, utilities must get 15% from renewables, or buy credits to make up the difference.
For most utilities in Washington, this has meant investing in wind power. The Cowlitz P.U.D. invested in two wind power projects that are consistently losing money. The P.U.D.’s customers make up for those losses by paying more in their monthly bills.
- The two wind projects are losing Cowlitz P.U.D. over $13 million a year. That’s over $1 million a month being taken out of Cowlitz’s economy for an investment that is not only losing money but provides little environmental benefit.
- Cowlitz P.U.D. raised rates 18% in 2011 to make up for the wind power losses. That rate hike will continue in perpetuity to cover debt on the wind projects.
- Over 9% of a Cowlitz P.U.D. customer’s bill now goes to cover the money-losing projects.
Power from wind projects goes elsewhere
The expensive wind power Cowlitz customers are subsidizing isn’t even used by Cowlitz customers, according to the Daily News:
But the wind power is being sold off to regional utilities instead of being used in Cowlitz County, meaning that part of every consumer’s PUD bill is going solely to satisfy I-937. That shows up as $0.0067 per kilowatt-hour on a residential bill, or about 9 percent of the rate.
Even if the PUD needs to meet an increasing demand, it has elected to sell off wind power to others in favor of buying more dependable electricity from other sources, Huhta said.
”When you’re trying to manage and serve a load, you want a resource you can count on,” he said.
That need for base power has made wind power less attractive to utilities, not just in Cowlitz but around the state. Also common around the state: conservation efforts reducing power demand. “The mandate was put into place where we had expectations of large load growths that have not materialized,” the state P.U.D. association’s executive director told the Daily News.
Ericksen thinks Cowlitz P.U.D.’s experience shows that his bill is a better approach. “This shows what happens when we create artificial markets that depend on state rules and policies rather than on market forces. It makes a strong argument for our proposal. We introduce greater innovation and flexibility into a scheme that right now serves mainly to benefit wind power developers. Instead of forcing Washington utilities to waste money on wind, we unleash their creativity, keep power costs low for consumers and manufacturers, and reduce carbon emissions.”
WHAT DO YOU THINK?
If last week’s budget rollout by House Democrats felt vaguely familiar, it’s with good cause. Once again, service businesses are in the crosshairs for a B&O tax hike as the state scrounges for billions in new revenue.
Same tax targeted in 2010
As part of its tax package during the height of the recession, the legislature in 2010 passed a 20% hike in B&O taxes paid by service businesses. The bill, signed by then-Governor Gregoire when Democrats controlled both chambers, increased the B&O for service businesses from 1.5% of gross receipts to 1.8%.
The increased rate was described as a “surcharge,” a temporary jump to help state government through hard times. The law included a sunset date, with the surcharge scheduled to end in summer 2013.
Part of debate on campaign promises
As the B&O surcharge neared its sunset date, Democrats sought to keep the higher tax rate in place. In her last budget proposal as she prepared to leave office, Gregoire called for extending the surcharge for another three years.
When he took over the job, Governor Inslee proposed making the higher rate permanent. That led to some wrangling over whether or not that meant Inslee was breaking his campaign pledge of not raising taxes:
Inslee said one of his first meetings with reporters in January that extending those taxes would not violate his campaign pledge against raising taxes.
“They do not raise taxes on people over the existing level that, in fact, are being paid today,” he said. “And since they do not increase taxes, they are not a tax increase.”
But Republican lawmakers didn’t agree then.
“We believe temporary really meant temporary on those taxes,” said Senate Republican Leader Mark Schoesler of Ritzville.
With the Majority Coalition Caucus of 23 Republicans and two Democrats controlling the Senate chamber in 2013, the surcharge was not extended and the B&O tax on service businesses returned to its prior 1.5% rate.
Third bite at the B&O apple
House Democrats estimate that raising the service business B&O tax back to 1.8% would raise $530 million in the next budget cycle. The caucus is proposing upping the B&O exemption to $100,000, which they say would result in an additional 15,000 small businesses being completely exempt from B&O taxes.
With Republicans now controlling the state Senate, the higher B&O faces a tougher climb than in 2010.
WHAT DO YOU THINK?
After last week’s budget rollout from House Democrats, Senate Republicans promised a contrast. They made it: a no-new-taxes budget proposal that still adds significantly to education funding – including a dramatic reduction in college tuition.
The Senate Republicans’ budget proposal devotes more than 75% of state tax revenue growth to K-12 and higher education. The caucus is betting its proposal will prove more attractive to the public. “When Washington taxpayers see the state is taking in an additional $3 billion under the existing tax system,” Senate budget writer Andy Hill (R-45) said, “they believe that’s enough for us to provide the services residents want and deserve.”
Key differences from House budget
- Uses $325 million in marijuana taxes for general fund spending
- Gives state employees a flat $1,000 raise in each of the next two years, rather than a percentage raise (under the Senate proposal, 25,000 state workers on the lower end of the pay scale would receive a larger raise than under the House budget, which agrees to the collective bargaining agreements between state employee unions and Inslee)
- Funds cost-of-living adjustment for teachers, but not as generously as in the House’s budget
- No capital gains tax or B&O tax increase
New education spending
The Senate’s budget puts $1.3 billion toward McCleary-required spending, including $350 million toward reducing class sizes in grades K-3. Like the House, the Senate proposal does not fund class size reductions in the upper grades. I-1351, the class size initiative that passed in a squeaker last fall, called for class size reductions in all grades.
Slots are added in early learning programs for low-income children under the Senate budget, and all-day kindergarten would be funded statewide starting in the 2016-17 school year.
Universities also see a big boost under the Senate proposal. That budget ups higher education funding by $300 million, on condition that universities reduce tuition by 25% over the two years.
Not surprisingly, Democrats sounded unimpressed with the proposal. Gov. Inslee praised the progress Republicans made on education funding but said their proposal “falls short in a number of areas.”
Legislative Democrats sounded a populist theme in response. House budget writer Ross Hunter (D-48) said the Senate budget proposal “completely kicks the can down the road on solving the problem of our broken revenue structure. We have the most regressive tax structure in the nation.”
Senate Republicans framed the debate as they see it. By putting significant resources into education, they’re trying to blunt one of the Democrat’s preferred talking points: that tax increases are for the kids. No they’re not, Republicans will argue. Tax increases are to pay for state employee salary increases that are beyond what the state can afford.
Now the big question is, what are the odds the houses can agree and end the session on time? Opinions in Olympia vary widely on that one.