Democrats propose kamikaze sales tax hike
Posted by Amber Gunn - March 11, 2010Today, House Democrats introduced HB 3183, which would impose a whopping 1 percent statewide sales tax increase. Clearly, blunt instruments are encouraged this time of year in the legislature.
Ironically, the bill’s intent section claims that the tax increase will actually add jobs to the economy. Of course, it doesn’t mention that these government-led jobs are “created” at the expense of the private sector using private sector money.
"An unprecedented shortfall in state general fund and transportation revenues has threatened the state's ability to fund vital services and provide adequate transportation infrastructure. Cities, counties, and public transportation systems have also been hurt by the downturn in the economy. For this reason, the legislature is enacting an excise tax equivalent to one percent that will be reduced to one-half of a percent when the state's unemployment decreases to six and five-tenths percent for four continuous months and is eliminated when the unemployment rate decreases to five percent for four continuous months. The additional funding will keep people working, strengthen the safety net for citizens by providing vital needed services, and adding jobs as the economy begins to rebound through investing in the state's economy and infrastructure. The intent is to help people and the economy through the economic crisis, but when the economy has recovered, this tax will no longer be required and will be replaced by revenue being automatically generated through the revitalized economic growth in the state."
Because 5 percent unemployment is generally considered to be extraordinarily good, our state is likely to retain a 0.5 percent sales tax hike for the foreseeable future, or until some future legislative body decides to repeal it (not likely).
Since the bill was dropped today, a fiscal note is not yet available. However, we can roughly extrapolate from last year’s unsuccessful sales tax hike proposal of 0.3 percent, that the 1 percent hike would transfer approximately a billion dollars a year from the private sector to state and local governments.
As we pointed out in our analysis of last year’s bill, a sales tax hike would cost thousands of jobs. Using a computable general equilibrium model created by the Beacon Hill Institute, we determined the hike would result in approximately 6,800 private job losses. Obviously, the effect would be amplified in the event of a larger hike.
To make matters worse for our state, a 1 percent statewide sales tax hike would push Washington’s combined state and local average sales tax rate to the highest in the nation. According to the Tax Foundation, Washington already ranks in the top five. In addition, the hike would push King County’s sales tax rate to 10.5 percent at retail outlets and 11 percent in restaurants (King County Food & Beverage Tax).
Are they right?
Thoughts? Add Comment -
M_DragonKnight said on Feb 11 2010 at 9:21pm
Vote the Bat-Rastards out!
Sean Smith said on Feb 12 2010 at 12:23am
Why not just increase it an additional 1% for each 1% increase in the unemployment rate. Pretty soon we'll all be working for the Dept. of Licensing or DSHS! Oops, but then who will pay our taxes so we can keep our secure government jobs? It is becoming a sick joke that just doesn't seem to ever end!!!
Deb Eddy said on Feb 12 2010 at 2:54pm
Amber, as you know, bills are dropped in Olympia as works-in-progress. Rep Flannigan's idea deserves full consideration, along with all the other ideas floating around here. And yes, there are some really good ideas and some really bad ideas. We'll see what develops, as all the moving parts come together in the next few weeks. I'm hoping for a balanced, responsible result.
John Chittick said on Feb 12 2010 at 4:46pm
Of almost any tax increase idea, which I oppose, I oppose this option the least because it applies the increase across the board as much as possible and as a result has the best potential to generate political retribution.
Amber Gunn said on Feb 12 2010 at 7:46pm
Rep. Eddy,
I appreciate your willingness to interact on our blog, but with all due respect, I hardly think a proposal that will slow economic recovery, kill thousands of private sector jobs and reduce disposable income for residents is hardly worth full consideration.
Washington's families and job creators are hurting right now. The last thing we need is a massive tax hike.
Here's what Beacon Hill economists at Suffolk University had to say about the tax hike: http://www.effwa.org/files/pdf/STAMPPH.pdf
Why don't proposals to renegotiate the union contracts deserve full consideration? Why don't proposals for competitive contracting deserve full consideration? Why don't proposals to privatize services that could be handled by the private sector deserve full consideration?
You have not yet exhausted your options regarding spending reductions, therefore any proposal that raises taxes and kills private sector jobs does not deserve consideration.
Deb Eddy said on Feb 13 2010 at 12:02pm
Amber, you are absolutely right that we've not exhausted our options. I'm continuing to advocate pretty strenuously for every one of those things you've suggested ... I am disappointed, in particular, that the Governor has not tackled the issue of future pension obligations (including the cash basis for retiree benefits) or the problems w/the PEBB. I understand that you see a direct connection between raising any revenue and "killing private sector jobs". I don't see the connection as that direct, because it depends on a lot of moving parts in a complicated budget. Still, I wanted all ideas on the table ... not just a select few. Keep up the good work. /d
Jan K. said on Feb 13 2010 at 11:10pm
I like the suggestions that Amber has made and I don't think all options for cutting the current budget has been explored. The thing that frightens me most is that what they say they will do and what they do will be two different things if history repeats itself.
Remember how we were encouraged to bring the lottery into the State of Washington? Remember how the money was going to support education? Hmmm. If I am correct, the money ended up in the General Fund. I don't think education got much of anything out of it.
I grew-up in Colorado. Many years ago they proposed and passed a State Employment Tax. Their sales tax was quite hight at that time. They said that if the people passed the State Employment Tax they would lower the sales tax. Do you think they did? Nope!
Do you really thing Washington State is any different? I don't!
R. Sedillo said on Feb 14 2010 at 12:27am
Unfortunately, our elected politicians have no respect for the voters and think we're all too dumb to figure out what's happening or how we got to this situation. If they're not going to seriously consider ALL the options, including cutting spending and reducing waste, they deserve being fired! Let's elect people who are going to represent the people and do what's right for Washington, instead of the old tax and spend!
km said on Feb 14 2010 at 12:55pm
Amber: Kamikaze sales tax hike? Nice turn of phrase. Do you have a similar national break down on which state have income taxes?
ck said on Feb 15 2010 at 11:11am
km: Do you have a national break down on income taxed states that have cut spending and reduced their deficit? This knee jerk reaction only puts more burden on the working class that pays for a bloated government
Amber Gunn said on Feb 15 2010 at 6:34pm
Km,
The Tax Foundation has a breakdown of almost every major tax category by state on their website (under "data"), including income taxes. Washington state consistently ranks among the highest taxed state for sin taxes, gas tax, estate tax and sales tax, mid to high pack for property taxes and UI taxes. The lack of a personal income tax is a major redeeming quality of Washington's current tax system, and the overriding factor that makes Washington a net immigrator of people. If our state were to impose one, we would move instantly to one of the highest-taxed states, due to our high tax burden in other areas. If you want more info on this, you can read Rich States Poor States (2009) by Arthur Laffer, Stephen Moore and Jonathan Williams. Copies are available online.
km said on Feb 16 2010 at 10:59am
Amber: Thanks for the reply.
OK, the Tax Foundation has a website with all sorts of data. I guess I go looking on my own for their web address and find the map myself. Appreciate the reference to Laffer's book.
Also appreciate the fact that you acknowledge that Washington's total tax burden is light enough to attract many immigrants to our state. Not the sort of comment that usually shows up here.
km said on Feb 16 2010 at 11:02am
ck: Not sure what "knee jerk" reaction you're referring to, as I was only asking a question about additional relevant data. No, I don't have a "national break down on income taxed states" or I wouldn't need to be asking Amber for more data.
Amber Gunn said on Feb 16 2010 at 4:28pm
Km,
It's taxfoundation.org under "Data." You will see "income tax" right off the bat. It is very easy to navigate. You will see all the other tax charts and maps for various other taxes as well.
I have never denied the fact that Washington's overall tax burden as a percentage of personal income is relatively good compared to other states. In fact, I recently sent out a cover letter, along with a copy of Rich States, Poor States to every legislators in the state, encouraging them to take note of the factors that make states attractive to individuals and businesses, and to enact policies that will continue to encourage people to move into, rather than away from, our state.
Given, however, that the Freedom Foundation's mission is to advance individual liberty, free enterprise and limited, accountable government, you can see why I would focus on the particularly bad policies and high taxes to seek change (i.e. gas tax, sin taxes, tourism taxes, sales tax, etc). We'd like things to get better here, and the message "Washington's overall tax burden isn't so bad" doesn't exactly inspire action. Besides that, given the mess that virtually all states are in right now budget and tax-wise, I hardly think being one of the best-looking horses in the slaughterhouse is anything to aspire to. Do you?
TM said on Feb 16 2010 at 4:34pm
A bigger reason Washington is a "net immigrator of people" as we provide welfare for three generations. People move here from many other states because our welfare system pays much more for much longer. We provide so much that a single parent of three children can't afford to work, they would loose money. We don't prosecute for welfare fraud, we deduct over payments from the next time they are eligible for benefits. WOW. Free medical, $50 a month housing, money for food, Don't pay your bills, rent or cell phone etc, for months and we give extra money for that, even though we have been giving you money in the first place. Don't be held accountable. No one is interested in fixing the system and it's not correct to talk about those "poor" people!!