Raise Taxes or Raise Taxes? Washington’s Solution to $2.8 Billion Budget Deficit

The state of Washington finds itself in a financial mess $2.8 billion in the making. This comes as the result of over-paid state employees, high cost pension plans, burdensome social programs, and wasteful spending. In response, Democrats who control the state legislature have agreed that tax increases be part of the plan to make up for lost revenue. Where they disagree, however, is on the type of tax – either a general sales tax increase or by targeting single industries with further hikes. Incredibly, the average Washingtonian already must work 229 days out of the year to pay off their share of the spending and regulatory burden already imposed by their government. Further tax increases will merely impede economic growth and delay tough but necessary spending restraint.

 

On one side, House Majority Leader Lynn Kessler and many Democrats support a bill that would temporarily increase the sales tax by 1 percent. They claim this is fairer than singling out particular industries. The tax is considered temporary because it can only be levied if unemployment remains above a certain level. The bill states the rate will be reduced by one half of one percent if unemployment decreases to 6.2 percent for four consecutive months and will be eliminated if unemployment falls to 5 percent for four months.

 

On the other side, Gov. Chris Gregoire wants to target specific industries in hopes of raising $605 million. Her recent budget proposal, “A Balanced Budget for Hard Times,” is a smorgasbord of targeted tax increases on goods like carbonated beverages, cigarettes and tobacco products, candy and gum, bottled water. Gregoire claims these increases will yield millions of dollars for state coffers. However, the proposed “sin” taxes are sure to discourage consumption through higher prices, generating less expected tax revenue – just as we saw in Washington, DC recently. Also, the higher in-state prices will inevitably encourage smuggling from lower tax states, leading to even more lost revenue for the state.

 

Gregoire’s proposal to require wholesalers to pay a tax of 1 cent per ounce on bottled water increases the cost of water substantially. Bob Williams of the Evergreen Freedom Foundation notes that the $3.45 he paid at Costco for a 35-pack of 16.9 oz bottles would double in price, to $5.92. 

 

Senate Democrats also have proposed a budget that would close some 26 tax loopholes and exemptions, while extending others. They are also proposing a measure that would change Washington’s sales tax exemption for nonresidents to a rebate program. Instead of showing your out of state license to avoid the tax, nonresidents would have to keep their receipts and apply for a rebate. The Senate hopes many will not bother applying, thus generating an estimated $24 million in taxes. To pass these measures, Senate Democrats have resorted to changing the rules. They are expected to vote to temporarily suspend Initiative 960 which makes it harder for legislators to raise taxes by requiring two-thirds approval.