Washington Gov. Christine Gregoire outlined her budget proposal yesterday, which includes $776 million in tax increases. She asks voters to approve a nearly $500 million sales tax increase that would give Washington the nation's second-highest statewide sales tax, trailing only our national embarrassment, California.

She wants a few hundred million more from energy consumers and those who purchase automobiles, tobacco, financial services and lottery tickets. While none of this is shocking, it certainly is bad news for Washington taxpayers.

Thankfully, neighboring Oregon doesn't levy a statewide sales tax at all, making Christmas shopping a bit easier on those who are able to cross the border this holiday season. But that is no consolation for retailers, who are dealt yet another blow by their lame duck governor. Tobacco tax hikes will make it more difficult for convenience stores to make payroll, and a $131 million increase on oil companies will drive up heating costs this winter.

ATR President Grover Norquist wrote a letter to Washington legislators today urging them to vote NO on Gregoire's latest tax-and-spend folly. See the full letter below:

November 22, 2011

Washington House of Representatives
Washington Senate

Dear Legislator: 

I write to in opposition to Gov. Christine Gregoire’s tax hike laden proposed budget. She calls for Washington’s first sales tax increase in nearly three decades, along with higher energy and lifestyle taxes. This $776 million tax hike is the latest in the governor’s established legacy of higher taxes and bigger government, which Washington taxpayers cannot afford. 

The sales tax increase is the most costly proposal, amounting to a regressive tax increase of $494 million on struggling Washington families. The new 7 percent rate would give Washington the nation’s second-highest statewide sales tax, closing in hard on California. And with Oregon’s lack of a sales tax at all, it isn’t hard to envision the flood of consumers crossing state lines this holiday season. When factoring in local tax burdens, this proposal becomes even more problematic. For example, some residents of King County would pay a whopping 10 percent sales tax. 

The 25-cent tax increase on cigarettes is another tax hike in the Gregoire budget that will disproportionately impact low-income and middle-income families who are already struggling in these tough economic times. Additionally, lifestyle tax hikes such as this are damaging to small businesses, especially those that are located near Washington’s borders with surrounding states. Consumers are not deterred by a short drive if the tax on a product is lower in another state. 

When Washington raised the cigarette tax by a staggering 49-percent in 2010, the state saw a 21.8 percent decline in the volume of sales.  This equated to over $20million in foregone expected revenue.  At the same time, Oregon saw a 17 perecent increase in sales volume and a $15.5 million increase in revenue. Idaho saw a 14 percent increase in volume of sales and a $2 million increase in revenue. 

There are over 1,000 Washington retailers who do business within 25 miles of the state’s borders. During the last tax increase on cigarettes, retailers in Washington’s border counties saw a decrease of nearly 22 percent in sales volume in the 17 months following the increase.  And this affects the small business community as a whole: Cigarette sales make up over one-third sales for convenience stores.  

And increases in the B&O tax rate on Oil and Financial institutions’ windfall profits would only discourage the development of businesses and jobs in the oil and financial sectors in Washington while increasing consumer prices. 

The governor is employing the politics of fear to sell her $776 million tax increase. As Sen. Mike Hewitt said, her logic that tax hikes will prevent drastic spending cuts to popular programs is very much a “Chicken Little” strategy. Instead, the governor should work with the legislature to ensure that priorities remain funded while spending is cut elsewhere in the budget. An $800 million tax increase is not the answer.

For questions about ATR’s position on this issue, contact state affairs managers Joshua Culling or Will Upton at [email protected] and [email protected], respectively.


Grover Norquist