State of the State: Washington
Washington state taxpayers, beware. Governor Jay Inslee just proposed a massive $4 billion tax package in his State of the State Address. In a misguided response to the 2012 McCleary v. State of Washington education funding requirements, Inslee proposed new taxes on carbon emissions and capital gains. And although he called for increasing the filing threshold to $100,000 for the Business and Occupation (B&O) tax, he also proposed increasing the B&O rate from 1.5 percent to 2.5 percent—the biggest B&O tax increase since 1993. Furthermore, he hopes to levy the tax to a wide range of services such as real estate agents, accountants, architects, attorneys and consultants. Overall, taxes on job creators will harm Washington families.
Unfortunately, a carbon tax would negatively impact Washington’s economic competitiveness. According to the nonpartisan Washington Research Council (WRC), the petroleum industry contributes an estimated $1.85 billion to the state economy annually. Furthermore, Washington’s refineries paid $126.3 million in state and local taxes. According to the WRC, the tax burden on the state’s refineries is already three times greater than California refineries. Washington residents understand they will shoulder this burden, explaining why voters soundly rejected a carbon tax by an 18 point margin last November.
Governor Inslee’s capital gains tax proposal would diminish economic opportunity. Currently, Washington state enjoys the most competitive capital gains rate in the region—zero. In fact, the state’s own Department of Commerce agreed, stating, “We offer businesses some competitive advantages found in a few other states. These include no taxes on capital gains or personal or corporate income.” A capital gains tax will deter investment and dampen economic growth.
These tax hikes will help fuel the governor’s spending desires, particularly on education. But before simply spending another estimated $3.9 billion on public education—on top of the $4.6 billion already spent—policymakers should more fully explore how best to deliver results for students. As the court aptly stated in the McCleary ruling, “Pouring more money into an outmoded system will not succeed.” Liv Finne at the Washington Policy Center explains, “Education spending has increased sharply as the courts wanted, yet today, about one-quarter of high school students drop out, the achievement gap remains stubbornly large, poor students still lag behind their peers and academic assessment outcomes in reading, math and science have not improved.” More spending increases may not be the best solution. Instead, reforms, such as a Student Education Scholarship for each student, would lead the way to a results-oriented education system.
Governor Inslee’s efforts to reduce the property tax, increase the B&O filing threshold and increase the small business tax credit pale in comparison to the sizable tax hikes in the B&O tax rate, along with implementation of both a capital gains tax and a carbon emissions tax. Rather than saddling hard working Washingtonians with billions in new taxes for public schools, education reforms should be pursued. Providing a Student Education Scholarship for each student could be a promising step in the right direction. Otherwise, Washington is likely to fall from its 36th position in the nation for economic outlook.