More options are needed to bridge the state’s budget gap

Contributing WriterJune 5, 2013 

Gridlock; a ticking clock; a glacier.

Pick your favorite metaphor to describe the ongoing, seemingly never-ending “negotiations” occurring in Olympia over the state’s budget. So boring, uneventful, and secretive are these purported discussions that even political scribes are finding little of interest to report on.

The Legislature’s 30-day special session, the sole purpose of which is to approve a budget, is now set to expire in less than a week. Only three times in our state’s history has the Legislature taken this long to pass a budget, and if we still don’t have one on Tuesday, we’ll enter uncharted territory.

The current impasse between House Democrats and Senate Republicans is not due to the absence of things on the bargaining table — even though it’s true there isn’t much there. It’s due instead to a lack of things to put on the table.

Take the tax revenue the state can expect over the next two years, and compare that amount with what’s required to fund existing state programs; revenue falls about $1 billion short. Add to this the $1 billion-plus that the state needs to meet its legal obligation to fund K-12, and you see the problem: There’s a $2 billion gap between state revenue and state expenses.

It’s no surprise that Senate Republicans want to close this deficit through budget cuts, primarily to social programs. House Democrats, on the other hand, favor balancing some budget cuts with additional taxes, most of which would fall on businesses.

But neither of these options is a great one. Over the last five years, budget shortfalls have cut deeply into our state’s social programs; it’s hard to see how they can take more. Then again, we’re still on a long, slow climb out of the recession. State income has barely budged over where it stood last year, and employment growth remains weak, still not up to its pre-recession levels. So burdening businesses with more taxes has limited appeal.

The truth is we need more budget options than we currently have. One of the most sensible places to look is amid our vast and eclectic array of tax exemptions. House Democrats rightly support the elimination of several of these, but the whole array should be on the table, and not just this year but each year going forward.

Year after year, the Legislature exempts a wide range of transactions from business or sales taxes; these exemptions collectively mean the state takes in $25 billion less in revenue than it otherwise would. That $25 billion in foregone revenue amounts to three-quarters of the state’s budget. Small change it is not.

It’s possible that most of these tax giveaways can be justified because they advance some state priority. But a large portion of them are over half a century old and likely are remnants of a past era, like a typewriter in the basement no one bothers to get rid of.

In fact, that’s exactly the problem with tax exemptions. They should in every sense be considered a state expenditure: They result from legislative decisions which are, or should be, guided by the public’s interest, and they take resources.

But unlike state allocations such as those to the Department of Social and Health Services (DSHS) or the Department of Transportation (DOT), those that come from the tax system are not part of the regular budget review process.

Each year DSHS, DOT and other state programs must battle it out among themselves for our tax dollars; meanwhile those initiatives funded via tax breaks do not because they are allocated through the state’s tax code. But there’s no good reason for exempting them from the automatic review that other expenditures go through.

Fortunately, an organization called Tax Sanity is proposing a new initiative that if passed by voters would require the state to treat all tax exemptions the same way in the budget process that it treats all other state expenditures. In other words, it would require the Legislature to put more on the table when it is negotiating over its priorities.

If passed, this initiative would provide a huge step forward in our state’s budget process. If only we had it now to help us through this year’s laborious budget process.

Katie Baird is an associate professor of economics at the University of Washington Tacoma. Email her at kebaird@uw.edu.

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