Desperate times call for desperate measures, so state government in a desperate budget squeeze did something truly radical.
It lowered taxes.
And in what mythical kingdom, you might ask, is this fantastical tale set?
It’s no fantasy. It really happened, this year – in, of all places, California.
Well all right, technically California didn’t so much cut taxes as allow “temporary” tax increases enacted in 2009 to expire. While the governor and his allies attempted to extend the increases, political gridlock blocked that.
Thus the state component of the sales tax dropped by a percentage point to 7.25 percent. The state vehicle licensing fee also dropped.
To cut tax revenue when receipts are already short of expectations might seem counterintuitive. In a report that will sound eerily familiar to Washingtonians, California’s Legislative Analyst’s Office says the state faces a $3 billion budget deficit for the 2011-2012 fiscal year, and a $10 billion gap for 2012-2013.
But advocates of letting the increases expire say doing so will spur retail and auto sales in California, saving money for individual consumers, helping business and generating more revenue for the state.
What California does is always worth watching, just because of its size and proximity. But the recent experience is especially worth keeping in mind as Washington’s Legislature convenes Monday for a special session to consider ways to close this state’s own deficit between what it wants to spend and what it expects to collect.
If there’s a phrase that threatens to replace “sustainability” as a malleable, it-means-what-you-want-it-to-mean bit of rhetoric, it would be “everything is on the table.” The ostensible meaning is that the state is in such horrible financial shape that any and all ideas are open to discussion and proposal. The governor herself has used the phrase.
Except quite clearly not everything is on the table.
There’s a segment of the Washington political scene that wants the state to revoke breaks and exemptions, (increasingly termed “loopholes”). For political reasons, that’s not happening. If a tax break can be repealed without objection, then it’s not of a size to make any difference.
Remember that these discussions are being held against the backdrop of Boeing deciding where it will place the final assembly line for the 737 MAX. Gregoire recently proposed extending the aerospace tax incentive for pre-production expenses by 10 years, to 2034, not coincidentally matching the expected production life of that plane.
Maybe incentives won’t be the most important factor in Boeing’s decision, but no governor of this state wants to be known as the one who “lost” Boeing.
Also what won’t be on the table are ideas such as a state income tax (repeatedly shredded by voters) or tax or spending cuts guaranteed to rile up whatever remains of the governor’s tenuous political coalition. What remains on the table is stuff such as a “windfall profits tax” on oil companies and banks (no political risk there; everybody hates them anyway) and repeal of the sales tax break for out-of-staters (they’re going to love that in Bellingham and Vancouver, Wash.).
The big piece is a three-year, half-percentage-point increase in the state sales tax (more rejoicing by Oregon retailers). That’s a big risk politically since it requires voter approval, although Gregoire may be able to point to the California experience in blunting the argument of Tim Eyman (still the most formidable check and balance on state government) that there’s no such thing as a temporary tax increase.
“Everything is on the table” might have been a good description of the recent Thanksgiving meal. When it comes to the special session and ways to fix the state’s budget woes, pay as much attention to the dishes that aren’t served as the big heaping bowl of politics that is.
Bill Virgin is editor and publisher of Washington Manufacturing Alert and Pacific Northwest Rail News. He can be reached at email@example.com.