Government coffers being drained by COVID-19 crisis. Will taxes rise to fill them?

Two more thoughts on what amounts to the story of the year — and if something comes along to displace this one, we’re probably going to enjoy that one even less:

▪ Coronavirus Covid-19 has already wreaked havoc on the income statements of businesses, individuals and families, and non-profit organizations. Now it’s government’s turn to slip off the precipice into the yawning canyon of busted budgets.

For some the reckoning is already here, as witnessed by Metro Parks Tacoma adding to its list of furloughed and laid-off employees. Income the parks system was expecting this summer from admission and rental fees has disappeared with official orders banning gatherings of people and the closing of facilities that would host them. Expect many more announcements of similar nature in the coming weeks even if signs of return to “normal” life appear. The economy is not going to quickly snap back to its pre-pandemic condition.

The government’s challenge is, like business and individuals and consumers, its revenue is dropping precipitously. Unlike business, however, its expenses have been or will be increasing dramatically. Think of all the personal protective equipment, testing kits and medical treatment gear public agencies and entities have been buying. Think of the overtime being accumulated for extra duties or to cover for employees quarantined for contracting or being exposed to the coronavirus.

The Employment Security Department recently has been publishing a statistic no one in this state had been paying much attention to six months ago: first-time unemployment benefit claims. For the week ending April 4, the total was 170,063, actually down from the prior week — but up 2,627 percent over the corresponding week of 2018.

Imagine what that’s going to do to the funds that support those benefits. Imagine the hit the workers’ compensation fund will take. An indicator of just how fast things turned and how bad they’re going to get: In the space of two months the Legislature went from wondering how it was going to spend all the additional tax revenue pouring into state coffers to the governor actually vetoing some spending provisions to conserve money.

The federal government doesn’t have this problem. Well, actually it does, but since it controls the monetary printing presses, it can continue to spend dollars it doesn’t have and leave the accumulated deficits to future generations. State and local governments, however, have to balance revenues and expenses in the here and now, which brings us to the ever popular subject of taxes.

The “we hate Amazon” contingent on Seattle’s City Council, enlivened with a new justification for grabbing more revenue, is pressing ahead with a large-employer tax. The Legislature may be called into special session to deal with a budget hole that seems likely. And the “all our problems would be solved if we had an income tax” crowd, undeterred by the latest state Supreme Court ruling, is arguing for one to raise revenue to deal with COVID-19.

What will be interesting to watch is whether tax collections in the COVID-19 era reinforce the argument that relying on an income tax would increase volatility and instability in the tax system, as happened in the dot-com bust of two decades ago.

The state currently relies on a three-legged stool of tax revenues: property, retail sales and business & occupation taxes. All of them are susceptible to fluctuations, but not to the same degree.

Property taxes can change according to valuations and whether buildings and homes are being added to the regional inventory, but it takes time for those shifts to work their way into the system. There’s no such thing as a perfectly stable system, but of the four under consideration here, the property tax is probably closest.

At the other end of the spectrum for volatility and variability is the retail sales tax. That performs in real time along with the economy, and with so much economic activity shut down and shut in, the retail sales tax numbers are going to look dismal for several quarters — at least.

The B&O tax component will look slightly better only because retailing is just one component; other sectors are impacted by closed offices and work-from-home orders, but commerce is still being conducted.

By definition the personal income tax relies on how much income people are making. With the aforementioned spike in jobless claims and expectations that the state’ unemployment rate will soar, reliance on an income tax would open a budget hole faster than depending on property and B&O taxes. The situation would be even worse if a serious recession were to take hold within tech, resulting in the loss of an abundance of well-compensated jobs.

Exactly what the taxpaying public and electorate can afford or will tolerate in the way of higher taxes will be thrashed out in city, county and state bodies in the months to come, and the election this fall (had you forgotten we had one scheduled?). The money’s going to come from somewhere — either reduced spending on other line items, or from your wallet.

▪ Even the more pessimistic of prognosticators figures this mess, in this country, should be done by Christmas, and that will lead, if it hasn’t already, to forecasts of a mammoth coming-out party for shoppers. When the dam bursts on all the pent-up demand from consumers isolated from retailing for months, it’s going to be a big season, at least for those stores that managed to survive the lengthy shutdown.

It’s a semi-plausible scenario, and a semi-comforting one in that it suggests a retailing rebound that will undo some of the damage. But let’s not get too many people’s hopes up.

American consumers may not have much in the way of financial resources to spend once all this over, given how many are losing jobs, temporarily or permanently. Some will have shifted their spending habits for good. Consumers have been able to do online shopping during the pandemic, so there might not be as much pent-up demand as expected or hoped. And there’s not likely to be a single “all clear” signal sending a nation of shut-in consumers racing for the malls.

Coronavirus is an economic as well as a physical ailment. Rare is the serious illness from which the patient recovers by leaping out of bed, revived and symptom free. The U.S. economy circa 2020 won’t be gallivanting out of its sick bed either.

This story was originally published April 18, 2020 at 7:00 AM.