Don’t wait to start fixing Washington’s multi-billion-dollar COVID-19 predicament
Facing a $4.5 billion reduction in forecasted revenue (nearly $9 billion over the three years), it seemed inevitable that a special session of the Washington Legislature would be called to help rebalance the state budget.
Washington’s current 2019-21 budget is $53.3 billion. This level of spending is $8.6 billion, or 19% higher, than the 2017-19 budget.
Current reports from Gov. Jay Inslee and legislative leadership, however, are that no special session will be called anytime soon.
This decision ignores the advice from a recent News Tribune editorial to act no later than August. Delaying further will make the necessary changes much harder to implement.
There is the legal question if Inslee can wait to act. State law (RCW 43.88.110 (7)) requires the governor to issue across-the-board budget cuts if a cash deficit is projected. This is exactly what Gov. Chris Gregoire did in 2010 when complying with the law.
Predictably, discussion of a capital gains tax is occurring with greater frequency in response to the budget outlook. There is one piece of information that is consistently left out, however: The fact that a capital gains tax is an income tax.
Sen. Jamie Pedersen (D-Seattle) was recently quoted in an interview saying: “Republicans and Jason Mercier and company have been agitating for years that a capital gains tax is an income tax, and expressing horror and disbelief that anyone could claim that it’s not an income tax. That’s not actually the question. We don’t care whether a capital gains tax is an income tax because an income tax is not something that shows up in our constitution.”
What does show up in our state constitution is one of the broadest definitions of property in the country. The state Supreme Court has consistently ruled that income is property (meaning, you own it). This is why a graduated income tax has been prohibited without a constitutional amendment and a tax on income must conform with constitutional restrictions on property taxes.
As for those who unequivocally says a capital gains tax is an income tax, I’m in good company. Every state in the country and the federal Internal Revenue Service (IRS) agree. According to the IRS: “You ask whether tax on capital gains is considered an excise tax or an income tax? It is an income tax. More specifically, capital gains are treated as income under the tax code and taxed as such.”
Whether or not the advocates of this tax proposal care that it is an income tax, this fact is not in dispute anywhere outside Washington state.
Finally, some context on the current budget outlook. During the great recession, 2009-11 spending was actually reduced below 2007-09 levels. No matter what happens when lawmakers next act, the 2019-21 budget will still likely be higher than the 2017-19 budget due to the current 19% increase in spending.
It is also important to remember that even with the forecasted $9 billion reduction in revenues, funding is still projected to increase overall. According to the state’s June revenue forecast: “Near GF-S revenues expected to grow 3.7% between the 2017-19 and 2019-21 biennia and 7.4% between the 2019-21 and 2021-23 biennia.”
Using the state’s current emergency reserves and requesting federal officials to provide flexibility for CARES Act funding would help solve part of the budget deficit. State officials also need to take action to reduce new spending increases.
It is important to make these reductions and avoid tax increases that would further burden families and employers as they try to recover from government-imposed, pandemic related economic restrictions.
The time to act is now.
Jason Mercier is the government reform director for Washington Policy Center, a non-profit research organization with offices in Tri-Cities, Spokane, Seattle and Olympia. Online at www.washingtonpolicy.org.