Bill introduced to allow local governments to pass a progressive income tax.

Tomorrow morning, the Senate Housing and Local  Committee has a hearing scheduled on SB 5554. The bill would eliminate the ban on local net income taxes, providing other local taxes are reduced. From the bill title:

Relating to eliminating the prohibition on local net  income taxes if certain revenue neutrality requirements are met…

Seems like a heavy lift in a short session, but for income tax supporters hope springs eternal. Jason Mercier, with Washington Policy Center, writes,

Though the Court of Appeals authorized a flat 1% local income tax, for SB 5554 to be fully implemented a constitutional amendment would also be needed to allow a graduated income tax.

SB 5554 is the latest action by lawmakers trying to impose an income tax. Last year the legislature adopted a capital gains income tax (while refusing to pre-empt cities from imposing a local version) with the stated goal from supporters of using the courts to open the door to income taxes across the state. The capital gains income tax is currently subject of litigation arguing it is unconstitutional with a summary judgement hearing scheduled for February 4 at 10 a.m.

A constitutional amendment to allow a local government to pass a graduated income tax requires voter approval, which as Mercier writes, is unlikely unless the Washington electorate has changed dramatically.

Not only have Washingtonians rejected 10 straight income tax ballot measures (including six proposed constitutional amendments), but last December the WA Tax Structure Work Group received an update from its consultant on the community meetings and outreach it conducted showing that voters are still opposed to an income tax.

And the revenue neutral language can be easily repealed by a subsequent Legislature unless it, too, is placed in the Constitution.

It’s always worth watching these things, but tomorrow may be the end of the road for SB 5554.

Long-term care law: pause, repeal, or replace? There will be changes made.

Even before the session convened, there was general agreement that changes in the state’s long-term care law and associated tax would have to be made. The legislation was, is, deeply flawed. Initial proposals would move the program closer to solvency, but not quite bridge the gap.

The Center Square, a relatively new entrant into the public affairs news marketplace in Olympia, reports,

Democrats in the Washington State Legislature continue to fast track two bills to delay and fix the troubled WA Cares long-term care tax, while Republican lawmakers are pushing to repeal the program and associated payroll tax and replace it with a privately managed program.

Majority Democrats moved another step closer to their goal.

On Thursday, the House Appropriations Committee approved a bill to pause implementation of the tax for 18 months. The committee also approved a bill that would create voluntary exemptions of the tax for veterans, military spouses, nonimmigrant temporary workers, and employees who work in Washington but live outside the state.

The report underscores the House Speaker’s commitment to the legislation, while noting Republicans are ready to end it.

Fixing WA Cares was referenced by House Speaker Laurie Jinkins, D-Tacoma, during last week’s House opening ceremonies of the 60-day legislative when she noted people being unable to “access long-term care without first spending themselves into poverty and losing everything they have worked toward their entire lives.”

While Democrats look to fix the program, first passed in 2019, Republicans hope to scrap the program altogether.

More at the post. Columnist Don Brunell examines the legislation – we recommend his column and writes,

The replacement for the defective statute must have greater options which better fit people’s needs. That provision should take precedent. Lawmakers need to encourage private carriers to write long-term care coverage which is flexible and affordable.

Our state elected officials must toss out the current state law and implement a workable replacement before adjourning.

Earlier this week, the Association of Washington Business reported on proposed legislative fixes, linking to “a new AWB Amplified news report [featuring] several Washington employers impacted by the confusion over a new tax to pay for the program. AWB’s report concludes:

Pausing the program is a good start, but it needs to be rethought.

“Pause the program,” Chris Nims, tax director for AgriBeef, said in the report. “Get back in the room and talk about whether or not this should even be in place.”

Right. For more, see this.

Does tax policy move people? Yes, says the Tax Foundation.

People voting with their feet has become a common theme. It was nicely captured back in 2004 in The Big Sort, a book by Bill Bishop that described our Americans were increasingly flocking to places that were “most compatible with [their] lifestyle and beliefs.” 

A review of domestic migration by Jared Walczak with the Tax Foundation suggests the criteria should be expanded to include tax policy. The map at the top of this post shows the ten states that gained and lost the most population in 2021 as.a result of people packing up and moving. Washington was in neither category.

Walczak writes,

Americans were on the move in 2021, and they chose low-tax states over high-tax ones. That’s the finding of recent U.S. Census Bureau population data, along with commercial datasets released this week by U-Haul and United Van Lines.

Income tax supporters in our state may want to take note of this:

The individual income tax is only one component of overall tax burdens, but it is often highly salient, and is illustrative here. If we include the District of Columbia, then in the top one-third of states for population growth since the start of the pandemic (April 2020 to July 2021 data), the average combined top marginal state and local income tax rate is 3.5 percent, while in the bottom third of states, it is about 7.3 percent.

Six states in the top third forgo individual income taxes (Florida, Tennessee, Texas, Nevada, New Hampshire, and South Dakota) and the highest top rate is Maine’s 7.15 percent. Among the bottom third, four jurisdictions—California, New Jersey, New York, and the District of Columbia—have double-digit income tax rates, and the lowest rate is in Pennsylvania, where a low state rate of 3.07 percent is paired with some of the highest local income tax rates in the country. Five states in the bottom third have local income taxes; none in the top third do.

There’s more.

Not content to rest on their laurels, nine states in the top third either implemented or enacted individual or corporate income tax cuts in 2021.

Walczak adds some important perspective.

People move for many reasons. Sometimes taxes are expressly part of the calculation. Often they play an indirect role by contributing to a broadly favorable economic environment. And sometimes, of course, they play little or no role. The Census data and these industry studies cannot tell us exactly why each person moved, but there is no denying a very strong correlation between low-tax, low-cost states and population growth. With many states responding to robust revenues and heightened state competition by cutting taxes, moreover, these trends may only get larger.

Policy still matters.

When “more information” misleads: Adding “public investment impact disclosures” to ballot titles would be a mistake.

The Washington Research Council recently assessed two bills that had escaped our attention. Both would add a new provision to some initiative ballot titles; the additional language, as the WRC points out, is neither necessary nor helpful. The WRC writes,

Two similar bills have been introduced that would require “public investment impact disclosures” in ballot titles for initiatives and referenda that make tax changes. The bills give the impression of transparency but would not provide meaningful context for voters.

As the Research Council notes, the state budget office already is required to provide a fiscal impact analysis.

The new bills purport to give more information as to how the proposal would impact the broader budget.

HB 1876 is scheduled for public hearing on Jan. 19. It would require the attorney general to prepare a “public investment impact disclosure” for any ballot measure that repeals, levies, or modifies any tax or fee. The disclosure would also be required for measures that are estimated to cause a net change in state tax revenue. The disclosure would be in the ballot title, in this format: “This measure would (increase or decrease) funding for (description of services).”

Similarly, SB 5850 would require the attorney general to prepare a “public services impact disclosure” for any ballot measure that repeals or changes any tax or fee—if there is a net decrease in state revenue. The disclosure would be worded like this: “This measure would reduce funding for (description of services).”

The description would be limited to 10-15 words. What’s wrong with this? A couple of things.

In general, such disclosures would not be useful for voters because not only do they not provide meaningful context but in many cases they would be giving false information.

There is no direct connection between a tax change in an initiative and the appropriation of state funds. Thus, it would be factually incorrect for a ballot title to state that a measure would cut education (for example)—unless the text of the initiative specifies that that would happen. In the event of a tax initiative passing, the Legislature may very well choose to balance the budget in another way.

Also, state revenues change for legislative and economic reasons. If the economy is growing, tax cuts could be made such that no services need to be cut. HB 1876 and SB 5850 do not account for that. Nor would the disclosures indicate the magnitude of the proposed tax change and the potential budget impact.

No need for this change. More at the WRC link above.

 

Even with slight drop, state unemployment claims filings remain high; national industrial production and retail sales slump.

Unemployment claims filings fell a bit last week, but remain well above the pre-Covid levels, reports the Seattle Times. 

Washingtonians filed 11,302 new, or “initial,” claims for jobless benefits in the week ending Saturday, according to data posted Thursday by the state Employment Security Department. That’s down 2.8% from the prior week, but well above the prepandemic level from the same week in 2020. 

As we reported yesterday, claims filing were up significantly nationally last week, a sign of lingering pandemic and supply chain problems (we recognize those factors are related). ST business reporter Paul Roberts writes,

In Washington, the elevated claims likely reflect how recent extreme weather put extra pressure on sectors, such as construction, farming and manufacturing, that were already seeing normal seasonal layoffs, said Anneliese Vance-Sherman, an ESD regional economist. 

But the increase could also reflect “a significant rise in the number of COVID-19 cases” reported last week by the state Department of Health, Vance Sherman added.

In other news suggesting the economy remains on a halting path to recovery, retail sales and industrial production were both down last month, though both posted gains over the quarter.

The Census Bureau reports on retail sales,

Advance estimates of U.S. retail and food services sales for December 2021, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $626.8 billion, a decrease of 1.9 percent (±0.5 percent) from the previous month, but 16.9 percent (±0.9 percent) above December 2020. Total sales for the 12 months of 2021 were up 19.3 percent (±0.5 percent) from 2020. Total sales for the October 2021 through December 2021 period were up 17.1 percent (±0.7 percent) from the same period a year ago.

Timing may have had an impact on December sales, as the AP reports

Retail sales fell a seasonally adjusted 1.9% in December from November when sales increased 0.3%, the U.S. Commerce Department said Friday. Sales rose 1.8% in October as shoppers, worried about product shortages, got a head start on their holiday buying. Still, retail sales surged 16.9% last month compared with December 2020, the Commerce Department said Friday. For all of 2021, sales spiked 19.3% compared with the previous year.

Spending declines were spread across numerous sectors. Department store sales fell 7%, restaurant sales slipped 0.8% and online sales fell 8.7% compared with the previous month, according to the report.

And from the Fed on industrial production.

Industrial production declined 0.1 percent in December. Losses of 0.3 percent for manufacturing and 1.5 percent for utilities were mostly offset by a gain of 2.0 percent for mining. For the fourth quarter as a whole, total industrial production rose at an annual rate of 4.0 percent. At 101.9 percent of its 2017 average, total industrial production in December was 3.7 percent higher than it was at the end of 2020 and 0.6 percent above its pre-pandemic (February 2020) reading. Capacity utilization for the industrial sector edged down 0.1 percentage point in December to 76.5 percent, a rate that is 3.1 percentage points below its long-run (1972–2020) average.

APs reports the pandemic and supply chain had an impact on the numbers,

Economists believe that industrial production will struggle to meet strong demand as long as problems affecting supply chains persist. There is concern that the surge in COVID-19 cases because of the omicron variant will result in shortages of factory workers, which could intensify supply chain problems.

“The latest surge in cases looks to be exacerbating labor problems,” said Oren Klachkin, lead U.S. economist at Oxford Economics. “While we expect bottlenecks to eventually loosen, we shouldn’t discount the risk that supply chain conditions could still worsen before they improve.”

Again, the uncertainty makes a case for lawmakers to focus on steps to strengthen our state’s economic recovery: easing tax and regulatory burdens, making infrastructure investments that will improve mobility, and focusing on budget sustainability.

 

 

Can lawmakers come together to increase transportation funding in the short session? Maybe.

In the Seattle Times, David Korean reports on prospects for a transportation bill emerging from the short legislative session. As he writes, there’s bipartisan agreement that something  must be done, but less agreement on what the something is. 

As elected officials enter a short 60-day session, negotiating a multi-billion-dollar agreement could be a tightrope walk. The talks will unfold before the backdrop of billions in delayed maintenance projects, transit systems that are overstretched and understaffed, a highway system struggling to meet the needs of Washington residents and an election 10 months away.

Both sides of the aisle are interested in spending more on transportation. The size and scope of those investments remains a point of debate.

For lawmakers reluctant to raise gas taxes, the state’s flush operating budget provides a good option.

Rep. Andrew Barkis, R-Olympia, said he’s open to conversations about a bill that does not include new taxes. So far, his interactions with Democrats have been limited, he said. He would like to see the Legislature set aside roughly $3 billion for maintenance and improvements between now and 2027 by tapping into the state’s operating fund and repurposing certain sales taxes.

Certain projects will top legislators’ lists of priorities: the beleaguered ferry system, which has struggled with crew shortages and trip cancellations; the 520 highway’s Montlake interchange; adding bus lanes to interstate 405; a possible trestle on Highway 2; fixing the state’s culverts for salmon; and the long-discussed I-5 bridge between Vancouver and Portland.

As the Washington Research Council has reported, state transportation revenues continue to lag pre-pandemic projections. And as the WRC wrote at the time, the operating budget provides a vehicle to address the shortfall. See the post for a look at some pre-filed legislation.

Kroman reports,

Shortly after accepting his new position on the transportation committee, [Senate Transportation Chair Marko] Liias said he started canvassing members on their appetite for a gas tax. He found it lacking, in large part because of the newly available pots of money. Instead, “I started floating this idea of, what if we scaled back and just did the most emergent things, just like we’ve had to do on so much stuff because the pandemic,” he said. “We’re gonna have to take this in a phased way.”

“What’s clear is, there will be some needs that remain not fully addressed,” he added.

Sen. Mark Mullet, D-Issaquah, who barely won re-election in 2020 after facing a challenge from the left, said he’s “optimistic” a funding bill will come together and agreed it can and should be done without raising the gas tax. “If you can do a package without a gas tax, I think it’s a huge win,” he said.

There are hurdles to contend with, as a key Republican senator says.

“I’m not sure [a package] is going to happen in this session,” said Sen. Curtis King, R-Yakima, the ranking Republican on the Senate Transportation committee. “It’s a short session, there hasn’t been a lot of discussion, we have a new chair in the Senate — a very capable chair, but a new chair — and normally in the past our transportation packages have been bipartisan. From a Democrat, Republican point of view, there hasn’t been a lot of talk across the aisle.”

Still, getting something started this year would, a Mullett says, be a huge win. The need is apparent.

Changes in long-term care program under consideration would still require a tax increase

The Washington Research Council reports on legislative changes being proposed in the state’s long-term care program. The proposals still fall short of making the program solvent over the long term.

[Tuesday] the Appropriations Committee heard HB 1732 and HB 1733. HB 1732 would delay the state’s long-term care (LTC) program by 18 months and make individuals born before 1968 eligible for the program if they pay premiums for at least a year (benefits would be prorated). HB 1733 would add voluntary exemptions for veterans with service-connected disabilities, spouses of active-duty service members, employees with nonimmigrant visas for temporary workers, and employees who work in Washington but live elsewhere.

The WRC notes the actuarial analysis.

Milliman has performed actuarial analyses of both bills. Under current law, the statutory premium rate is 0.58%, but, as we discussed in our policy brief on the program, the premium would need to increase to at least 0.66% in order for the trust account to be solvent over 75 years.

The proposals narrow the gap, the WRC writes, but still fall short.  And, the question remains, “Should Washington Be in the Long-Term Care Insurance Business?”

 

Cause for concern? Unemployment claims rise nationally; wholesale prices also up.

Yesterday we wrote that the rise in inflation to 7% validated voters assess,emt that the economy is the top issue facing lawmakers this year. Today, more validation comes in the news that unemployment claims and wholesale prices are rising.

The U.S. Department of Labor reports,

In the week ending January 8, the advance figure for seasonally adjusted initial claims was 230,000, an increase of 23,000 from the previous week’s unrevised level of 207,000. The 4-week moving average was 210,750, an increase of 6,250 from the previous week’s unrevised average of 204,500.

The advance seasonally adjusted insured unemployment rate was 1.1 percent for the week ending January 1, a decrease of 0.2 percentage point from the previous week’s unrevised rate.

We should also note that the low unemployment rate comes as the labor participation rate remains uncommonly low

The Associated Press reports,

U.S. jobless claims climbed by 23,000 last week to 230,000, the Department of Labor said Thursday. The four-week moving average, which smooths out week-to-week blips, rose nearly 6,300 to almost 211,000.

The weekly applications, a proxy for layoffs, have risen in four of the last five weeks, a period that runs in tandem with the spread of the omicron variant. Yet the jobs market has bounced back strongly from last year’s coronavirus recession. Jobless claims had fallen mostly steadily for about a year and they dipped below the pre-pandemic average of around 220,000 a week.

“The rise in claims likely reflects an increase in layoffs due to the surge in COVID cases,” said economists Nancy Vanden Houten and Kathy Bostjancic of Oxford Economics. “Claims may remain elevated in the near term, but we expect initial claims will gravitate back to the 200k level once the omicron wave passes. Encouragingly, there are indications that cases from the omicron variant are peaking.”

We sure hope so. 

Another sign of concern.

Prices at the wholesale level surged by a record 9.7% for all of 2021, setting an annual record and providing further evidence that inflation is still present at all levels of the U.S. economy.

The Labor Department reported Thursday that its producer price index, which measures inflation before it reaches consumers, did slow on a monthly basis, rising just 0.2% in December compared with November, when prices had shot up 1%.

The 12-month increase in wholesale inflation of 9.7% was also lower than a revised 9.8% increase for the 12 months ending in November. However, the government uses the December to December change for the yearly increase and on that basis the 9.7% rise was the fastest annual jump on record, far above the 0.8% increase in 2020 and the 1.4% rise in 2019.

The economic uncertainty suggested by these data would argue for caution as lawmakers make their budget decisions this year.