Washington’s No. 1 in liquor taxes; some of you knew that.

We generally take note of rankings that put Washington in the top tier, and it doesn’t get more top tier than No. 1. The Tax Foundation has released a national ranking of liquor taxes, which finds Washington in first place.

Data for this map comes from the Distilled Spirits Council of the United States (DISCUS). To allow for comparability across states, DISCUS uses a methodology that calculates implied excise tax rates in those states with government monopoly sales.

In this category, Washington state has a huge lead on the rest of the states with an excise tax rate on distilled spirits of $35.31 per gallon. The Evergreen State is followed by Oregon ($21.95), Virginia ($19.89), Alabama ($19.11), and Utah ($15.92). Distilled spirits are taxed the least in Wyoming and New Hampshire.

We thought you might be interested.

Unemployment claims rise a bit nationally; Washington added 8,300 jobs in May; and a look at what’s next for entrepreneurs.

Catching up on a few items in the employment sphere.

First, we’re told not to be alarmed by a slight boost in national unemployment claims.

In the week ending June 12, the advance figure for seasonally adjusted initial claims was 412,000, an increase of 37,000 from the previous week’s revised level. The previous week’s level was revised down by 1,000 from 376,000 to 375,000. The 4-week moving average was 395,000, a decrease of 8,000 from the previous week’s revised average. This is the lowest level for this average since March 14, 2020 when it was 225,500. The previous week’s average was revised up by 500 from 402,500 to 403,000.

The advance seasonally adjusted insured unemployment rate was 2.5 percent for the week ending June 5, unchanged from the previous week’s unrevised rate.

From the AP story:

For jobless claims to rise slightly “should not be cause for concern yet,” said AnnElizabeth Konkel, economist at the Indeed Hiring Lab.

“The big picture is that while we are not back to a ‘normal’ level yet of initial claims, they are no longer astronomically high.”

And,

the speed of the rebound from the recession has caught many businesses off guard and touched off a scramble to hire. In May, employers added a less-than-expected 559,000 jobs, evidence that many companies are struggling to find enough workers as the economy recovers faster than expected.

But many economists expect hiring to catch up with demand in the coming months, especially as federal unemployment aid programs end and more people pursue jobs. They note that the economy still has 7.6 million fewer jobs than it did before the pandemic struck.

And employers are posting job openings faster than applicants can fill them.

Expect the recovery to continue, employment to rise, and UI claims to fall further. 

In Washington, the Employment Security Department released May’s Monthly Employment Report, showing job growth, but growth that’s slower than most of us would like to see. 

On a seasonally adjusted basis, preliminary estimates from the federal Bureau of Labor Statistics (BLS) indicate nonfarm employment in Washington rose by 8,300 in May 2021.1 BLS estimates the private sector gained 7,000 jobs during the month and the public sector gained 1,300 jobs.

On a not seasonally adjusted basis, estimates for May 2020 through May 2021 indicate an increase in employment of 248,900 for the state. The private sector gained 229,500 jobs while the public sector gained an estimated 19,400 jobs over the year.

Finally, just because we find speculation about the post-pandemic economy fascinating, we call your attention to Joel Kotkin’s article, The Next Entrepreneurial Revolution.

The virus-driven disruption has proved more profound than anything imagined by Silicon Valley, costing more jobs than in any year since the Great Depression. But there’s also good news, as Americans’ instinctive entrepreneurial spirit is driving growth and innovation: 4.4 million new business applications were recorded by census data in 2020, compared with roughly 3.5 million in 2019. Self-employment, pummeled at first, has recovered more rapidly than conventional salaried jobs, as more Americans reinvent themselves as entrepreneurs.

It’s a relatively short piece, worth your time.

Analysis: Adopted state budget faces long-term sustainability problems stemming from spending and revenue mismatch.

The Washington Research Council has released a thorough and clear analysis of the state’s 2021-2023 budget. Under the headline, With No Budget Shortfall to Address, Legislature Spent Heavily and Potentially Created Budget Challenges for the Future, the WRC tracks the revenue and expenditure choices made by lawmakers in the 2021 legislative session. After you’ve read the 11-page report, you might be inclined, as we were, to believe that the WRC included “potentially” in the headline out of an abundance of caution. The challenges ahead may well be inevitable.

The report’s overview summarizes the key points of concern:

The budget passed by the Legislature balances over four years. But there are seven particularly troubling aspects of this budget:

  • NGFO spending is increased substantially, even though federal relief money can be used to address many spend- ing needs related to the pandemic.

  • The budget uses one-time federal relief money to start a new child care and early learning program.

  • The cost of the new child care program bow waves beyond the four-year budget outlook.

  • The budget misses an opportunity to deal with the unfunded liability in the Teachers’ Retirement System plan 1 by merging two closed plans (though putting money toward the problem is better than nothing).

  • It imposes a capital gains tax even as state revenues continue to rise beyond pre-pandemic levels and includes capital gains tax revenues in the balance sheet even though they may never materialize due to legal and ballot challenges.

  • It drains the budget stabilization account (the BSA, or the rainy day fund), despite strong revenue growth and large amounts of federal relief.

  • It creates a bad precedent in moving BSA funds to an unrestricted “shadow” reserve account.

All together,

These actions call into question the sustainability of the budget. By acting as if there was a budget problem this year, legislators may have created challenges for the years ahead.

This graph shows the remarkable trajectory of state revenue growth.

Spending in the budget relies on state revenues plus federal assistance, as the following graph shows.

The WRC points out some of that one-time federal money is used to support ongoing programs. For instance,

The Legislature passed E2SSB 5237, the Fair Start for Kids Act, which makes several enhancements to child care and early learning. For example, it expands eligibility for the Working Connections Child Care (WCCC) program and the Early Childhood Education and Assistance Program (ECEAP), and it increases provider rates. The budget appropriates $321.9 million for the bill in 2021–23. The bulk of the cost is paid for with federal relief funds. Just $9.0 million comes from the NGFO.

The outlook for the 2021–23 budget assumes that E2SSB 5237 will cost $303.4 million in 2023–25. This will all need to come from state funds.

There’s much more in the report, which we strongly recommend to those who want to understand the state budget and anticipate the challenges ahead. We would be remiss, however, if we didn’t again point to the problem posed by relying on the capital gains tax. The WRC writes,

Revenues returned to pre-pandemic levels and are expected to continue increasing. Nevertheless, the Legislature imposed a new capital gains tax. Lawsuits have already been filed regarding the constitu- tionality of the tax. If it is determined to be unconstitutional, or if it is repealed by initiative, the anticipated revenues would not materialize. Moreover, capital gains taxes are a volatile revenue source.

The bottom line:

The Legislature was highly fortunate in not having to address a budget shortfall this year. Thus, legislators did not face a choice between cutting spending and raising taxes. Nevertheless, they increased spending, raised taxes, and drained the rainy day fund.

The budget substantially increases spending, from both state and federal relief funds. The Legislature started new programs with one-time money, missed savings opportunities, and imposed a capital gains tax that may be unconstitutional or challenged at the ballot. On top of all this, it withdrew the balance of the constitutionally protected rainy day fund and created a troubling precedent by parking it in a shadow reserve account.

These actions call into question the sustainability of the budget. By acting as if there was a budget problem this year, legislators may have created challenges for the years ahead.

Well said.

AG asks court to dismiss lawsuits against capital gains tax; uncertain next steps in challenges to Seattle payroll tax.

Catching up on a couple of taxing matters.

The Lens reports that Attorney General Bob Ferguson wants to get rid of legal challenges to the capital gains tax. (We’ve written about the lawsuits here and here.)

Washington State Attorney General Bob Ferguson has filed a request for the Douglas County Superior Court to dismiss two lawsuits filed against the state’s newly enacted capital gains income tax law. As hinted at during a recent State Supreme Court hearing regarding a bank tax, among Ferguson’s arguments is the assertion that the plaintiffs lack legal standing because they have yet to actually pay the tax.

“They have no way of knowing what capital gains they will have in future years,” Ferguson wrote further. “In short, Plaintiffs seek to jump the starting gun.”

Lens reporter TJ Martinell notes the AG ignores the elephant in the room.

Incidentally, Ferguson’s brief avoids addressing the plaintiffs’ central claim that the tax violates the state constitution’s uniformity clause regarding taxation on property. Though the brief describes it as an excise tax, it also notes that those subject to the tax must return their federal income tax returns for the taxable year to the Department of Revenue.

More in Martinell’s story.

Also, as we wrote earlier, a King County judge recently rejected a challenge to Seattle’s “JumpStart” payroll tax filed by the Seattle Metropolitan Chamber of Commerce. The Puget Sound Business Journal reports that next steps in the challenge are uncertain.

The chamber issued a news release following the decision but has declined further comment.

“We are working with our legal team to explore next steps,” Rachel Smith, chamber president and CEO, said in the release. “The projections for the JumpStart Tax depend on businesses reopening and many more people coming back to work in Seattle. We stand ready to collaborate with city leaders on good policy.”

As the article points out, if the decision stands businesses will face additional uncertainties.

The tax has details that likely will need clarification, experts say. Cases could go to court, for example, over which employees count as being Seattle-based. With remote work becoming more mainstream as a result of the Covid-19 pandemic, categorizing the primary location of employees working for Seattle-based companies could become extremely tricky.

And,

Deciphering which employees count toward the tax is complex work. Under the tax’s guidelines, employees count as Seattle-based if they are primarily assigned in Seattle or perform at least half of their services in Seattle. Even if they don’t fit this criteria, they can still count toward the tax if they don’t perform at least half of their services in a different city and they live in Seattle. Any confusion could lead to lawsuits that could result in having more details spelled out.

Another question is how to treat independent contractors, which experts say currently do count toward the tax.

Definitely sounds messy.

Washington’s record-setting increase in average wage means big hike in unemployment benefits

Yesterday we wrote that the state’s 10.1% bump in average annual wage would translate to increases in unemployment benefits, Paid Family and Medical Leave benefits, and workers’ compensation benefits. Today, we have a little more information on just what the effect of the wage bump will be. 

The Seattle Times reports

The benefit increase stems from a state policy that ties jobless benefits to the state’s average wage, which thanks to a grim statistical quirk increased during the pandemic even as tens of thousands of workers lost their jobs.

As a result, the minimum weekly unemployment benefit will increase by $94, to $295, for workers who file their first jobless claim on or after July 4. (Workers already receiving benefits will continue to receive benefits at the current level.) That’s the biggest increase since the ESD began tracking such data, during the Great Recession, said Paul Turek, ESD’s state economist.

The maximum weekly benefit for new claims also will increase — by $85, to $929.

Coupled with the $300 federal pandemic benefit, the state’s total weekly benefits will range from $595 to $1,229. That federal benefit ends in September.

That’s a big increase, coming at a time when many businesses face challenges finding workers to fill job openings. ST reporter Paul Roberts writes,

The benefit increase will likely add to criticism that high jobless benefits are fueling a labor shortage by encouraging unemployed workers to stay home instead of seeking work. But the higher benefits coincide with a resumption of the requirement, suspended since last year, that workers search for jobs while collecting benefits.

Roberts points out another factor fueling the benefit increase.

Earlier this year, state lawmakers raised the percentage used to calculate the minimum weekly benefit, from 15% of a worker’s average earnings to 20%, for claims filed after June 30. The higher rate kicks in during the first full week of July, which starts July 4.

The increased payout could pose problems.

State officials aren’t sure what the benefit increase means for the state’s finances — or the prospects for employers, who pay for most jobless benefits via taxes — in part because it’s not clear how many Washingtonians will file for benefits after July 4.

If the state economy continues to improve and fewer workers file claims, the benefit increase “shouldn’t matter much” to the state finances, Turek said. [Note; we’d call that a best case scenario.]

“But obviously, if for some reason the economy were to stumble and a lot more people have to go on [unemployment], it could become a major issue,” Turek added.

More in the story. Also, Washington Research Council senior analyst Emily Makings has additional insights on the effects of the annual average wage hike.

Unemployment insurance (UI) taxes and benefits, paid family and medical leave benefits, and workers’ compensation benefits are all calculated based on the state average wage.

So, the UI taxable wage base in CY 2022 will increase to $62,500 (it is currently $56,500). This means that employers will pay UI taxes on the first $62,500 paid to an employee. Washington’s taxable wage base is already the highest in the country. The next highest is Hawaii’s $47,400.

Additionally, for new UI claims opened beginning July 4, the minimum weekly benefit will increase to $295 and the maximum weekly benefit will increase to $929.

ESD didn’t announce the maximum weekly benefit for paid family and medical leave, but based on the statute, it will increase on Jan. 1 from $1,206 to $1,328.

Averages, as we all learned in stat class, are tricky things. The Spokesman-Review reports,

The $76,741 figure represents the entire state of Washington. Spokane County has typically lagged behind the state average wage, said Patrick Jones, an economist and executive director of the Institute of Public Policy & Analysis at Eastern Washington University.

For example, the average wage in Washington in 2019 was $69,615. In Spokane County, it was $50,234. The department’s numbers indicate the largest wage increases occurred in information and retail, industries largely clustered in Western Washington.

“That’s Google. That’s Facebook. That’s Microsoft,” Jones said of the information category. Amazon falls under retail.

And,

Jones drew a clear distinction between average wage and “wages,” however. Just because the average amount increased, that doesn’t mean pay went up for everyone.

“It’s just the mathematics of creating an average,” he said.

Right. 

 

 

Washington Research Council: $90 billion in federal relief has already poured into Washington

The Washington Research Council has done a great job of tracking the flow of federal relief funds to our state. In a recent blog post, WRC senior analyst Emily Makings reports that the total now approaches $90 billion. 

So far, across the five major relief bills, at least $25.843 billion has and will flow through Washington’s state and local governments. The state has appropriated (or allocated via the unanticipated receipts process) $17.348 billion of that.

In addition to the funding that the state has a role in distributing, the federal bills have also provided $63.577 billion directly to individuals and businesses in Washington. This includes, for example, the economic impact payments, unemployment insurance payments, and the paycheck protection program.

More detail in her blog post. It’s a staggering amount of funding, and there may be more to come. 

Business Roundtable: The economy’s back on track.

One of the nation’s top business groups offers a positive outlook for the national economy.

Business Roundtable today released its Q2 2021 CEO Economic Outlook Survey, a composite index of CEO plans for capital spending and employment and expectations for sales over the next six months. This quarter’s results signal that the U.S. economy is back on track and reveals record hiring plans in the wake of the COVID-19 pandemic.

The overall CEO Economic Outlook Index increased in the second quarter to a value of 116, up nine points from Q1 2021, and only two points below the all-time high reached in Q1 2018 in the wake of pro-growth tax reform. All three subindices increased in the second quarter as well, with the sub-index measuring plans for hiring rising to historically high levels.

The Outlook graph shows the rapid uptick in expectations.

Several key indicator changes:

  • Plans for hiring increased 15 points to a value of 103.
  • Plans for capital investment increased six points to a value of 106.
  • Expectations for sales increased six points to a value of 140.

In their new estimate of 2021 U.S. GDP growth, CEOs project 5.0 percent growth for the year, a 1.3 percentage point increase from their estimate last quarter.

This is also notable:

In a special question first posed in Q2 2020 and in each quarter since, 75 percent of CEOs say conditions for their companies have already recovered or will recover to pre-COVID-19 levels by the end of 2021—a two percentage point improvement from the prior quarter. Conversely, 25 percent of CEOs do not expect business conditions to recover until 2022 or later, down from 27 percent in the previous quarter, underscoring the continued challenges facing some industries as the global struggle against COVID-19 persists. 

We’ll let the Business Roundtable chief executive have the final word.

“This CEO optimism is welcome news—and we need to harness it to ensure U.S. economic recovery continues,” said Business Roundtable President & CEO Joshua Bolten. “We can build on this momentum and sustain economic growth for decades to come by passing a bipartisan bill to upgrade the nation’s infrastructure—highways, water systems, energy and communications—and forgoing harmful tax increases on U.S. job creators that would hinder America’s economic recovery.”

Washington’s average wage climbs to $76,741, a 10% increase and largest annual wage boost on record.

One thing we might not have anticipated in the pandemic year is a record-setting boost in the state’s average annual wage. Yet, the state Employment Security Department reports that 2020 saw the state’s average wage climb by more than 10%, to $76,741.  It may seem counterintuitive, but as the ESD reports, the increase reflects the pandemic’s effect on the labor force.

Washington’s average annual wage grew by 10.1 percent in 2020 to $76,741, according to the state Employment Security Department—representing the largest percentage increase in the average annual wage year over year on record.

The average annual wage is calculated only using wages from those in the workforce that are covered by unemployment insurance. The average weekly wage rose from $1,340 in 2019 to $1,475 in 2020.

Here’s how pandemic’s effect on employment fits into the equation.

The increase was driven by a 4.9 percent decrease in covered employment and a 4.7 percent increase in total earnings, which grew by nearly $10.9 billion in 2020. Overall, the average number of workers in Washington covered by unemployment insurance decreased by just over 164,161 workers in 2020.  

The higher than normal increase in reported average wages can be attributed to the fact that thousands of lower-paid workers lost their jobs during the pandemic and higher-paid workers remained employed. While it is common for the average wage to rise during recessions, since lower wage workers are more likely to be laid off than higher paid ones, the shift during the pandemic recession was much more dramatic than during the Great Recession.

Much more in the ESD release. Notably, the increase in the annual average wage will also mean an increase in unemployment benefits and taxes.

The average annual wage is used to calculate unemployment benefits for jobless workers and Paid Family and Medical Leave benefits. The minimum weekly unemployment benefit, calculated at 20 percent of the average weekly wage, will increase by $94 to $295, for new claims opened on or after July 4th. At the same time, the maximum weekly benefit, which is the greater of $496 or 63 percent of the average weekly wage, will increase by $85 to $929. 

And,

In addition to unemployment and Paid Leave benefits, the average annual wage is used in computing employers’ unemployment taxes. Beginning in 2022, employers will pay unemployment taxes on the first $62,500 paid to each employee—up from $56,500 in 2021. 

The wage, ESD notes, will also be used in calculating workers’ compensation benefits.