The sound of budget negotiations in Olympia may be, well, crickets. But there’s still some analysis of proposed alternatives worth considering.
The Washington Research Council released an updated comparison of the operating budget proposals proposed by the Senate and the House. It’s a very clear side-by-side.
We’ll share just one row from the comparison table (Senate on left, House on right:
That revenue comparison represents the major stumbling block. As we’ve written before. the Senate has little interest in budget negotiations until the House passes its revenue package.
One element of the House plan, the capital gains tax, has drawn significant interest. We’ve linked to various analyses and discussion of a likely legal challenge. The Washington Policy Center tackled the “income vs. excise” tax question by contacting revenue departments across the country. Jason Mercier reports his findings:
All state revenue departments describe capital gains as income. Those that tax capital gains do so via their income tax codes. No state taxes capital gains as an excise tax. States without income taxes described their treatment of capital gains income like Florida did:
“There is currently no Florida income tax for individuals and, therefore, no Florida capital gains tax for individuals.”
The best response differentiating between what an excise tax is versus income tax was Illinois:
“Capital gains are included in federal taxable income, against which Illinois income tax is determined. Illinois does not impose an excise tax on any form of income. Excise taxes are imposed on items of consumption, such as the liquor tax, cigarette tax and utilities taxes.”
Apropos the income tax, we were interested in this report in the Oregonian on that state’s budget challenges. Despite the state’s economic growth, Oregon budget writers face a substantial structural deficit. According to the paper,
The state faces a $1.6 billion shortfall in the next two-year budget cycle, and even if the economy stays healthy the gap is likely to grow again the next time Oregon tries to balance the books.
So what’s gone wrong?
The short answer is the state committed to hundreds of millions of dollars in spending and tax limits without a clear plan to pay for it all. Health care costs, largely due to Oregon’s Medicaid expansion, threw the state’s books off by $1 billion in the next budget cycle – even as it brought down the rate of the uninsured in the state to just 5 percent.
That’s the biggest piece of the funding gap, but the state’s soaring public pension deficit plays a big role, too. And don’t let voters off the hook – ballot measures they passed in November play an even bigger role in the shortfall than pensions, while property tax limits they approved in the 1990s shifted the burden of education funding to the state.
And there’s this:
State funding is notoriously volatile because of Oregon’s extreme reliance on personal income taxes, which can fall sharply in bad economic times. As the Great Recession set in a decade ago, the general fund plunged by nearly 20 percent.
So much for the income tax panacea. And, remember, the capital gains is the most “notoriously volatile” element of the personal income tax.
