Crosscut reports how Seattle’s payroll tax complicates state budget discussions. Still, though, new taxes aren’t necessary.

In Crosscut, Melissa Santos reports on how Seattle’s controversial payroll tax complicates things for legislators in Olympia (or their kitchen tables at home) who want to impose a similar tax statewide. The issue concerns how to avoid double taxes on Seattle businesses. Santos writes,

A statewide tax could be difficult to pass if it is layered on top of the one Seattle businesses already are paying.

And, if the statewide payroll tax is going to raise a significant amount of money for state programs, as its supporters hope, lawmakers can’t simply cut Seattle out of the equation.

State Rep. Nicole Macri calls this “the Seattle question” she and her colleagues are grappling with.

The Senates’ top budget writer is quoted.

If a statewide version of Seattle’s payroll tax moves forward, lawmakers would probably want to avoid creating a “double tax” on Seattle-based companies, said state Sen. Christine Rolfes, a Bainbridge Island Democrat who is the Senate’s lead budget writer.

“Likely, we’d have to carve out Seattle,” Rolfes wrote in a text message.

The article nicely details the challenge. We recommend reading it in full.

Then there’s this.

The statewide payroll tax is one idea lawmakers are considering to help plug a hole in the state budget, which has taken a hit due to the COVID-19 pandemic. While the state’s financial picture has improved since June, when state revenue collections were projected to take an $8.8 billion hit through 2023, state lawmakers will still have $3.3 billion less to work with than once projected.

That budget hole is perhaps overstated and, regardless, easily resolved, as the Washington Research Council – and legislative staff – have written. From the WRC,

The biennial budget will need to balance over four years. So the preliminary outlook from Senate staff includes 2019–21, 2021–23, and 2023–25 (the chart below is from their presentation). Given their maintenance level estimates, the unrestricted ending balance is estimated to be negative $0.6 billion in 2021–23 and negative $0.4 billion in 2023–25. The rainy day fund balance (even before backfilling it with CARES Act funds) would easily cover those shortfalls.

We hardly need to add that a payroll tax increases business costs and discourages hiring, not what we’d expect lawmakers to focus on as the state slowly recovers from the COVID recession.

While we’re on the issue of business costs and taxes, we want to call your attention to a Los Angeles Times commentary by Joel Kotkin: Can California stop Big Tech from decamping for cheaper places?  Kotkin traces the recent exodus:

In a stunning procession in December, California lost the leadership of three iconic firms — Hewlett Packard Enterprise, Oracle and Tesla — all to Texas, which this year even took the Rose Bowl’s place in hosting the college football playoff. In addition, many California tech firms, including Uber and Lyft, as well as Apple, have been shifting jobs outside the state.

This has been widely described as California’s “tech exodus.” Though it’s still less than a torrent and more a steady, long-term drip, it augurs some very bad trends. In recent years, California has been losing market share of innovative industries compared with 11 states with high concentrations of innovation-oriented firms, according to research by Ken Murphy, a professor at UC Irvine’s business school.

He traces the well-known reasons for the departures. His conclusion may apply equally well to our state.

California’s economy has been buoyed by the tech industries for a long time, but that good fortune won’t last forever. Unless the state can rein in tax increases and business regulations while expanding skills-based education, we will surely be seeing more corporate departures in 2021 and beyond.