Washington Research Council report on business taxes provides essential grounding for legislative budget debate

A new policy brief from the Washington Research Council examines business tax burdens in Washington, with a look at interstate differences. In a few short pages, the WRC provides a lot of important information. We recommend reading the whole brief, but here will cut here to the chase.

The 50 states are in aggressive competition with each other for quality employers and jobs. News headlines frequently depict a competition between the states and overseas locations for factories, etc. But according to the Tax Foundation, citing a Bureau of Labor Statistics study in 2012, a state is more likely to lose an employer to another state than to another country. A state tax code change can yield an immediate comparative advantage that may be decisive.

States and localities must strike the balance between funding needed government services and creating the types and levels of tax obligations that are competitive and cause minimal economic dislocation.

So, how does Washington compare? The WRC examines reports from the Council on State Taxation and the Tax Foundation to answer the question. (We wrote previously about the COST study here and Tax Foundation analysis here; see also this short piece by Association of Washington Business.)

Here are the some of the takeaways cited by the WRC:

  • The percentage of Washington’s private sector gross state product paid in business taxes was 5.5 percent; in 40 other states the percentage paid in taxes was lower.

  • State businesses paid an average of $7,600 per employee in taxes; in 45 other states, businesses paid less per employee.

  • Washington businesses pay almost 58 percent of all state and local taxes.

  • Washington had the eighth highest growth rate of business tax revenues, 4.5 percent, from fiscal year 2014 to fiscal year 2015.

  • The Tax Foundation says Washington has the 17th best tax climate for business.

With the state under significant pressure to fully fund basic education, it’s important to remember, as AWB president Kris Johnson said in December,

“Washington employers appreciate the pressures on the state budget – and they share the goal of complying with the requirements of the McCleary decision – but any plan for funding education should also consider the impact it will have on Washington’s business competitiveness and the economy.”

The latest WRC report does a good job of establishing the context for evaluating potential tax impacts.