WRC examines the 2019 tax legislation in new policy brief: “Some of the tax changes will worsen budget sustainability.”

Yesterday we wrote that the 2019 state budget was in the books. It’s still instructive, though, to open the book once more, as the Washington Research Council has done, and take a look at the revenue changes made to fund that budget. 

The following graph from the new WRC report on revenue side of the budget shows just how much taxes have grown in recent years and, in particular, the 2019-2021 state budget.

Here’s how the WRC summarizes things in the “briefly” section of the report.

The March revenue forecast estimated that 2019–21 revenues will be $50.555 billion, an increase of 9.6 percent over 2017–19 (also as estimated in the March forecast). Nevertheless, the Legislature passed several tax bills that will increase total revenues by a net of $1.101 billion in 2019–21 (based on the most recent fiscal estimates). Of that, about $908.0 million will go to funds subject to the outlook and the new workforce education investment account. With the new revenue bills, 2019–21 revenues are projected to increase by 11.4 percent over 2017–19.

Among the enacted tax bills are a workforce education investment business andoccupation (B&O) tax surcharge on certain sectors in the “other business or service activities” category, an additional B&O tax on large financial institutions, and agraduated real estate excise tax. Notably, the Legislature did not pass a capital gains tax.

Some of the tax changes will worsen budget sustainability by increasing revenue volatility and directing revenues to dedicated funds (thereby avoiding transfers to the rainy day fund, which helps manage volatility, and, in some cases, avoiding the four- year balanced budget requirement). There are also some questions about constitutionality and transparency and concerns about increasing business tax burden.

We commend the report to your attention. Taxes matter. And, as the WRC suggests, this year’s tax actions are likely to have short- and long-term consequences for both the budget and the state economy.