With a surplus of more than $11 billion, a sustainable state budget could include tax cuts, according to a new policy brief from the Washington Research Council. We’ll cite the WRC’s “briefly:”
We estimate that the state surplus in funds subject to the outlook (NGFO) is now $11.249 billion over four years. On top of that, the state has one-time funds: $1.0 billion in the Washington rescue plan transition account, $1.273 billion in general federal relief funds, and about $1.2 billion in the budget stabilization account.
This rosy situation is thanks to $7.356 billion in increased forecast state revenues since the 2021 legislative session ended, $349.8 million from collections coming in above the most recent forecast, and $2.388 billion in savings from lower-than-expected costs to continue current services.
Gov. Inslee’s supplemental budget proposal would add new NGFO spending totaling $4.185 billion in 2021–23. His proposal would not reduce taxes, and it would increase reserves.
The governor’s office has emphasized the one-time nature of some of the state’s available resources and the slower forecasted revenue growth going forward as reasons not to reduce taxes. It is good to be cautious when enacting new, ongoing policies, lest the expected revenues not materialize. The state does have some one-time revenue, but under the official forecast most of the state’s available resources are not projected to disappear in future biennia. If the slower growth (as currently forecasted) in revenues makes tax cuts unrealistic, then increasing spending would be unrealistic as well.
The governor made a choice to use the surplus on new spending (and increases to reserves). The Legislature could reasonably choose to use some of the surplus on tax reductions as well. After all, as far as budget sustainability is concerned, spending increases and tax cuts are two sides of the same coin.
The brief goes on to examines revenues, which are expected to grow, and expenses, which are expected to decline.
The current forecast expects revenues to continue to increase going forward, albeit at a slower rate than in recent years. (In 2019–21, NGFO revenues increased by 15.3%. Revenues are estimated to in- crease by 13.4% in 2021–23 and 6.3% in 2023–25.) Meanwhile, collections in December and January came in $349.8 million higher than forecast, suggesting that the forecast very likely will be revised up- ward in February.
The maintenance level is the cost of continuing current services, adjusted for inflation and enrollment. The official January outlook estimates that the cost of continuing services funded in the enacted 2021– 23 budget is down $1.144 billion for 2021–23 and down $1.244 billion for 2023–25 (ERFC 2022).
Most of these savings ($928 million in 2021–23 and $1.110 billion in 2023–25) come in public schools and are largely related to decreased enrollment. However, other savings are widespread. For example, the maintenance level for the Department of Corrections is estimated to decrease by $73 million in 2021–23 and by $85 million in 2023–25. The maintenance level for social and health services is ex- pected to decrease by $47 million in 2021–23 and by $20 million in 2023–25.
This is quite a change from the June 2021 outlook…
As the WRC writes, the governor’s proposed budget increases spending and includes no tax cuts. The WRC writes,
In discussing the governor’s budget proposals, the governor’s office has emphasized the one-time nature of some of the state’s available resources and the slower forecasted revenue growth going forward to suggest that caution is warranted. For example, at Gov. Inslee’s budget rollout press conference, he was asked why his proposal does not include any tax cuts. Gov. Inslee said, “Well, it’s a simple fact. The need for expenditures are going to go on, but the revenues are going to go away. If those who get stars in their eyes and think that this revenue is going to continue to come pouring in, it’s totally unrealistic”
Yet, as the WRC points out,
…revenues are currently expected to continue to grow. The state does have some one-time revenue, and it’s possible that some of the projected revenue growth won’t come to pass. But under the official forecast—the best information available to budget writers—most of the state’s resources are not going to disappear. If the slower growth (as currently forecasted) in revenues makes tax cuts unrealistic, then increasing spending would be unrealistic as well.
The Legis lature could reasonably choose to use some of the surplus on tax reductions. After all, as far as budget sustainability is concerned, spending increases and tax cuts are two sides of the same coin.
It’s a compelling and timely analysis.
What’s confounding is the suggestion by some lawmakers that this moment is a good time to raise taxes. For example, a climate resliiency surcharge has been proposed.
Senators Carlyle and Rolfes have introduced SB 5967, which would add a new “climate resiliency and mitigation” surcharge on certain financial institutions. Essentially, this would fall on the same banks subject to the 1.2% business and occupation (B&O) surtax on large financial institutions, to the extent that they finance fossil fuel companies.
More detail at the link,
Then, there’s a new wealth tax proposed.
Washington state multibillionaires would pay a wealth tax under a proposal that got a public hearing before the Senate Ways and Means Committee.
Senate Bill 5426 would impose a 1% tax on intangible financial property such as stocks, and bonds, futures contracts, and publicly traded options. The first $1 billion of assessed wealth would be exempt from the tax, which “equals one percent multiplied by a resident’s taxable worldwide wealth.”
There are more: We’re not going to inventory all of the ideas for new taxes, many of which are no doubt conversation starters for the next session. The key, as the WRC policy brief underscores, is that lawmakers could choose to cut taxes and adopt a sustainable budget. What’s wrong with that?