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From Governing’s Supplemental information | Introduction
In the spring of 2001, when Boeing announced it was moving its headquarters from Seattle to Chicago, one of the main reasons the company cited was traffic gridlock. Drivers sizzle with latent road-rage as they make the trek from one end of metropolitan Seattle to the other. This move by Washington’s largest employer sent a tremor of fiscal fear all across the state, but by Election Day, voters seemed to have forgotten it. Citizens overwhelmingly turned down Referendum 51, which would have raised the gas tax and other vehicle-related levies to finance $7.8 billion in transportation projects.
This was typical. Washington’s voters have a long history of using the ballot box to cut taxes and stifle increases. The legislature isn’t much different. And the impact of many of these decisions has been to make the tax structure much more volatile, and hard to count on in long-term planning. You never really know what’s coming next. In 2000, for example, the legislature eliminated Washington’s 2.2 percent motor vehicle excise tax, at a cost to the state of more than $800 million a year. Then, last November, voters made it illegal for local governments to impose their own motor vehicle excise taxes. Back in 2001, Washington residents continued a long-term assault on the property tax by capping aggregate property revenue increases at 1 percent, unless a larger increase was approved by popular vote. At the same time as they’ve been constricting the flow of money to government, Washington voters have approved measures to increase teachers’ salaries and reduce class size. “We want more things, but we don’t have a specific source of funding for them,” says Randy Hodgins, senior staff coordinator for the state Senate Ways and Means Committee. For years, a strong economy in the state allowed residents to believe that they could get away with this. But the economic downturn and the impact of September 11 on the aerospace industry, along with the built-in revenue volatility, has created a horrendous budget situation for the next biennium. The state is currently $2 billion short of money to fund the projected $24.7 billion two-year budget that takes effect in July. Since bond payments, pension contributions and the bulk of K-12 education are virtually untouchable, that $2 billion is really missing from a $12.5 billion base. “You can’t belt-tighten your way out of a $2 billion hole,” says Hodgins. “A gap of that magnitude requires the state to make major changes,” To help make them, the legislature last year set up a Tax Structure Study Commission, headed by Bill Gates Sr. (father of the Microsoft founder). This is the eighth such commission in Washington since the 1920s. All have recommended an income tax, which would reduce the state’s extreme regressivity, permit elimination of the state property tax and allow a reduction in sales tax rates. Though Washington taxes more professional and personal services than all but a couple of states, its sales tax base is riddled with exemptions. There’s a logical reason for that. The state’s neighbor to the south, Oregon, has no sales tax at all. In order to be competitive across the border on price, Washington has felt compelled to carve out exemptions for commodities it is especially eager to sell. This may be understandable, but it’s also very expensive. In the current biennium, Washington’s 445 tax exemptions are costing the state about $12 billion. To their credit — or sometimes to their embarrassment — Washington policy makers have plenty of good data to base their decisions on. The state has better analytic capacity than most. In fact, overall, tax administration in Washington is a model for other states; particularly in its tax simplification efforts. If a business doesn’t want to go to the trouble of filling out a Washington tax form, it can simply send in its spreadsheets — either on paper or electronically — to the Department of Revenue. Washington was the first state to offer an Internet-based electronic filing and payment system for businesses — a project conceived a decade ago. More recently, the Department of Revenue began to use a Geographic Information System to help citizens and businesses make sense out of the disparate tax rates in various communities. The state has 350 taxing districts that can impose different rates for their local option sales taxes. Taxpayers can go to the department Web site and find out what the sales tax rate is for a given commodity at a given address. A house painter, for example, can see that he needs to charge 8.5 percent sales tax in Tacoma but only 8.1 percent in nearby Gig Harbor. “You know you’re not undertaxing and you’re not overtaxing, which can lead to lawsuits from consumers,” says Rich Prem, director of Global Indirect Taxes at Amazon.com. “It’s been consumer friendly and easy to use, and I wish other states had it.” Copyright © 2003, Congressional Quarterly, Inc. Reproduction in any form without the written permission of the publisher is prohibited. Governing, City & State and Governing.com are registered trademarks of Congressional Quarterly, Inc. |
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usiness executives everywhere gripe about their state tax systems. Washington State is no exception. But when you hear complaints in Washington, they aren’t usually about overzealous auditors or the complexity of the code. CEOs in Washington worry about whether the state is willing to raise enough money to support the services they need.