How to overcome state's budget shortfall

A SLUMPING NATIONAL economy and rising prices are causing Washington State to face a budget shortfall next year. As a result, the state will have to cut essential services even as demand increases, says Marilyn Watkins of Seattle’s Economic Opportunity Institute.

She spoke at the Council 2 Local Presidents’ Conference in late October on how working families have fared with the economic changes of the past decade; she speaks frequently on state tax policy.

“We will also be forced to postpone important new investments to improve education, public health and transportation,” adds Watkins.

In addition, the state’s outmoded and regressive tax structure means state and local taxes fall too heavily on low-income and middle-income residents, she says.

But there are ways out, Watkins adds.

“Indeed, the economic downturn provides state policy makers the opportunity to embrace a more rational economic development strategy,” she says.

• One step in the right direction would be to extend the sales tax to a variety of goods and services that are not taxed now.
For example, charging sales tax on candy and gum — now excluded from sales tax because they fall under the food category — would raise $61.3 million in state revenue and $19.8 in local revenue. Among the categories that could be included are consumer services, security services, janitorial services and custom software.



• Another step would be to increase the business-and-occupation tax credit for small businesses from $35 to $100 a month to encourage small business creation and growth.

• A third step would be to implement an income tax on the highest-income state residents. Such a tax would be imposed on an adjusted gross income for joint filers of more than $200,000 ($100,000 for individuals). It would be increased on those with higher incomes up to 5 percent on income of more than $1 million a year.

These taxes would cover 4 percent of households and would raise $2.58 billion in biennial revenue.

“A high-incomes tax passed without a constitutional amendment would certainly be challenged in court as a result of a State Supreme Court decision dating back to the 1930s,” Watkins says.

“Even without the constitutional issue, passing an income tax would likely require a super-majority vote in the state legislature and ratifying vote of the people.

“But the right mix of high-incomes tax, reduced general taxes and a dedication of revenues to popular new programs might win the popular vote,” Watkins says.