A balanced approach to balancing Washington’s budget

November 5, 2008 | Aaron Keating

Looking only at year-over-year increases in state spending is an oversimplified perspective that doesn’t address important economic factors such as population growth or inflation. Measuring state revenue and spending as a percentage of personal income provides a more accurate picture.

As the Washington State Budget and Policy Center notes:

“…this measure…accounts for growth in the state economy…provides insight on the resources available to fund public structures…[and] recognizes the cost of government grows along with economic and demographic trends such as the aging population or the growth in health care costs.”

Using this approach, it’s apparent that state spending has declined from 6.6% of personal income in 1995 to 6.1% at present. But revenue has declined even further, to 5.6%. In other words, revenues aren’t keeping up with economic growth.

From roads and utilities to schools and parks – from police and firefighters to safety inspectors and environmental scientists – steady investment in public infrastructure yields tremendous public and private returns, including well-educated citizens, profitable businesses, safe communities and a healthy environment.

Instead of slashing important public services, a more balanced approach to balancing the state budget would promote new tax cuts or credits for small businesses and homeowners, and broaden our tax base to generate new revenue for public investment. For example:

  • Increase the B&O tax credit for small businesses, and roll back some of the 581 special interest tax breaks now on the books. Net: $269.5 million.
  • Expand the sales tax base to include selected goods and services while automatically reducing B&O taxes for affected businesses. Net: $784.4 million.
  • Cut the state portion of the property tax in half, and institute a new “high-incomes tax” that exempts the first $200,000 of family income, begins at 3 percent and jumps to 5 percent on incomes over $1 million. Net: $1.08 billion.

Washington’s population is growing, and along with it, public needs for investment in education, transportation, health care, and public safety. In a democracy, public spending reflects the shared interests of working families, retirees, businesses and children, to name just a few.

Public investment in shared priorities will help ensure we all come through these tough times in a position to prosper and grow again – not at each other’s expense, but together.

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Posted in State Economy, Tax and Budget

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