While short-term fixes to backfill +$10 billion in budget cuts since 2009 are essential to avoid further damage to Washington’s economy (62% of state spending goes to the private sector), the state faces some long-term structural problems with its tax code that also need to be addressed.
For example, consider the source of half of all state revenue: the sales tax. It applies only to goods, not most services. It’s a swell deal for attorneys, accountants and stock brokers (to name a few) whose services are exempt from the sales tax – but not so good for everyone else.
See, services are becoming a much larger part of Washington’s economy, and because we exempt them from taxes, it means a) the tax base is shrinking, and b) consumers who buy more goods effectively subsidize those who buy more services.
A “goods-only” sales tax was a fine idea for Washington’s 1930’s agrarian economy (the last time Washington’s tax code was seriously updated) – but today it’s a relic that’s holding back public investment in a modern service-based economy.
To solve these kinds of problems, state lawmakers need to look for solutions to the short-term revenue shortfall that lay the foundation for long-term tax reform. Here are a few ways to accomplish that.