House Democrat tax plan falls short of claims
Taxes needed for union payoffs, not children

House Democrats have made many claims about their proposed tax package (HB 2267 and other unspecified bills). They say it’s for the kids. They say it’s for education and health care. They say they’re trying to protect the will of the voters who approved class-size Initiative 728.

Ironically, Democrats are only able to pursue these tax increases because they are ignoring the will of the voters who approved Initiative 601, which required a two-thirds majority to raise taxes. Further, instead of being "for the children," more than half of the proposed new taxes ($400 million) will be used to meet the untimely pay raise demands of public employee unions.

Knowing voters won’t approve tax increases for these demands, House Democrats are quietly planning to divert money from education and health funds so they can claim the new tax hikes are needed for those accounts.

Raiding the education fund
House Democrats propose "upholding I-728" by dedicating $379 million in new taxes (raised by a 0.2 percent sales tax hike and five-minute Keno lottery) to the student achievement account. What they fail to mention is that under the initiative the state would already dedicate $432 million in property tax revenue to the student account. Democrats plan to amend the initiative so the money can be diverted to the general fund, where it will be used for pay raises and other non-education purposes.

The House plan also diverts $45 million that was intended for school construction into the general fund, and transfers another $69 million in existing school construction funds. All told, Democrats are taking $477 million out of currently dedicated education spending and using a new tax to "backfill" those accounts.

Diverting from health services
House Democrats also propose raising the tax on a pack of cigarettes by 50 cents, adding five percent to the sales tax on hard liquor, repealing tax exemptions on gum and candy, and expanding B&O taxes. They claim these taxes will be dedicated to the health services account.

The money trail tells a different story. With the proposed cigarette tax increase, before any of these new tax dollars find their way into the health services account each budget cycle, $17 million would be diverted into the general fund, $8 million diverted to violence reduction and drug enforcement, and $6 million diverted into the water quality account.

House Democrats are also ignoring the fact that raising the cigarette tax doesn’t always result in more revenue. When the price gets too high, buyers find other markets such as tribal lands and the internet.

Unsustainable without future tax increases
The House Democrat spending plan is unsustainable without future tax increases. By not funding the full pay and benefit increases for state employees and teachers during the regular fiscal year pay period, the Democrats lessen the impact of these increases on the 2003-05 budget. However, they create an immediate bow-wave in 2005-07 by forcing the next legislature to account for an additional $529 million to complete the salary increases.

Further, by raiding I-728 funds for ongoing expenses and using new taxes to "backfill" the student achievement account, House Democrats are creating an account that will have insufficient funds to maintain the per student spending they propose. In order to keep the new funding levels for the 2005-07 budget cycle, an additional 0.1 percent sales tax will be necessary. This is because Democrats plan to fund one year of spending increases with two years worth of tax revenue.

Conclusion
The House Democrat spending plan is not good for children, families or businesses in Washington state. It does benefit political special interests who are demanding increased spending. Should taxpayers be asked to shoulder a heavier tax burden to benefit special interest groups?

House Democrats’ tax plan

Prepared by Jason Mercier, Budget Research Analyst (360) 956-3482

Evergreen Freedom Foundation P.O. Box 552, Olympia, WA 98507 Phone: (360) 956-3482, Fax: (360) 352-1874 Email: effwa@effwa.org