POLICY HIGHLIGHTER

Volume 14, Number 21
October 1, 2004

Washington still tops Northwest in state and local tax burden

Despite a commendable drop in Washington's state and local tax burden, state taxpayers are still lifting the heaviest tax burden in the Northwest. According to a recent Department of Revenue (DOR) report, Washington's state and local tax burden has dropped to levels not seen since the 1980's.

While progress has been made due mainly to citizen tax-reduction initiatives, Washington currently ranks higher than its neighbors in Idaho and Oregon in terms of state and local tax burden.

State and Local Tax Collections Per $1,000 Personal Income (1998-2002)

Source: DOR (2001 data not available)

Washingtonians pay the highest gas tax burden in the Northwest and third highest nationally (approximately seven cents more per gallon than the national average). This is due to last year's legislative approval of a five-cent increase in Washington's previous gas tax of 23 cents per gallon.

State gasoline taxes (Rates effective as of July 2004)

Source: DOR

Washington's overall tax burden is exacerbated by the fact state taxpayers are not allowed to deduct the state sales taxes from their federal income taxes. Taxpayers in most other states are able to deduct state income taxes from their federal tax burden. As a result, Washingtonians face a proportionally higher combined state, local, and federal tax burden.

When comparing state and local tax burden it makes sense to look at Washington's ranking against other states without an income tax. In this comparison, Washington's tax burden ranks fourth highest out of nine states without an income tax.

State and Local Tax Collections Per $1,000 Personal Income (1998-2002)
States with no income tax

Source: DOR (2001 data not available)

As the above numbers show, even if Congress eliminates the discriminatory tax treatment of states without an income tax, Washington still has room to improve its overall state and local tax burden.

Washington's current level of state taxes is forecasted to result in an increase of nearly $1.7 billion in state revenue available for the 2005-07 budget over revenue available for the current budget biennium (2003-05). Despite this 7.2 percent increase in revenue, desired spending by state policy makers is expected to result in a projected budget "deficit" of nearly $1.1 billion. To reach this level of deficit spending, however, lawmakers will have to eliminate the taxpayers' state spending limit protection (I-601) enacted by voters in 1993. If this occurs, progress made in reducing Washington's state and local tax burden will be lost which may result in another taxpayer's revolt.

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