Contact: Marsha Richards, Communications Director
(360) 956-3482

Don't diversify taxes, decrease them

By Marsha Richards
Most workers in our state would be delighted to receive a 7.6 percent raise in their personal income over the next two years. (Especially the thousands of workers who took a 100 percent pay cut when they lost their jobs this year as businesses shut down or moved out of the state.)

Unfortunately, while many workers will not get raises at all this year, a 7.6 percent raise is exactly what state government is getting. State revenues are projected to increase by $1.6 billion in 2003-05 over the current budget level. That's 60 percent more than inflation.

Yet the state is facing a $2.5 to $3 billion deficit come July 1, 2003. State officials do not have a revenue problem, they have a spending problem. But while that may be obvious to most of us, some people (namely, those in charge of state spending) don't seem to get it. Which is why they formed a committee to come up with "new and improved" ways to tax Washington citizens.

Eighteen months and nearly 320,000 taxpayer dollars later, the Tax Structure Committee has decided a "new and improved" state income tax is just what we need, among other things.

It was a bad idea when voters soundly rejected it last in 1973, and it's still a bad idea.

Look at the experience of other states. Data shows that a state income tax results in unstable revenue, decreased economic productivity, higher state spending, a heavier tax burden overall, and a climate even less favorable to business.

Our west coast neighbors, California and Oregon, both know firsthand that a state income tax does not guarantee more stable state revenue. Both are facing huge deficits due in large part to dramatic decreases of more then 24 percent in state revenue between 2001 and 2002. Income-tax-free Washington, by comparison, saw a drop of only 3.5 percent in that same recession period.

Recession or not, people are less motivated to work hard when they know they'll lose a portion of their direct wages to government. This was sharply demonstrated in the 1990s when, of 45 states with a personal income tax, only Georgia was able to meet or surpass the rate of economic growth in the five states that do not have an income tax.

Worse, while personal income growth slows, state spending increases. In the last 35 years, nine states have adopted an income tax. The growth in government spending in those nine states increased an average of 41.8 percent after the tax was implemented, while personal income growth dropped by an average of 64.2 percent.

Increased government spending means a heavier tax burden for all state citizens. Proponents of a state income tax assure us that it would be "revenue neutral," meaning other methods of taxation—like sales and property taxes—would be reduced to balance collections . . . for a little while anyway.

Experience tells us it won't be long before the new tax and the old taxes will begin to creep up again little by little, leaving us paying more than we were before. Washington citizens already pay more to support government than 48 other states in the nation. Taxes need to decrease, not diversify.

Finally, as we all know by now, the business climate in Washington state is . . . well, anti-business. But despite our many problems, the fact that our state does not have an income tax is still a draw. Micro-Radian Instruments, Inc., a company that deals in laser products, recently relocated to Bellingham from California because we don't have an income tax. South Dakota and Texas are two other non-income-tax states providing stiff competition for their neighbors. If Washington implements a state income tax, we'll lose one of the only competitive advantages we have left.

So what should state officials do to address our very serious budget deficit?

Simple: They should control their spending by limiting government to its core functions. They should develop meaningful performance measures to ensure those core functions are being met efficiently and effectively (rather than deficiently and defectively). They should implement true accountability measures, meaning people are held responsible for their actions in state government. And they should remove the barriers stopping businesses from creating new jobs and operating competitively.

Is it too much to ask state officials to do their job and do it well? After all, they're getting a raise whether we like it or not.

Marsha Richards is the communications director for the Evergreen Freedom Foundation, an Olympia-based policy research organization. She can be reached at (360) 956-3482 or mrichards@effwa.org.

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