Goldy

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In print, budget battles are all about numbers, but in real life they’re actually about people.  The ad above, funded by a coalition of hospitals, clinics and health care unions, makes that point very well.

I’m told this ad will be running in fairly heavy rotation, and I’ve got a sneaking suspicion it’s just the opening salvo.

I’ve been admittedly obsessed over the past couple weeks with making the argument for a high-earner’s income tax, but the other policy issue I’ve been advocating this session also appears to be gaining a little traction: a move toward a high tuition/high financial aid model that could raise additional funds for higher education, while increasing access and decreasing costs to students from lower and middle income families.

A few weeks ago Rep. Reuven Carlyle (D-36) staked his own credibility to the concept in a guest column in the Seattle Times, and just last week, the even the Times editorial board wrote in favor of raising tuition and financial aid.  And today, coming on the heels of Gov. Gregoire’s proposal to let tuition rise 28% over two years, none other than University of Washington President Mark Emmert, writing in his own guest column in the Times, argues that if we are going to keep the “higher” in higher education, colleges and universities need more “flexibility on tuition.”

The leaders of our four-year colleges and universities understand that our schools must take cuts. But we also know that we can keep students coming to school and graduating on time if we are simply given more flexibility on tuition. We can help our students and our state without new state money. Moreover, we can fix much of this problem without denying access to students because of their income or family background.

The UW has the lowest tuition of any of its peers and is one of the best bargains in the country. With increased financial aid and the expanded federal tax credit, we can remain an excellent value for our families, maintain our world-class quality, and not slash the number of students we admit.

To give higher education the opportunity to resolve this crisis without requiring more state money is the only responsible thing to do. To do otherwise is to deny thousands of our citizens a chance to succeed in the knowledge economy.

Huh.  Guess the idea doesn’t sound so wing-nutty after all, when it’s coming from the mouth of Emmert.

So how does it work?  How can we possibly raise tuition while maintaining access and affordability to lower and middle income students?  Well, as I’ve explained before, it’s simple math:

Let’s say you’re a low to middle income student currently receiving financial aid in the form of $3,000 in grants, and the UW suddenly jacks up its $6,800/year in tuition and fees to $17,800.  Now let’s say the UW (ie, the state) increases your grant by another $11,000 to offset the hike.  How much extra money did this cost the state?  Zilch.  You were paying $3,800/year and you’re still paying $3,800.  It’s a zero sum game.

But if you’re a student from a wealthy family, who does not need financial aid, and thus does not qualify for it, you’re suddenly paying an extra $11,000 into the system… money that can be spent to increase the quality of education at the UW, or expand the number of seats, or even lower the costs for truly needy students.

The key of course is to increase financial aid commensurate to the needs of the students, both the dollar amount, and the upper range of incomes that qualify for aid.  The goal should be to accept students based solely on merit, and to charge them for their education according to their ability to pay.  That, in my opinion, is the best way to extend opportunity to all of our state’s young people.

Or, you know, we could continue with what we do now, where wealthy families who have easily afforded years of $23,420 annual tuition at Seattle’s exclusive Bush School, send their kids on to the UW at the same $6,800 bargain rate as everybody else, at the same time the university is being forced to slash classes and slots. Does that really make sense?

I know, I know… Washington voters overwhelmingly rejected an income tax 35 years ago.  But before timid lawmakers brush aside proposals to put a high-earners income tax on the ballot, they might want to look at some more recent polling data:

Almost three-quarters of Americans think it is a good idea to raise taxes on people making more than $250,000 per year, according to the latest CBS News/New York Times poll.

In fact, two-thirds of Americans think the tax code should be changed so that middle-class Americans pay less than they do now, while “upper income” people pay more.

That’s right, 74-percent of Americans support raising taxes on the wealthy.  74-friggin’-percent! So somebody please explain to me why now isn’t the perfect political climate to put a millionaires tax on the ballot?

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Over the 74 years since it was first implemented, Washington’s state retail sales tax has been raised eight times, from 2% in 1935 to 6.5% in 1983.  On average, the sales tax rate was raised once every 6 years during its first 48 years of existence, culminating in a 2-cent jump between 1981 and 1983.

Yet it has remained unchanged over the past 26 years.

The steady rise in rates over the first two-thirds of the sales tax’s history stemmed partially from the fact that growth in demand for public services generally tracked growth in personal income, while retail sales steadily shrunk as a portion of the overall economy (from 32% of total consumer spending in 1959 to only 26% by 2000), primarily due to our ongoing shift from a manufacturing to a service and information based economy.  State government simply couldn’t meet the demands of our growing economy without periodically raising the sales tax rate, and at times, expanding its base.

But since 1983 the rate has been frozen at 6.5%, and with inevitable results.  Over the past decade and a half Washington state’s personal income has grown by 225%, while state sales tax revenues have increased by only 198%.  And for a state that relies on the sales tax for over half its general fund revenues, that is a recipe for a structural budget deficit.

Contrary to the Eymanesque meme of out-of-control government spending, state taxes and expenditures are steadily declining both per capita, and more importantly, as a percentage of the total economy.  Sure, our severe recession has exacerbated and accelerated the problem, but it was always there lurking beneath the ups and downs of the economic cycle.  Already even with Mississippi in terms of state and local tax burden, and contemplating drastic cuts in our social safety net, Washingtonians can no longer put off the tough questions:  are we willing to raise our taxes to help maintain the level of services and quality of life we’ve come to expect, and if so, how?

The easiest and quickest solution would be to raise the sales tax, which would immediately generate additional revenue with little administrative overhead.  But a 1 cent increase only raises an additional 2 billion dollars over the next biennium, enough to fill but a portion of the remaining budget gap, and recent polls show an increase even a fraction of that size is extremely unpopular amongst voters.  And with WA already laying claim to the most regressive tax structure in the nation, and combined state and local rates now topping out at 10 percent, it’s not hard to understand why.

The other solution—the one I’ve been relentlessly plugging for weeks—is a high-earners income tax, that depending on the plan, would only tax the top .1% to 4% of households.  The very households, it turns out, who have benefited most from our state’s economic growth over the past couple decades.

Over the past decade the average income of the wealthiest fifth of Washington families has increased $14,136, from $119,954 to $134,090, while real incomes of the poorest fifth and middle fifth have remained flat, or even declined.  And the disparity only grows when looking back a further decade.

Again, lower and middle incomes have remained relatively flat, while the top fifth of households have seen their income grow 41%, from $94,930 to $134,090.

Add to this growing income inequality our profoundly regressive tax structure, where the bottom fifth of households pay 17.6% of income in state and local taxes while our top 1 percent pay only 3.1%, and the argument for an income tax appears clearly grounded in both fairness and mathematics.  It is the wealthy who have benefited the most from our state’s extraordinary economic expansion over the past few decades, and the public investment that helped make it possible, and it is the wealthy who clearly have ability to pay.  Meanwhile our lowest income households are already struggling to pay what amounts to the highest state and local taxes in the nation, all the while seeing their real incomes stagnate or decline.

Coming up soon:  why taxing the rich has less of an anti-stimulus effect than cutting government spending.

Senators Patty Murray and Maria Cantwell, two of only nine Democrats to vote in favor of raising the federal estate tax exemption from $7 million to $10 million, and lowering the top rate from 45% to 35%, apparently both told Publicola’s Chris Kissel that they did so to reduce the financial strain on “small businesses.”

“Small businesses are hurting and we need to make sure they’re protected,” said Murray spokeswoman Alex Glass.

Um… define “small,” but… whatever.

Kissel goes on to suggest the real motivation behind our senators’ vote:

The measure will have the greatest impact on wealthy folks like Seattle Times publisher Frank Blethen, who unsuccessfully lobbied both Murray and Cantwell to vote for a repeal of the estate tax in 2006. That same year, voters here rejected a measure that would have repealed Washington State’s estate tax.

Gee, I dunno.  With McClatchy essentially writing off its 49.5% stake in the Times, I’m not so sure that lowering the estate tax’s top rate helps Blethen and his heirs all that much.  I mean, 35% of zero is still zero, isn’t it?

Talk about a clever estate planning strategy.

From Senate Majority Leader Lisa Brown’s blog:

Our sales-tax-based tax system is least fair tax system in the country.

It hammers lower and middle class families, who pay far more than their fair share for the essential public services from which everyone in our society benefits, like K-12 and higher education.

And now they stand to pay more for less. The global economic meltdown has forced lawmakers to make dramatic cuts in the state budget, which will disproportionately affect these same individuals.

Having a conversation about restructuring this tax system so that working class families are treated more fairly is not a conversation I am afraid of having.

So, despite the Seattle Times’ shrill ridicule, Sen. Brown isn’t afraid of publicly having that conversation.  But what about House Speaker Frank Chopp?

I know Chopp understands the issue.  I know he knows all about Washington’s structural revenue deficit, and I know he’s personally appalled at having the most regressive tax system in the nation.  And I know he knows that our current tax structure simply isn’t sustainable over the long run.

I know this, because I’ve privately had this conversation with Chopp, on more than one occasion.  The question now is whether Speaker Chopp is willing to join Sen. Brown in taking this conversation public?

Thanks to a steep drop in sales tax revenue, Seattle’s new fiscal forecast is bad and getting worse, with a $29.5 million decline in revenue now projected for 2009, on top of the $13.3 million actual revenue decrease in 2008.  And that’s good compared to 2010, where a “squishy” forecast now projects another $41 million drop in revenue.

As a result, the Council and the Mayor need to cut $43 million in expenses between now and the end of the 2009 fiscal year, plus God knows how much in 2010.  It won’t be easy.  But I suppose, it could be worse.

$43 million amounts to roughly 4.7% of the city’s annual $912 million budget, and I’m guessing a big chunk of that gap will be filled by drawing down the city’s $30 million rainy day fund.  But while I don’t envy the folks who will be asked to make these cuts, it’s a walk in a slightly underfunded park compared to the crisis facing the state:

While the city’s budget troubles are serious, Dively said they are not as bad as the situation state lawmakers face in trying to backfill a $9 billion deficit to a $35 billion two-year spending plan with cuts and possible tax increases. That’s because sales tax alone amounts to more than 50 percent of the state’s general fund revenue.

“While you’ll see that we have a significant budget challenge, it’s nothing what like the state has. The state’s is far worse than what we’re talking about here,” Dively said.

By comparison, sales tax revenues account for only about 20% of the city’s general fund, but shhh… let’s not talk about the state’s structural revenue imbalance, as it interfere’s with the popular meme that the budget crisis is largely the result of out-of-control spending.

NPR’s On the Media has a great segment this week on the history of yellow journalism, and whether it really deserves its tawdry reputation.  The answer:  not so much.  But the money quote for me comes near the end, at the 4:48 mark, when historian W. Joseph Campbell is asked whether modern American broadsheets might benefit from getting a little yellower:

“The energy and effervescence of yellow journalism certainly could be adopted in many respects in daily American newspapers; a lot of newspapers today tend to be staid, boring, predictable… and those are the features that you would not typically associate with yellow journalism as it was practiced 110 years ago.”

Listen to the whole segment.  It’s worth it.

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As I’ve written before, there are a lot of factors contributing to the recent collapse of the daily newspaper industry, many of them outside the control of the editors and reporters themselves, but I think it is past time for a little introspection as to whether delivering a staid, boring and predictable product is a recipe for successfully competing in the 21st century media market.

As usual, the Seattle Times editorial board is willing to make all the tough choices:

THE state Legislature must accomplish mission impossible this session. In the worst budget cycle in decades, lawmakers still must pass reform legislation that propels schools into the 21st century.

The price tag will be in the billions, but not now. This is a decades-long investment.

Uh-huh.  The Times wants the Legislature to redefine basic education to fund full-day kindergarten for everybody, and preschool for those who can’t afford it.  They also want the state to fund technology and security, while restoring about a billion dollars worth of education spending cuts in the proposed 2009-2011 budget.  And they want to do all that, without raising any new revenues.

So, let me get this straight.  First, Washington state’s paper of record cautions the Senate Majority Leader to choose personal ambition over the common good, and now it’s urging the Legislature to approve a popular and expensive series of education reforms, that it can’t possibly afford, essentially just saying “we’ll figure out how to pay for it in the future.”

And they have the temerity to complain about politicians?

Don’t get me wrong, I mostly agree with the Times’ education spending priorities.  I just think that the responsible (and mathematically honest) thing to do is to actually talk about how we’re going to pay for the things we promise.

One of the stupider arguments in the comment threads and elsewhere against implementing a state income tax—especially a high-earners income tax on millionaires—is that if we tax the wealthy, they’ll all move out of state.

Huh.  Really?  To where?  Across the border to Idaho, where the top bracket is currently 7.8 percent?  Or perhaps we’ll see economic refugees pouring into Oregon, seeking shelter under its 9 percent top rate?  Or maybe nearby Montana at 6.9% or California at a whopping 10.3%.

In fact, apart from Washington, there are only six other states with no income tax—Alaska, Wyoming, South Dakota, Nevada, Texas and Florida—all either unbearably hot or unbearably cold for much of the year.  So it’s hard to image that a top rate of between 1 and 5 percent would be enough impetus to prompt the wealthy—who have the luxury of affording to live whereever they please—to pick up and leave our temperate clime, natural splendor and vibrant cultural scene for, say, Sioux Falls or Las Vegas.

Even maintaining a second home for tax purposes doesn’t make much economic sense when you look at the actual numbers across a range of incomes.  For example, under the Kohl-Welles plan, a family earning $2 million a year would pay an additional $10,000 in state taxes, and the higher you go up the income scale the less the marginal utility of the money paid. Meanwhile, extending the tax downward to the lower income wealthy, while having more of a real-world impact, hardly costs them enough money to make a move financially worthwhile when a family earning $300,000 might pay only an additional $1,000 annually.

But in fact, I think even this analysis misses the point.  In general, the wealthy aren’t as inherently selfish as some on the right suggest, and neither are they purely economic animals who make every decision according to the bottom line… both notions that put the most vocal critics of an income tax squarely in the philosophical camp of Karl Marx.

Humans are incredibly complicated creatures, and money is far from our only motivation.  Some moved to our state for jobs, some for the music scene, some for nearby access to recreation and wilderness.  (I moved here for love, and stayed because this is my daughter’s home.)  To argue that a person earning $10 million a year, who chose to set down roots in our region for any number of reasons, would simply pick up and move his family to Texas to save a mere $90,000 in taxes a year, is absolutely ridiculous.

Furthermore, it is based on the false assumption that the wealthy as a group have no sense of social obligation and no understanding of or gratitude for the public investment that helped make their wealth possible, and that helps to protect and maintain both their property and their quality of life.  Look at the Seattle precinct maps from the last time an income tax was on the ballot and you’ll see that the measure did best amongst those who were being asked to raise their taxes the most.  In reality, it is the Frank Blethens of this world who are the exception to the rule, not ultra-wealthy fair-tax advocates like Warren Buffet and William Gates Sr.

Thus when Republicans and their surrogates insist that an income tax—any income tax—would drive wealth and jobs from our state, they show an incredible amount of disrespect for the integrity and intelligence of the wealthy, who for the most part, would be willing to pay a little more of their fair share, if they can be convinced the money would be put to good use.

Another profile in courage, this time from the Republican side of the aisle:

Senate Republican Leader Mike Hewitt, R-Walla Walla, said an income tax is a dangerous path for Democrats to take. “This politically hurts them,” he said. “I don’t think this helps them at all.”

Well, duh-uh. Since when are taxes, of any kind, popular?

But it reminds me of a conversation I had with John Carlson about a proposal to reinstate voting rights to felons upon their release from prison. I suggested to John that he and his fellow Republicans should support the measure, because demographically, Washington’s felon population generally matches one of his party’s core constituencies—white, working class men with less than a college education—to which John retorted in disbelief: “Then why would Democrats support it?”

“Because it’s the right thing to do,” I told him. John didn’t seem to buy it.

Perhaps he and Hewitt were projecting, or perhaps they really think that poorly of Democrats that it doesn’t even occur to them that we might, just sometimes, be willing to put governance ahead of politics. But the unexpected conversation we’re starting to get about an income tax isn’t part of a strategy to “help” Democrats… it isn’t even about quickly plugging a hole in the current budget. It’s about helping Washington take a step toward a more fair and stable tax system, period. In fact, even putting the issue on the ballot will likely cost Dems a few swing districts in 2010, regardless of whether the measure passes.

No doubt a majority of voters would prefer the Legislature balance the budget without raising taxes, and that would surely be the easiest political path. But that’s not leadership; that’s following. No, leadership isn’t about giving voters what they want, it’s about persuading voters to want what they need.

It remains to be seen whether we have that kind of leadership here in Washington state.

MOSES is reaching for fairy dust in his proposal to lead the Israelite slaves out of Egypt.  It’s not going to happen.

A mass exodus would require the approval of Pharaoh, most likely only after a series of devastating plagues.

Even if Pharaoh were to allow an exodus, it would still require approval by the Israelites, who are the very people who would be expected to wander in the desert for forty years.  The Israelites have rejected exodus before, and in a time of job cuts, economic worry and unleavened bread, would almost certainly do so again.

Moses has long promoted exodus as a way to “let my people go,” but the people have long suspected that this would lead to even harsher treatment at the hands of their Egyptian overlords.  Here the cynics are right.

Certainly, the enslaved Israelites, beaten and oppressed, are having their problems.  But their Egyptian masters, facing rising mortar prices and a sudden infestation of frogs, have their problems too. Their interest is in quickly building a monument to the divinity of Pharaoh, which is made less likely by an exodus of slaves.

Some advocates say that Moses would lead the Israelites to the Promised Land, but by what route?  Does he expect the people to cross the Red Sea on foot?  And once in the desert, how will Moses feed the Israelite nation?  Food doesn’t fall from heaven, and you can’t get water from a stone.

Moses is said to talk to God.  He might recall that so did Lot.  And we all remember what happened to Sodom and Gomorrah.

Sound familiar?