I agree with Danny Westneat:
Let me repeat what he said, because you don’t hear it often: We don’t mind some reasonable tax increase.
I think that’s true. I’d guess people want to see more cutting, first. But they also would rather pay a little more, across the board, than see the schools or safety net or criminal-justice system go all to hell.
So, legislators, just do that.
Even with one of the highest state tobacco taxes in the nation, I don’t mind seeing it rise a little higher. Smoking is a dangerous habit that shortens lives and costs businesses and government billions of dollars in lost productivity and higher health care expenses. Increase the cost of smoking and fewer people will smoke; that’s a clear social benefit.
But as a primary means of addressing our state’s interminable budget crisis, well, that’s just plain cowardly and dumb.
Legislators love to over-rely on sin taxes because they tend be relatively politically palatable, but they’re also the most regressive, and by far. A $3.00 tax on a $1.00 cigar translates to a rate of 300%, whereas it only amounts to a 10% tax on a luxury cigar that would otherwise retail for $30.00. It’s easy to figure out which income groups are impacted the most by such a tax.
But just as importantly, from a budgetary perspective, sin tax increases just don’t produce enough revenue, and simply aren’t sustainable.
One of the arguments in favor of increasing tobacco taxes is that higher costs decrease consumption, undoubtedly a social good, but that also means that from a revenue perspective, higher taxes also produce diminishing returns. Combined with the fact that the real-dollar-value of unit-based excise taxes inevitably decreases over time as it is eaten away by inflation, and the economics simply don’t allow for the state to wring significant new revenues from an already highly taxed commodity.
So while from a social engineering perspective I’ve got nothing against raising tobacco taxes, Democratic legislators who think that this might somehow answer constituent demands for new revenue to fill a significant portion of the state’s current $2.6 billion revenue deficit, well, they’re smoking something else entirely.
On the heels of last year’s devastating all-cuts budget, another mostly-cuts budget simply isn’t a reasonable alternative to anybody interested in maintaining a level of government services and investment necessary to sustain the quality of life in Washington state, while moving our economy forward. And even if Washington receives the additional $700 million in one-time federal funds Gov. Gregoire’s proposals anticipate, that would do nothing to address the budget crisis looming in the next biennium.
As politically painful and unpopular as it may appear to be, legislators need to start debating a broader based tax increase that can produce significant new revenue now, and for the foreseeable future. And barring the courage (and time) to wade into the billions of dollars a year in under- and non-producing tax exemptions, the only realistic option for substantial short term revenue is a general sales tax increase, and/or an expansion thereof to additional goods and services.
A general sales tax increase and/or expansion must be on the table this session, and by “on the table” I mean publicly discussed and debated. Yes, this too would be regressive, an impact that could be partly addressed by fully implementing the Working Families Tax Credit. But at the same time we’re talking about a sales tax increase, we also seriously need to discuss and debate an income tax as part of any long term solution.
A bold, courageous and creative Legislature could simultaneously pass both a sales tax increase and the income tax that would supplant it. For example, a temporary, half cent increase in the state portion of the sales tax from 6.5% to 7.0% would generate an additional $500 million a year in new revenue almost immediately, but a high-earners income tax, which would take at least a year to implement and muddle through the inevitable constitutional challenge, could replace the sales tax increase while impacting only the top two percent of households. Raise the income tax a little higher, and we could even knock the state sales tax down to 6% or less.
There are budget solutions beyond endless cutting and praying for federal bailouts. We just need a few legislators willing to lead the way.