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There are two main arguments against seeking new revenue to help close the current budget gap.  The first—that an economic downturn is exactly the wrong time to raise taxes—comes down to an argument over economic philosophy, and it is certainly reasonable to debate the anti-stimulus impact of tax hikes versus the anti-stimulus impact of reduced government spending… the cost in human suffering aside.

But the second argument—that our current budget crisis is largely due to out-of-control spending, and thus should be solved by slashing the same—well, that ultimately comes down to facts… facts that upon close evaluation, simply don’t support the thesis.  In fact, as I’m about to show you, far from ballooning, Washington state government tax revenues have actually shrunk over the past 15 years, when adjusted for population growth and inflation.

The heart of the out-of-control spending argument comes from the simple fact that the state’s “near general fund” spending jumped from $25.6 billion during the 2003-2005 biennium to about $32.6 billion for the 2007-2009 biennium that ends in June… an undisputed 27.2 percent increase over four years.  (Or so says the conservative Washington Policy Center.)

That’s a big jump, and it doesn’t take a spreadsheet jockey to intuit that it far outpaces population growth or inflation or even overall growth in the state economy over same period.  During last year’s gubernatorial campaign, Dino Rossi repeatedly argued that such spending growth was unsustainable, and he was right.  That’s why nobody was arguing to sustain such growth rates.

In fact, the jump was an anomaly made possible by a spurt of real estate bubble fueled revenues, and largely exaggerated by the fact that the starting point, the 2003-2005 budget, embodied a substantial dip in both revenue and spending growth as the state struggled to recover from the previous recession.  Spending did jump 27.2% during the first Gregoire administration, but only relative to the low point that immediately preceded it.  This four-year snapshot may have been useful to Republicans for rhetorical purposes, but it doesn’t take into account population growth or inflation, and it hardly says anything about long term budget and revenue trends.

So, if the anti-taxers are going to argue that the current budget crisis is the result of out-of-control spending rather than a revenue shortfall, let’s take a look at long term tax revenue trends, and see what the data tells us.  And since the TABOR crowd absolutely insists that population plus inflation is the proper metric for limiting growth in government, let’s start by tracking state tax revenues over time, and adjusting as such.

The chart above tracks WA state government tax revenues per capita over the 15 year period between 1994 and 2008, indexed to year 2000 dollars.  The red line tracks per capita taxes, adjusted for the commonly used Consumer Price Index All Urban Consumers (CPI-U), while the blue line tracks per capita taxes adjusted for the Implicit Price Deflator for State & Local Government Consumption (IPD).  Tax revenue and population totals were drawn from US Census Bureau data.  And for those doubting my math, you can download my spreadsheet here.

As you can clearly see, even using the less applicable CPI-U index, per capita state taxes in Washington have remained relatively flat over the past fifteen years, ranging from a low of $1,978.42 in 2001 to a high of $2,265.47 in 2007, and currently hovering damn near its fifteen-year average.

But as I’ve previously explained, the CPI is the wrong measure for tracking the growth in cost of government, as the highly-educated, labor-intensive services governments tend to provide (doctors, nurses, teachers, etc.) do not benefit from the same sort of productivity gains that technological advances have bestowed on economic sectors such as manufacturing.  That’s why the IPD is widely accepted as the most accurate measure of inflation, even by the conservative Heritage Foundation, which insists that “the IPD measures inflation more accurately than the CPI.”

The US Bureau of Economic Analysis also breaks down the IPD into various economic sectors, and it is per capita state taxes adjusted by the IPD for State and Local Government Consumption that is tracked by the blue line… data which clearly shows even the 2005-2007 jump in revenues as nothing more than a spike in a trough, and our 2008 revenues having come in at a fifteen year low.

The trend is clear even adopting the anti-tax frame: adjusted for population growth and the most accurate measure of inflation for the types of products and services governments consume, state tax revenues have consistently trended down over the past fifteen years. And that’s before the dramatic drop in revenues resulting from the current economic crisis.

Quite simply, Washington state suffers from a long term structural budget deficit, that while masked by the good times and exacerbated by the bad, continues to drive down per capita revenues in real dollars over time.  Even the conservative Tax Foundation, Tim Eyman’s think tank of choice, shows WA’s state and local taxes plummeting from 10.4% to 8.9% of personal income over the past 15 years, ranking us dead even with Mississippi.

So where is the evidence of a state government out of control?  Apart from a four-year snapshot taken entirely out of economic, demographic and historical context, there is none.  Zero.  Zip. Nada.

Our economy will eventually recover, but unless we address our long term revenue deficit, our state government will emerge smaller than it was before the crisis, and its ability to provide services and invest in infrastructure will continue to shrink over the decades hence.

Gov. Chris Gregoire has released a statement regarding Senate efforts to start a debate about a high-earners income tax:

“I recognize the tremendous difficulties that legislators are facing as they craft a budget under these challenging economic conditions. However, as I have stated before, I do not support a state income tax. The new proposal will undoubtedly raise constitutional and legal challenges and probably wouldn’t bring in new revenue in time to address the economic crisis we face.

“I too wrote a budget, and I am keenly aware of the painful choices we must make. I see clearly the faces of Washingtonians hurt by budget cuts.  I am looking for wise choices to protect our vulnerable, especially our children, and to make sure we fund K-12 and higher education at appropriate levels so that we come out of this recession stronger. We can’t afford to just ride out this economic crisis and wait for things to turn around.  We must emerge from it ready to resume our powerful progress in a 21st Century economy.

“As hard as it may seem in these difficult times, we must make the kind of investments now that will allow us to seize the economic development opportunities that will occur when the state rebounds.

“I look forward to continue working with legislative leaders from both parties to craft a sustainable budget for the next two years.”

I suppose she’s thinking “no income tax, end of conversation,” but I sure hope she’s wrong and that momentum toward an honest debate on a high-earners income tax continues to build.

Yes, the governor’s right that the Kohl-Welles bill and other proposals do indeed raise constitutional and legal issues, and probably would not bring in substantial revenues in time to meet immediate needs… but these needs won’t go away, and now is exactly the time to discuss how we’re going to meet them over the long term.  We are in the midst of a crisis.  Folks are paying attention.  And if we make our arguments carefully and cogently, voters might even be willing to consider new ideas, even if most Olympia insiders are not.

I guess some folks just aren’t willing to share pain:

Both the House and Senate budget proposals this week would take a chunk out of the State Auditor’s Office performance audits, which measure the bang-for-the-buck worth of government programs.

“To take more than half of the revenue that voters permanently designated for performance audits and use it to fund other programs undercuts the performance audit authority that citizens directly gave to their independent state auditor,” Brian Sonntag, that auditor, told senators this afternoon. “That change . . .and the precedent it sets is absolutely unacceptable.”

He said the plan to move $15 million in performance audit money from his office to auditing programs in the Legislature and the governor’s office as “nothing short of an assault on what citizens expect the state to do.”

Oh boo-hoo.  Where or where will he find the money for yet another Sound Transit audit?

I didn’t hear Brian crying about the Legislature defunding voter approved initiatives to decrease class size and increase teacher pay, or about gutting I-937’s widely popular renewable energy targets.  But God forbid he temporarily lose half his performance audit budget, and it’s “absolutely unacceptable.”  I guess in Brian’s world, Eyman initiatives should be unassailable, whereas those other initiatives… well.. citizens didn’t really “expect the state to do” what those initiatives told the state to do.

If you don’t like your budget cuts Brian, either suck it up, or join me in fighting for some responsible revenue increases.

In my previous post, I challenged members of the state senate Democratic caucus to rally around Majority Leader Lisa Brown, and join her in openly debating the merits of a high-earners income tax.  Little did I know that such support was already in the works.

As first reported by the TNT’s Joe Turner, Sen. Jeanne Kohl-Welles (D-36) introduced legislation today that would levy a one-percent tax on household incomes over $1 million, and individual incomes over $500,000. All revenue generated from this tax would apparently be dedicated toward an “education enrichment account.”

Expenditures from the account may be used for the support of the common schools and for the support of the state’s institutions of higher education.  Revenues provided under this section shall not be used to supplant levels of funding existing on the effective date of this act.

All in all I’d say this is an interesting and encouraging proposal, especially considering that Sen. Kohl-Welles has managed to secure the support of five additional co-sponsers,  Senators Regala, McDermott, Murray, Kline, and Fraser.  That makes seven state senators, including the Majority Leader, who are at least willing to touch the reputed third rail of WA politics by publicly discussing an income tax.

As for the proposal itself, it’s a good start, though hardly a panacea even for those in the education community.  Extrapolating from an April 2008 report from the Economic Opportunity Institute, such a one-percent “millionaires tax” would only generate about $260 million per biennium.  And while supplementing education spending, it would do absolutely nothing to soften the blow in other desperately underfunded areas of the state budget.

The Seattle Times’ Andrew Garber describes the bill as constitutional amendment, but it is clearly not written as such. Having not had a chance to talk with the sponsors, I’m guessing the one-percent rate is intended fit within the confines of Article VII, Section 2 of the state constitution, which limits the aggregate tax levy on real and personal property to not more than one-percent per year, yet oddly enough, by implementing a standard deduction of between $500,000 and $1 million, the bill appears to run afoul of Article VII, Section 1, which limits the personal property exemption to not more than $15,000 per head of household.

Don’t get me wrong, I’m all for running afoul of the constitution, as I’m confident that the 1933 decision classifying income as property would likely be overturned upon challenge, but the Kohl-Welles bill runs afoul of the wrong provision.  Instead, I would much prefer a more substantial 5% rate that would raise as much as $1.3 billion per biennium, yet only be levied on the top 0.1 percent of Washington households… the same households who have seen their incomes increase tenfold in recent years, while real incomes for most Washingtonians of declined or remained flat.

And while dedicating the tax to education is likely smart politics if your goal is building public support, a broader, more substantial, less dedicated tax on the top four percent of incomes could provide substantially more budget relief even while leaving room for a half-cent reduction in the state sales tax.

Still, I don’t want to quibble about details when the real news is that senate Democrats are willing to discuss an income tax at all, and that they’re apparently willing to consider putting it on the ballot without resorting to the nearly impossible (and most likely unnecessary) task of running a constitutional amendment.

All I’ve ever been asking for is an honest debate and vote of the people.  Isn’t that the way democracy is supposed to work?

It was B-day in the Washington State legislature, and a “mostly-cuts” budget emerged from its mean, selfish, elderly-hating, antisocial hole. Goldy wonders if Rep. Frank Chopp really represents his constituents in the 43rd, and further wonders if Chopp is trying to extort a billion dollars from Sound Transit. Will the state Democrats’ failure to lead, rather than just grow their coalition, give us a Governor named Rob McKenna?

It was Election Day in NY-20, traditionally a Republican stronghold, yet the Democratic candidate came from behind to take a small lead as the polls closed. Time to call the lawyers! On that topic, a three-judge panel has ruled in the Minnesota Senate race lawsuit, and the ruling strongly favors Senator Elect Al Franken. How much longer will Norm Coleman be able to obstruct the seating of a junior Senator from Minnesota? Lastly the panel chats about sex…laws.

Goldy was joined by Seattlepi.com’s Joel Connelly, Group News Blog publisher Jesse Wendel, Effin’ Unsound’s & Horsesass’s Carl Ballard, and Drinking Liberally Seattle co-host Chris Mitchell.

The show is 37:01, and is available here as an MP3:

[audio:http://www.podcastingliberally.com/podcasts/podcasting_liberally_mar_31_2009.mp3]

[Recorded live at the Seattle chapter of Drinking Liberally. Special thanks to Confab creators Gavin and Richard for hosting the site.]

State Senate Dems have been blogging the current session, and Majority Leader Lisa Brown has a new post up talking about, yes, taxes.

There’s been a lot of talk in Olympia recently about a sales tax increase, but we need a revenue proposal that makes things better and fairer for regular families in our state — not worse.

We need to keep in mind that, in Washington, individuals in the lowest 20 percent of the tax bracket pay 17 percent of their annual income in state taxes, and individuals in the top 20 percent of the tax bracket pay less than 3 percent.  For a sales tax to be fair, any increase would have to include a full working families tax credit to offset the unfair impact on those who are hardest hit by our tax structure.

I also worry that a sales tax increase would make us even more dependent on an extremely volatile revenue stream. Consider recent evidence: state revenue, more than half of which comes from the sales tax, has taken a nosedive in the current recession. The total downward adjustment of state revenues since the last legislative session is $4.9 billion – $2.3 billion in the past two months alone.

The New York Legislature is considering what I think is a fair and stable way of addressing their revenue challenges.

Should we do something similar in Washington?

Yes, yes, we should do something similar here in Washington, and the first step toward achieving this something similar is to actually mention it by name:  a high-earners income tax.

It is encouraging to see Sen. Brown publicly consider such a proposal, but also quite telling that she obviously felt the need to obliquely link to the NY State variant, rather than speaking its details openly, without hesitation.  The income tax—any income tax—has long been considered the third rail of WA politics, but we’re not talking about forcing anything down taxpayers’ throats here:  we’re talking about talking about holding a public debate over whether to put a high-earners income tax on the ballot where voters could approve or reject it for themselves.  Why should that be so hard?

Still, Sen. Brown appears to be taking the initiative where other Democratic leaders have failed to tread, and she deserves kudos for that.  What she needs now is unqualified public support from her caucus members who privately acknowledge that a high-earners income tax should be a responsible part of any proposal to close our current budget gap… politics permitting.  It is high time to speak truth from power.

HA regulars know that I’ve long crusaded for rethinking the way we finance higher education in Washington state (most recently here, here, here and here), arguing for a move away from flat, per-student subsidies, and toward a system where universities would have the option of allowing tuition to rise toward market rates, while funneling a much larger portion of their state funding into needs-based financial aid programs.

Silly, wacko, commie, lefty, fringe idea?  Well, given our current budget crisis, no less a mainstream voice than the Seattle Times editorial board doesn’t seem to think so:

THE tuition wars are coming. Over the next few weeks, Washington residents will have to think hard about what they are willing to pay to maintain quality and access at institutions of higher learning.

Demand for higher education has never been higher. Tuition should increase more than the state Senate proposed: 7 percent annually for four-year institutions and 5 percent for community colleges.

No one suggests that cavalierly. Help for middle- and low-income students will be increased.

But a sizable increase in tuition may be the only way to avoid ridiculously large class sizes or doors closed to students seeking an education in their home state.

That’s not much, but it’s an opening, and it shows a willingness from the opinion leaders at our state’s largest daily to use this crisis as an opportunity rethink our state’s long held stubborn assumption that the current “low tuition” model is the best way to expand access to higher education to low and middle income families.  Increase tuition while increasing financial aid—that is the policy that lies at the heart of the “high tuition/high financial aid” model I have long promoted.

And it’s not just me and my new allies at the Times.  A couple weeks ago Rep. Reuven Carlyle (D-36) wrote a guest column in the Times advocating for exactly this approach:

Compared with other premier public and private universities nationwide, the price of attending Washington’s universities is a smoking-hot deal for students. A bachelor’s degree from them is generally a ticket to tremendous lifelong economic opportunity, yet its cost is a fraction of similar public and private universities in other states.

That’s why, alongside a much more aggressive effort to improve how the universities spend public dollars, I believe it is time to actually raise tuition and use the new dollars to substantially increase both access and meaningful new financial aid for the middle class.

Our state’s tuition structure is backward, regressive and inefficient: We are today using precious tax dollars to in effect take money from the vast majority of genuine middle-class families in order to subsidize wealthier families who haven’t asked for a huge subsidy and have the ability to pay much more than they currently do under our current flat-rate “low tuition” policy.

As we write the most difficult state budget in generations, I’m pushing hard for comprehensive tuition-policy reform. I’m strongly advocating a proposal to grant our state’s public four-year universities the authority to raise resident undergraduate tuition by up to 12 percent annually, elevating the existing 7-percent cap. The schools would be required to designate a substantial portion of the new revenue toward new grants targeted at middle-class students.

And it’s not simply a lefty, Democratic proposal either.  Back in 2005, Republican legislators introduced a higher education reform bill that would have, amongst other things, moved to high tuition/high financial aid model as well.

That old trope about the Chinese word for “crisis” being a combination of the words for “danger” and “opportunity” may not be exactly accurate, but it doesn’t make it any less apt.  This budget crisis presents an enormous opportunity to rethink some of our state’s core policies, and reform them outside the usual political dithering afforded during an ordinary budget year.  As I have previously explained, if properly implemented, a high tuition/high financial aid model could increase overall funding for higher education while decreasing costs to lower and middle income families.  Go ahead, check my math.

Then again, I’m just some foul-mouthed blogger.  Perhaps with a bit more forceful effort from my friends at the Times and other credible opinion leaders, we might be able to push lawmakers in the right direction.

Citing prosecutorial misconduct, the Justice Department this morning asked a federal judge to drop all charges against former Alaska Sen. Ted Stevens, and void his convictions on seven counts of lying about gifts from oil services company executives.  In a statement, US Attorney General Eric Holder said that he would not seek a new trial.

Judge Sullivan has repeatedly delayed sentencing and criticized trial prosecutors for what he has called prosecutorial misconduct. At one point, prosecutors were held in contempt. Things got so bad that the Justice Department finally replaced the trial team, including top-ranking officials in the Public Integrity Section, which is charged with prosecuting public corruption cases.

With more ugly hearings expected, Holder is said to have decided late Tuesday to pull the plug. His decision is said to be based on Stevens’ age — he’s 85 — and the fact that Stevens is no longer in the Senate. Perhaps most importantly, Justice Department officials say Holder wants to send a message to prosecutors throughout the department that actions he regards as misconduct will not be tolerated.

“The Department of Justice must always ensure that any case in which it is involved is handled fairly and consistent with its commitment to justice,” Holder said in his statement.

As much as I think the facts support Stevens’ conviction, I can’t really argue with Holder’s logic or actions.  After the Bush administration’s gross mismanagement and politicization, it will take years for Holder to clean up DOJ and restore its morale, and today’s move in such a high profile case does indeed send a strong message.

I admit to a sense of personal satisfaction in having seen Uncle Ted go down, but if somebody as powerful as a US senator couldn’t expect prosecutors to follow the law, how could you or I?  We are a nation of laws, so better a guilty man go free than tolerate prosecutorial misconduct that puts the innocent at risk.

I’ll leave it to the brilliant, Democratic budget writers in Olympia to figure out whether this is an April Fools post or not.  That’s all I’m saying.

UPDATE from Geov

Lee had absolutely no way of knowing this, but in my day job (running Peace Action of Washington) I helped make this video possible. A coalition we helped found – and that I’m on the Steering Committee of – approached Rick about a year ago with the idea, and when he jumped on it, helped line up the necessary permits and visas. An Iranian-American friend and local filmmaker, Abdi Sami, accompanied Rick to Iran as associate producer and set up his itinerary.

I mention this because we have these videos for sale, at the insanely low price of $5. They’re available through Rick’s web site, too, because he really wants people to see this video; he’s very proud of it. And it will amaze and mpress you, just as it did Lee.

[end update]

= = =

If you haven’t already seen it, Rick Steves’ special on Iran is amazing. The whole thing is available on YouTube, so expand this post if you’d like to watch it (there are 6 parts):

[Read more…]

Please join us tonight for an evening of politics under the influence at the Seattle chapter of Drinking Liberally. We officially start at 8:00 pm, but some folks show up early for dinner and a drink. We meet at the Montlake Ale House, 2307 24th Avenue E.

[youtube]http://www.youtube.com/watch?v=Vme57vMRnB4[/youtube]

Not in Seattle? The Drinking Liberally web site has dates and times for 328 chapters of Drinking Liberally spread across the earth.

Yesterday’s post about how growth in the number of WA state government full time employees has remained flat relative to total population growth, prompted a debate in the comment thread regarding the impugned productivity of state workers versus those in the private sector.  It was a stupid debate… devoid of actual, you know… facts, but it was a debate nonetheless, and as it turns out, a useful springboard for discussing the nature of government expenditures, and why the right’s familiar “population plus inflation” formula is little more than a cynical gimmick intended to erode government services over time.

Implicit in the population plus inflation model is the notion that services delivered by the public sector are somehow representative of the economy as a whole, and thus the per unit costs incurred should generally rise in step with the Consumer Price Index.  This notion also forms the basis of the critique in the comment thread that looks to the population-proportional growth in government FTEs as an indication of zero productivity growth, and “a fucking testament to inefficiency.”

Of course, this notion is total bullshit.

To compare the inflationary pressures or productivity gains of the public sector to that of the economy as a whole would be as ridiculous as comparing that of one private sector industry to another. For example, according to the federal Bureau of Economic Analysis, the cost to consumers of durable goods has plummeted 14 percent since 2000, while the cost of consumer services has risen 29 percent.  Over that same period of time the Implicit Price Deflator (generally accepted to be the most accurate measure of inflation) has risen 21.6% for Personal Consumption Expenditures as a whole, but over 42% for State and Local Government.

Why has the inflation rate for state and local government services risen at nearly twice the rate as that for consumer expenditures?  According to a report compiled by the Washington D.C. based Center on Budget and Policy Priorities, productivity is indeed a major factor:

Proponents of TABOR-type tax and expenditure limits sometimes contend that a growth formula based on population plus inflation would be adequate to maintain public services at a roughly constant level. But researchers long have recognized that the services provided in the public sector, such as education, health care, and law enforcement, tend to rise in cost faster than many other goods and services in the economy in general. This analysis was first put forward by economist William Baumol, who pointed out that technology and productivity gains may make goods cheaper to produce, but the services that government provides are different. Baumol said public services typically rely heavily on well-trained professionals — teachers, police officers, doctors and nurses, and so on — and technology gains do not make these services cheaper to provide. It may take far fewer workers to build an automobile than it did 30 years ago, but it still takes one teacher to lead a classroom of children. (In fact, as education has become increasingly important, the trend is toward more teachers per pupil, not fewer.) Doctors generally still see patients one by one, and nursing care remains labor intensive despite technology.

In fact, we haven’t seen the same sort of productivity gains in the public sector as we have in the private, because there simply haven’t been the same inherent opportunities to improve efficiency overall.  In the same way that the price of consumer services rises even as the price of durable goods falls, the cost of providing most government services—even the exact same services at the exact same level—continues to rise substantially faster than the average rate of inflation across the broader economy.

It’s not that, compared to the private sector, government is inherently less efficient at delivering services, but rather that productivity in these sort of labor-intensive, high-skilled services is impacted far less by technological advances than, say, the manufacturing sector.  Indeed, when it comes to health care, quite the opposite has been true, with dramatic technological advances tending to dramatically increase costs.  (While at the same time, government health insurance programs like Medicare and Medicaid have consistently proven to be less expensive and more efficient than their private sector competitors.)

Population plus inflation may seem like an intuitive measure by which to compare growth in government expenditures, but it simply is not grounded in economic reality:  both simple logic and prior history proves that the long term cost of maintaining government services at constant levels rises faster than this rigid formula would allow.  And given this reality, it is hard to argue that today’s budget crisis is largely the result of profligate spending, when state spending has long trailed behind growth in demand and cost for the services it provides.

There has been some surprise in the media that under yesterday’s Senate budget proposal, the dollar amount of general fund expenditures from state revenue sources would actually decrease from the previous biennium, for the first time ever.  I suppose then, they will be absolutely shocked to learn in future posts that when measured by its ability to provide existing services at constant levels, Washington state government has actually been shrinking for some time.

The Seattle Times editorial board wants to educate our children, but not provide them any health care .  Well, it’s nice to see somebody making those tough choices… you know, as long as those choices don’t include any tax increases.

Lawmakers should cut the number of state employees more and education less. Every dollar spent on education represents the best possible social program and wisest long-term investment.  […] Other cuts are painful but, if education is the top priority, probably unavoidable. These include a cut of 40,000 people covered by the Basic Health Plan.

Hmm… I wonder if that either/or framing is intentionally clever, or just uninformed?  Note to Times: teachers are state employees, so attempting to frame this as a hard choice between wasteful state employees and, you know, state employees , comes off as a little bit stupid.