Search Results for: structural revenue deficit

Via Daily Kos:

The Quinnipiac University poll found that 60 percent of Americans among both major political parties think raising income taxes on households making more than $250,000 should be a main tenet of the government’s efforts to tame the deficit. More than 70 percent, including a majority of Republicans, say those making more than $1 million should pay more.

Huh.

I know our legislature can’t seem to close the deal on addressing even the current supplemental budget, but with Washington facing a structural revenue deficit as far as the eye can see, this poll sure does give one something to think about.

According to the Seattle Times editorial board, Democrats are bad people:

THE priority of the majority Democrats in Olympia has not been economic recovery. If it were, the Legislature would not be leaning on the taxpayer for nine-tenths of a billion dollars.

Damn… they finally caught on. Yes the priority of us Dems, as always, has been the destruction of the economic and social fabric of these United States. “Heil Osama bin Stalin!”… or something like that.

Or perhaps, it’s possible, there might be a legitimate debate to be had over economic policy, with the majority of Dems genuinely believing that the anti-stimulative effects of further state government cuts would be greater than the anti-stimulative effects of minor tax increases? But, you know, it’s always easier just to question your opponents’ motives.

If the priority were economic recovery, Thursday’s page-one headline in The Seattle Times would not have been, “Despite cuts, state spending actually on track to go up.”

Oh God… if the Legislature’s spending, regulatory and revenue priorities were based solely on coaxing complimentary headlines out of the Seattle Times, Washington state would look like Somalia by now. I mean honestly, this is a paper that has steadfastly refused to cover the billions of dollars in spending cuts over the past two years, and the impact it has had on Washington families, yet we’re expected to accept their headlines as a generally accurate let alone evenhanded depiction of reality?

The priority of legislators has been protecting state employees. In the past two years, when private employment in Washington has plunged by 7.5 percent, the total of state workers outside of higher education has been shaved by 0.7 percent. The Legislature might have increased that rate in the coming year, but it didn’t.

A.) The past performance of the Times’ editorial board has given me absolutely no reason to accept that assertion as fact. B) Nice job cherry-picking data by excluding a big chunk of state general fund spending. I mean, it’s kinda like saying that “Nobody in Times management, outside of Frank Blethen, has ever shot a neighbor’s dog.”

Many voices, including this page, told legislators to declare a fiscal emergency and reopen state employee contracts. Raising the employee share of health-care premiums from 12 percent to 20 percent — a share that is still below the average in the private sector — would have saved about $50 million in this biennium. The Legislature didn’t do it.

Which is surprising, because if you’re gonna take fiscal advice from anybody, it’s a company that pissed away a half a billion dollars of equity over the past decade.

There is also the matter of step increases — an automatic pay increase for an employee not at the top of the salary schedule. In the worst crisis in years, with taxes being slapped on all sorts of things and the unemployment rate close to 9 percent, the Legislature continued to fund step increases.

While what the Times really wanted the state to do was use this crisis as an excuse to break contracts and crush the public employee unions.

The state might simply stop doing some things. A bill was introduced to end the state’s retail monopoly of liquor. The Legislature didn’t pass it.

And regardless of whose numbers you believe, passing it would have done absolutely nothing to address our current budget crisis. But again, if we can exploit the Great Recession as an excuse for privatizing something for the sake of privatization, why not have at it?

A year ago, when the economic omens were worse, the Legislature made it through without big tax increases. Back then, Initiative 960 required a two-thirds vote, and they didn’t have that. This year, I-960 was amendable by a simple majority, and they quickly amended it. After that, the tax proposals scurried out like crabs from under a wet rock.

If all you knew about politics came from the Times’ headlines and editorials, you might think that you have to handcuff those tax-and-spend Democrats to the radiator to keep them from raising taxes every full moon, when in fact when it comes to major taxes, the opposite has been true over at least the past quarter century.

Despite the fact that the sale of goods has represented an ever shrinking portion of the state economy since the 1950’s, there hasn’t been a hike in the state portion of the sales tax rate since 1983… the longest such lag, by far, since the sales tax was implemented back in 1935. The B&O tax on manufacturing was cut in 1995 and again in 1997, and now it too stands at 1983 levels. And while the gas tax has been raised 14.5 cents since 2003, that jump followed a nearly unprecedented 12-year period of stagnation, with the current 37.5 cent a gallon tax still falling below the historical average as a percentage of the price at the pump. Only the tobacco tax has seen substantial increases, but primarily for public health reasons, and with bipartisan support.

Meanwhile, the Democratic controlled Legislature has spent much of the past decade passing billions of dollars worth of tax exemptions. And let’s not forget car tabs, which the Legislature eliminated in 1998 by feebly reenacting Tim Eyman’s unconstitutional I-965, essentially cutting a chunk of annual revenue equivalent to a one cent per dollar reduction in the state sales tax rate.

Indeed, even with the plethora of property and sales tax increases approved by local voters, total state and local taxes as a percentage of personal income fell from a high of 10.4% in 1994 to 8.9% in 2008, ranking us 35th nationwide according to the conservative Tax Foundation. So the very notion that it was I-960 that handcuffed Democrats, rather than their own well-documented reluctance to anger taxpayers, is complete and utter bullshit.

Raising taxes is never an easy thing for politicians to do, not even Democrats. Never. And to imply otherwise is nothing short of slander.

Senate Majority Leader Lynn Kessler, D-Hoquiam, blamed her urban colleagues. “I think a majority of our caucus is from very safe districts.” she said. “As a result, they just feel like we don’t want to reform.”

Lynn Kessler is a Republican. There, I said it. At least on fiscal issues, the Democratic caucus is led, if not dominated, by politicians who would have been Republicans two decades ago. And yet even with the outsized influence that these economic DINOs have on the caucus’s agenda, Kessler has the nerve to publicly criticize her urban colleagues for occasionally voting the needs and interests of their constituents over that of the BIAW and Frank Blethen?

There’s a part of me that almost wishes the Democrats would lose a bunch of House seats come November, if only to foment a caucus revolt that might install some new and more effective leadership, that truly reflects the values of the Democratic Party.

Somebody, sometime, is going to make them reform state government. It will happen. But it didn’t happen this year.

Reform? What reform? The Times didn’t call for reform; they called for busting state employee unions and dropping temporary assistance to those unable to work due to physical or mental disability. Would that save money in the short term? Sure. Would it address the bureaucratic inefficiencies and misplaced priorities that surely exist? Nope. And it sure as hell wouldn’t do anything to address the long term structural revenue deficit that results from clinging to an early 20th century tax structure that simply doesn’t fit the reality of our post-industrial, 21st century economy.

But again, you know, if there’s an opportunity to impugn the character and motives of the majority Democrats, why not take it?

Only one year after Barack Obama’s “change we can believe in” election, and in the midst of a crushing economic recession that has caused home prices to plummet, unemployment to spike, and state and local budgets to plunge into nearly unprecedented crisis, you might have expected incumbents to face more than a little pressure in our recent local elections.

Well… not so much.

In countywide races the sheriff, the one port commissioner seeking reelection and four of five county council incumbents faced no opposition at all, while Councilmember Reagan Dunn easily trounced his unfunded challenger 77-23. In Seattle, City Council President Richard Conlin easily waltzed to victory, while fellow incumbent Nick Licata beat highly touted Jesse Israel by a more than comfortable margin.

And of course in the marquee matchup this election season, longtime county councilmember Dow Constantine ran on experience in walloping putative reformer Susan Hutchison by a better than 18-point margin in the King County Executive race.

So what happened?

While most of the post-election punditry, including my own, has thus far focused on the horse race usuals of fundraising, messaging, strategy, and candidate performance, I think it fair to offer a suggestion that some may find somewhat heretical, and which is sure to disappoint those who feel themselves on the political outside:  perhaps incumbents did so well in our recent elections because voters are largely satisfied with the status quo?

Perhaps voters are generally okay with the level and quality of services provided by local government, and the level of taxes levied to pay for them? Perhaps voters appreciate the near total lack of public corruption our region has enjoyed since… well… at least since I moved here in 1992. Perhaps, despite the current economic downturn and our much publicized fits of paralysis when it comes to making a decision on important infrastructure projects, voters generally feel that our region is moving in the right direction?

Yes, much has been made in the news about the huge budget shortfalls hitting both the city and the county, and there has been much effort to blame this crisis on the overspending and mismanagement of the incumbents in charge, but perhaps local voters understand that with a few exceptions, both Seattle and King County have been pretty well managed in recent years, as evidenced by some of the highest municipal bond ratings in nation?

Perhaps voters are smart enough to look around and see that nearly every local government in every state is facing equal or worse financial difficulties, and thus it would be foolish to blame local budget writers for the inevitable consequences of the worst global economic downturn since the Great Depression?

And with the one Seattle levy on the ballot passing by a two to one margin, while Tim Eyman’s tax slashing I-1033 failed countywide with an overwhelming 69% no vote, perhaps the majority of local voters have even come to accept that it is a structural revenue deficit that threatens city and county budgets long term, not the out-of-control government spending that is the favored boogeyman of Republicans and Seattle Times editorialists alike?

Perhaps.

Yes, I know, two-term Seattle Mayor Greg Nickels came in an embarrassing third in the August primary, but that was really the exception this election, not the rule, and considering the buyer’s remorse expressed in the weeks following, it’s not hard to imagine him having beaten either Joe Mallahan or Mike McGinn in the general. But regardless, beyond that and the disastrously run campaign of ousted City Attorney Tom Carr, there really wasn’t much anti-incumbent/anti-government mood to speak of.

While I have my own well founded criticism of the general lack of passion, creativity and, well, balls of our state’s elected officials as a whole, voters here enjoy some of the cleanest, most transparent, scandal free local government in the nation. And while the Seattle metropolitan area certainly faces its own problems, they ain’t nothing like those confronting most other big cities.

Let’s face it, relatively speaking, things around here don’t suck, and perhaps, in rewarding incumbents, voters are giving credit where at least a little bit of credit is due?

In fact, as much as I might have a reputation with some as being a cheerleader for local Democrats, I’m arguably less sanguine about the direction in which our region is headed than the vast majority of voters. I know that the long term structural revenue deficit afflicting both state and local budgets threatens the quality of life and economic prosperity we’ve come to expect here in the Puget Sound region, and I have little faith in the current Democratic leadership to adequately address our present and looming fiscal crisis headlong. And without even a hint of a viable, reasonable, pro-government Republican faction to challenge it, I fear for the ability and willingness of our Democratic majority to challenge its leaders from within.

That said, at least for the moment, it’s pretty hard to run around these parts on a throw the bums out platform, when voters for the most part seem somewhat satisfied with the local government their getting. And all the usual horse race bullshit notwithstanding, that perhaps explains the woeful performance of challengers and self-proclaimed outsiders in this November’s election.

As expected, the Seattle Times has endorsed No on I-1033, as will most every other newspaper in the state.  But while it is a responsible editorial, and fairly well argued, I couldn’t help reading it with an involuntary roll of the eyes, for some of the common misconceptions the editors attempt to correct, happen to be ones they’ve worked damn hard to create.

The Times now argues that Washington is not a high tax state (in fact, we’re 35th by Tim Eyman’s own source), but this will strike many readers as quite contrary to the impression the Times itself has left over the past few years, whether arguing for estate tax repeal, or in favor of an all-cuts budget, or in support of Dino Rossi and other conservative Republicans. Even former state Republican Party Chair Chris Vance has acknowledged that King County’s budget woes are largely due to a structural revenue deficit, not out of control spending, a fact based reality the Times appears pained to grasp.

I-1033, unlike I-601, applies to counties and cities as well. In all of them, growth in property-tax revenue is limited to 1 percent plus taxes on new construction. Cities and counties are finding it a hard limit to live with. Any further limit on their tax collections should be up to the citizens in each jurisdiction.

Further limits? The existing 1 percent cap is an arbitrary and ridiculous limit that is already eroding the ability of local governments to provide basic services, and the Times is willing to even suggest the notion of further limits… and in an anti-1033 editorial no less?

There are two reasons why Eyman’s I-1033 still has a chance to pass. 1) Investment banker Michael Dunmire; without his money none of Eyman’s recent measures would have qualified for the ballot; and 2) Our state and local media have relentlessly created the impression in the minds of many voters that Washington is a high-tax state with out of control spending… and editorializing against Eyman’s initiative once every year or so, is not enough to change that impression.

Former state Republican Party Chair Chris Vance, has a somewhat startling admission to make:

I have spent the bulk of my career opposing higher taxes and increased spending. In the Legislature I voted against Governor Mike Lowry’s 1993 budget and tax increases. On the King County Council I voted against two budgets because they increased spending and raised property taxes — budgets written by my fellow Republicans while we were in the majority. During all of my 11 years in elected office I served on the budget writing committee, and every year I listened to Democratic governors and county executives talk about tight budgets, while revenues and spending went up and up.

As a fiscal conservative, therefore, I hope I can say this with some credibility: King County really does have a revenue problem. In fact, it is closer to a revenue crisis.

See, when I lay out the facts behind the counties’ structural revenue deficit (and it’s not just King County, but all counties), there are those who dismiss me as just the Horses’s Ass guy. But here’s Vance, a lifelong Republican and self-described fiscal conservative, pretty much making the same exact case.

Huh.

The headline in the Seattle Times sounds awfully hopeful, “Wash. lawmakers take next step toward ed reform.” So what exactly is that next step?

They haven’t found a single new dollar to pay for their ideas, but state lawmakers and education officials are pushing ahead with plans to start implementing education reform.

A new education reform committee recently held its first meeting. It is chaired by the superintendent of public instruction and counts among its members the speaker of the House and the chair of the Senate Education Committee, so the political will to move on is there.

No money to pay for their ideas, or any idea how to raise the money, but at least they started a new committee.  Can’t get much bolder than that.

But some of the faces around the table have sat at similar meetings, battling similar issues for years.

Oh. That’s not an encouraging sign.

First came the governor’s Washington Learns task force that published an ambitious plan to improve education in 2006. That report led to the state’s new Early Learning Department, but the Legislature could not find the money to implement most of the other ideas.

There’s that pesky money problem again.

Then came the reinvented State Board of Education, which moved ahead on some related ideas, including new high school math requirements and a proposal to require high school students to earn 24 credits instead of 19 to graduate.

Next, the Basic Education Finance Task Force, wrote a road map last summer for completely changing the way the state distributes its education dollars. The task force’s ambitious plans would cost an estimated $3 billion to $4 billion a year, on top of the $7 billion a year the state already spends on education.

And the money…?

The 2009 Legislature adopted some of the task force’s ideas and put a new group, the Quality Education Council, in charge of implementing the plan, but with a new twist. This time, the task force is also in charge of finding the money to pay for the changes.

Rep. Skip Priest, R-Federal Way, has sat around many education reform tables, including Washington Learns and the Basic Education Finance Task Force.

“I think it’s time we have a sense of urgency about this issue,” Priest said after the Quality Education Council held its first meeting at the end of August.

No shit, Sherlock.

Honestly, there is no substantive education reform without the money to pay for it, and all the committees and commissions in the world won’t change that. So in a state facing its deepest fiscal crisis perhaps ever, and a long term  structural revenue deficit as far as the eye can see, the real “next step” to education reform in Washington state is an honest debate about tax restructuring, and unless Republicans like Skip Priest are willing to push for that debate, they really aren’t approaching education reform with any sense of urgency at all.

I’m just sayin’.

“Why am I here?”  It is a profound question, and one every Democratic lawmaker in Olympia should ask themselves during the final weeks of this chaotic session, especially when it comes to the issue of whether to put a revenue proposal on the fall ballot.

Why did you run for public office in the first place? What exactly brought you to Olympia? And when you retire (voluntarily or otherwise), how will you judge the success of  your legislative career?

Over the past five years or so I have had the opportunity to talk one on one with a number of Democratic legislators, and I think it safe to say that an overwhelming majority agree with me, at least in principle, on the necessity of revenue reform.  There is near unanimity in the Democratic caucuses that our current tax system is overwhelmingly regressive and unfair, and a strong consensus that it is also inadequate and unsustainable as is… that there exists a long term structural revenue deficit that, regardless of the economic cycle, virtually assures that the ability of state government to deliver services and invest in infrastructure will gradually erode over time.

Privately, off the record, most Democratic legislators will tell you that they support an income tax, and that they truly believe such reform to be in the best interest of the people of Washington state.  And the majority of them even have at least a basic understanding as to why.  But I am now pretty confident that a majority of Democratic legislators also believe an income tax to be a political impossibility… that it will never happen, and that it is futile to even try.

And it is these conflicted naysayers most of all who should ask themselves the question:  “Why am I here?”

Did you come to Olympia simply to balance the budget as best you can?  To do less damage to our environment, our schools and our social safety net than your Republican counterparts?  Did you really come to Olympia to fix problems in the short term that you full well know our structural deficit will inevitably unfix over time?  Are you comfortable being caretakers of our state’s slow decline?

If you understand that we need to move toward an income tax, yet cannot imagine a path toward getting there, why bother even showing up?  Shouldn’t you just step aside and make room for somebody who is at least willing to try?

And no, that’s not meant to be a rhetorical question.

In the autumn of 2004, about six months after the death of my horse’s ass initiative, and about six months before I would start blogging, my fellow activist Steve Zemke somehow managed to arrange a meeting for us with House Speaker Frank Chopp and then House Finance Committee chair, now State Treasurer, Jim McIntire.  Our purpose was to urge them to pursue some sort of progressive property tax reform in an effort to preempt Tim Eyman’s next initiative, but the conversation drifted broadly toward our structural revenue deficit, and thus inevitably, to an income tax.

Both Frank and Jim supported an income tax—in theory—but neither seemed too keen on raising the issue anytime soon.  In fact, I clearly remember Jim warning me that any attempt to push an income tax prematurely could set our efforts back by a decade or more.

But Jim did put forth one scenario in which he could envision an income tax passing voters, a thesis I’ve since heard from other Olympia insiders, and which I’ve dubbed the “Phoenix Model.”  Under this scenario, a brutal economic downturn combined with a decades-long erosion of our sales tax base could create a budget crisis so severe that legislators and voters would have no choice but to resort to an income tax, or… dramatically reduce the role and scope of Washington state government.  Out of this budgetary Armageddon a new tax structure would be born, so the theory went, like the mythical phoenix rising from its own ashes.

So… um… aren’t we in that scenario now?

How much worse does the budget crisis have to get before voters and their elected officials accept that we cannot build a 21st century economy on the back of an early 20th century tax system?  How many more hundreds of thousands of Washington citizens must be thrown off the health care rolls or denied a college education?  How many businesses must flee our state or avoid starting up here due to the lack of an adequate transportation system or educated workforce or any number of other vital investments in public and human infrastructure?

How many billions of dollars must our budget be in a hole, and how many consecutive budgets must this hole be plugged through cruel cuts and regressive stopgap measures before the emergence of political leaders who are more concerned with long term solutions than with short term political gains?

In the Senate, I have been heartened by the leadership provided on this issue by Majority Leader Lisa Brown, and by the public support displayed by Senators Kohl-Wells, Regala, McDermott, Murray, Kline, and Fraser.  Folks in the know suggest that should a high-earners income tax come to a vote in the Senate, Brown could likely corral enough support to put it on the fall ballot.

But from the House leadership, all we hear are crickets.

If House Finance Committee chair Ross Hunter (D-48) were to take the lead on a high-earners income tax he could rally support behind it and perhaps even push it to the floor for a vote.  Yes, I know he’s focused on passing the education reforms on which he’s passionately dedicated himself for years, but few of these reforms are possible without the funding to back them up.  And yes, I understand that he plans to run for King County Executive, but taking the lead on a high-earners income tax could be exactly what he needs to grab the edge with Seattle voters over Seattle liberals Larry Phillips and Dow Constantine.

But Hunter isn’t even technically a member of the House Democratic Leadership.  So where’s Rep. Larry Springer (D-45) who represents an Eastside district where education funding routinely tops the list of voter concerns, or Rep. Zack Hudgins (D-11) a guy at least as comfortable palling around with DFH’s like me as he is with Olympia power brokers?  Where’s my own representative, Majority Whip Sharon Tomiko Santos (D-37), a long time member of the Tax Fairness Coalition who represents citizens about as adversely effected by our regressive tax structure as any in the state, and who would suffer mightily under the proposed cuts?

For that matter, where the hell is our entire Seattle House delegation?

Yes, I know, I know, I know that Frank is as steeped in the conventional Olympia wisdom as the majority of the observers in the establishment press, and I know that he fears for his majority.  And I know that Frank doesn’t really believe a high-earners income tax could pass voters, regardless of its surprisingly good showing in recent polls.  But he can be nudged.  He can be pushed.  He could even be shoved.

Frank’s not a monolith.  He is open to persuasion, and he does change his mind.  But he’s clearly not going to take the lead on this issue on his own.

That’s why for those of you in the House who believe that an income tax is the only solution to our long term structural deficit, and who understand that after the federal stimulus monies disappear and a temporary sales tax increase expires, we’ll be right back where we started, even with an economic recovery—and I’m confident that covers the majority of the Democratic caucus—the only responsible thing to do is to stand up and take the lead on this issue now, while we actually have an opportunity to pass it.

Don’t wait for Frank!  He’s way behind the electorate on this issue, and while I’m confident he’ll do the right thing and do it well once he’s brought up to speed, he’ll never get there unless some influential members of his caucus clear the way.

If a temporary sales tax increase was a sure thing at the polls, I’d understand your reluctance, considering the dire consequences should a revenue measure fail.  But it isn’t.  And in many ways, a high-earners income tax has considerably more political upside than any sales tax proposal.

So take a look at the recent the polling, and dive into the details.  Talk to your constituents and listen to their concerns about further regressivity.  And then somebody, anybody, please stand up and take the lead.

A couple weeks ago, when I first set out on my recent series of obsessively wonky posts on Washington’s budget crisis and the structural revenue deficit at its heart, I pretty much knew what to expect.  Readership would trail off, incoming links would virtually disappear, and my comment threads would fill with automatic gainsaying, tired, anti-tax rhetoric, and pointless personal attacks on my manhood, my alleged socialism, and of course, my ethnicity.

i told u in your last post goldstein, get out of here and go to that garbage dump israel, and take that homo barney frank with u

No, my trolls rarely fail to disappoint.  And neither have the local media, whose coverage of this crisis, as expected, has largely focused on the spending side of the equation and the political machinations behind it, while providing little if any discussion of its causes, outside of the frame of the current economic cycle.

It is easy to point to a four-year period and show that spending has increased from X to Y.  It is much harder to cogently place this increase within the proper historical, economic and statistical context.  And so, for the most part, our media has failed to even try, and understandably so, for properly done, the subject matter is inherently godawful dry and boring.  Why should a daily newspaper devote precious column inches to explaining a premise that is at its best tedious, and at its worse, a maddeningly counter-intuitive and downright unpopular challenge to conventional wisdom?

Thus I was pleasantly surprised to read Seattle Times economic columnist Jon Talton this morning proclaim that now is the “Time for state to discuss taxes despite difficulties.”

It’s quixotic — or deranged. Such are most of the reactions, depending on political persuasion, to state Senate Majority Leader Lisa Brown’s idea of an income tax on high-wage earners to help fund education.

Huh.  Sounds like Talton is calling out his own editorial board.  But…

Even so, Brown’s proposal ought to open an important conversation about taxes and the state’s future competitiveness. It’s one that’s difficult to have without arousing partisan passions, cooked statistics and charges of socialism or a sales-tax-driven war on the poor. It’s one we should have nevertheless.

There… was that so hard?

As Talton points out, Washington’s individual and corporate tax “burden” remains relatively low while our per capita income remains high, and our heavy reliance on the sales tax leaves us with the most regressive tax structure in the nation.  Talton also peeks beneath the robes of the rarely challenged orthodoxy that inexorably links tax rates to private sector competitiveness.

Some of the states with the highest tax rates and tax burdens (taxes paid divided by income) are also the richest and most economically powerful.

These include New York, Connecticut, New Jersey and California. Some states with very low taxes also suffer from limited economies and a relative lack of well-paid jobs. This doesn’t mean that high taxes can’t ultimately hurt competitiveness, only that reflexive tax cutting is no panacea, either. Rather, tax policy seems to be one element in a state’s overall competitive DNA.

Our problem, as Talton explains, is that despite such facts, talk of higher taxes is generally political suicide.

Anti-tax activists have been effective in portraying government as always bloated and inefficient. This sidesteps answering what roles government must do well and which cost money to enhance competitiveness in a complex, global economy.

That’s all I’ve been asking for:  a public conversation on the proper size and scope of government, and how best to adequately, sustainably and fairly pay for those services and infrastructure investments we collectively want and need.  With rare exceptions like Talton’s column, we aren’t getting that conversation in our local media, and apart from Brown and a handful of other legislators, we aren’t getting that conversation from our elected officials either.

I’m not saying it’s an easy conversation, or one that won’t come with political costs.  But in the long run, it’s a conversation we can’t afford to avoid.

Washington state’s business, media and political establishment are often breathtaking in their lack of boldness, so I guess it should come as no surprise that, faced with a nearly unprecedented economic and budgetary crisis that has finally ripped the mask off our decades-old structural revenue deficit, the few calls for real change are being shouted down with deafening cries of “No we can’t!”

Take for example today’s Seattle Times editorial endorsing a 30% tuition increase over two years to help offset dramatic funding cuts.  Yes, I agree that tuition “should rise significantly to preserve student access, quality and years of progress toward preparing a sophisticated work force,” and without a doubt, these “whopper tuition increases” are somewhat mitigated by the fact that our state schools are an absolute “bargain compared with peer institutions.”  And it’s hard to argue against the notion that, as painful as it might be, given the size of the impending funding cuts, “it would be much worse without the tuition jump.”

But nowhere in the editorial did the Times mention anything about financial aid.  Not once.

And then there’s the news today that a temporary sales tax increase is once again gaining traction, a week after dreadful polling convinced most lawmakers that such a ballot measure would be virtually dead on arrival.  The solution?  No, our special Olympians aren’t rallying around an innovative high-earners income tax (which actually polls well), but instead, are coming back with a smaller, third of a cent sales tax increase proposal in the hope that voters might reluctantly swallow this less painful pill.

You know, conventional wisdom says that an income tax is a nonstarter, whatever fairness or simple math or recent polling says, so why even bother to go there?

The problem is, both these solutions, the tuition and the sales tax hikes, are half-measures that may make the budget easier to balance in the short term, but do absolutely nothing to address our long term problems.  And both solutions place their financial burden solely on the backs of those who can least afford it.  Both solutions, on their own, only make our revenue system less fair and less stable, and in the long run, will only serve to undermine working class Washingtonians’ faith in the ability of our state government to adequately meet their needs.

Increase tuition and fees by $3000 a year, and our schools will still remain a bargain compared to “peer institutions,” but without a commensurate increase in financial aid, many of our state’s low and middle income students will be priced out of an opportunity to attend a four-year university.  And if voters cooperate and agree to temporarily raise the sales tax a mere third of a cent on the dollar, we’ll save some crucial health care services now… only to watch them trickle away over time once the increase sunsets and the steady erosion of our state government’s purchasing power continues unabated.

Now, in this time of crisis, we have the opportunity to ask voters to grit their teeth and join us in embracing real change… and all we seem to get out of our so-called leaders are half measures.

Well, personally, I’m tired of half-measures, and morally conflicted about continuing to join the current Democratic establishment in fighting half the battle, when it has become increasingly apparent that they will never fulfill their promise to join me in fighting the other half.  Long term revenue adequacy can never be achieved without tax fairness, and the refusal (with few notable exceptions) to publicly acknowledge this simple truth, undermines our ability to achieve either.

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?

Despite the fact that the state now faces an unprecedented $9 billion revenue shortfall—nearly 25-percent of what’s needed to maintain services at current levels—the Republicans and their editorial board surrogates are still demanding that Gov. Gregoire stick by her campaign rhetoric and reject any proposed tax or fee increase.  So… what exactly would an all-cuts budget look like?  Well, we’re about to find out.

This biennium it’s the Senate’s turn to lead off budget negotiations, and word in the Capitol hallways is that an all-cuts draft is being prepared for release early next week.  I don’t have the details—they’re still being nailed down—but it isn’t hard to speculate.  A hundred thousand people cut from the state’s Basic Health plan?  20-percent from higher education?  Elimination of funding for community health clinics and many out-patient programs for the elderly and the disabled?  Temporary closure of many state parks? A dramatic reduction in ferry service?  Early release for non-violent prisoners?

Whatever it is, it’s going to be devastating, and it will be interesting to see the all-cuts proponents’ response.  No doubt some will cynically charge that Senate Democratic Leaders are merely trying to scare voters, but it’s hard to see how a 25-percent revenue shortfall can result in anything but devastating cuts in basic services and elimination of whole swaths of our health and social safety net… especially with about half of the budget completely off the table.

About 45-percent of the state budget is dedicated to K-12 education, with a constitutionally mandated obligation to fund basic education protecting the bulk of its funding.  Sure, the class size and teachers pay initiatives will be suspended, and a few other “extras” slashed or eliminated, but the state has little if any room to achieve substantial cost-savings within the biggest chunk of its budget.  Add to that fixed costs in our prisons, courts, police and other law enforcement and public safety services, and we’re left with only about a third of our state budget that can possibly be considered discretionary.

Thus even if the self-proclaimed fiscal hawks are right that the $9 billion figure is exaggerated, the shortfall softened by a few billion dollars in federal stimulus aid and a billion dollars from our rainy day fund, we’re still talking about 40-percent cuts from the portion of the budget that can absorb any substantial cuts at all.  And don’t kid yourselves that those cuts will be temporary.  The federal aid and rainy day funds are one-off windfalls, and even when the economy starts to recover, it won’t likely recover fast enough or strong enough to make up the difference by the next biennium.

Yes, this budgetary crisis was largely precipitated by a sudden collapse in home sales and consumer spending, but these revenues will never return to former levels.  The real estate bubble, like the dot.com bubble before it, is gone for the forseeable future, and with it the revenue growth that has long masked our state’s long term structural revenue deficit.  The highly regressive retail sales and excise taxes on which we rely for the bulk of our revenues are levied on an ever shrinking portion of our post-industrial, service and information based economy:  the sale of material goods.  Thus unless we raise taxes, or dramatically restructure our tax system to meet the reality of the twenty-first century, state and local government will continue to shrink as a portion of our total economy, and with it,  the services taxpayers have come to expect and demand.

When the Senate budget is released next week we will have an opportunity to examine one vision of Washington’s future… a vision much closer to that of Alabama or Mississippi than the one we hold now.  It is a vision that will surely make many Republicans happy.

And it would be a shame if Democrats allowed the minority to achieve their vision by default.

Is Gov. Gregoire being coy?

Asked to list the top impediments to business in the state, Gregoire said she would like to overhaul the business and occupation tax, the state’s main tax on businesses. Calling the tax “ill-conceived” and harmful to small businesses, she invited business leaders to develop a plan for changing the system.

“If you want to come forward with an alternative to the B&O tax system in the state of Washington, the welcome mat is out from me,” Gregoire said.

I suppose there might be a number of B&O alternatives, including a Value Added Tax, or perhaps no business tax at all, but in inviting business leaders to develop their own plan, it certainly sounds like Gov. Gregoire is inviting them to propose a corporate income tax… a surprising invitation from a governor who has repeatedly dismissed even the notion of starting a conversation on such reforms. Encouraging, sure, though considering the longstanding split in our business community over this issue, if she really wants to overhaul the B&O tax, our negotiator-in-chief is going to have to do a helluva lot more than just put out the welcome mat.

The B&O tax is not only “ill-conceived,” it is an historical anomaly. In 1932 Washington voters overwhelmingly approved a personal and corporate income tax, overhauling a tax system that had previously over-relied on property taxes, but when the Supreme Court controversially ruled the new income tax unconstitutional while leaving the new property tax limits in place, the state was thrown into a budgetary crisis. The B&O tax was created as part of a hasty, and presumably temporary, political compromise.

75 years later, Washington’s B&O tax—a tax on gross receipts, rather than profits—remains just as ill-conceived as the day it was implemented, especially during this economic downturn when many businesses are forced to pay taxes on their losses. But while business leaders love to bitch about the B&O’s complexity and burden, they’ve thus far been unwilling to work together to propose a reasonable replacement.

Washington remains one of only five states without an income tax, and while Gov. Gregoire is right that there is currently little public support for a personal income tax, I doubt there would be much public opposition to the corporate variety, if that’s what the business community chooses for itself. And while such a revenue neutral reform would do little to address our long term structural revenue deficit, it would at least be a first step toward that conversation that Gov. Gregoire insists voters have no interest in starting.

I’ll be on KUOW’s The Conversation today at around 1:30PM, talking about the most underreported news stories of the year.

My contribution?  Well, it’s an underreported aspect of a heavily reported story: the long term structural revenue deficit at the heart of our state’s current $5 billion-plus budget shortfall.

Good economies mask the problem while bad economies, like our current one, merely exacerbate it.  But no matter how you futz the numbers, long term tax revenues simply cannot keep pace with economic growth or growth in demand for public services.  That’s a fact.

So what we’re getting by default is an ever shrinking government by the only metric that really matters, and we’re getting it without any public debate.

I’m not sure what Bruce Ramsey’s point is?

According to the latest story, the projected deficit in state government finances is $5.1 billion, up from $3.2 billion. The Times said before the election, in our endorsement of Dino Rossi, that the deficit might get to $5 billion by next spring, and we arrive at that figure early, in November.

A progressive blogger accused us of making a deceptive noise about the deficit, which he said did not really exist and was only a projection. Of course, that was before the election, too. Now it’s over, and the big problem is in the lap of Gov. Christine Gregoire and the two houses of the Legislature.

Well, it wasn’t a budget deficit, it was a projected revenue shortfall, and the size of the shortfall really wasn’t the issue.  The next biennium budget will be balanced, one way or the other, regardless of who is governor or which party controls the Legislature.  The issue in the election was always, who do we trust to make the hard choices necessary to balance the budget, consistent with the values of the majority of Washingtonians?

(Hint:  the voters’ answer was Gov. Gregoire.)

As for “deceptive noise,” it certainly was, and still is.  This budget crisis is not the result of overspending; the culprit in Washington, as in every other state in the union, is declining tax revenues.  Gov. Gregoire did not create this shortfall… our crappy national economy did.  And the Times’ efforts to promote Rossi as some sort of punishment or remedy for a revenue shortfall Gregoire didn’t create, was indeed deceptive.

It also serves to distract from the larger issue of Washington’s long-term structural revenue deficit, that when projected through both the good and the bad years, absolutely guarantees that state spending as a percentage of the state economy will steadily and dramatically shrink over the next few decades.

During the final few weeks of the campaign, Rossi and his surrogates relentlessly attacked Gregoire, alleging that she would instate an income tax.  She can’t and she won’t.  But despite its lack of political support, and even though such a dramatic restructuring could not possibly be implemented fast enough to address our current budget crisis, it is past time to start having a serious discussion about how to modernize our state tax system to meet the needs of our 21st Century post-industrial economy.

Our projected, $5 billion shortfall is largely the result of a particularly steep, downward swing in the economic cycle, but given a tax system that year over year taxes an ever shrinking portion of our economy, the long-term deficit will remain, even after the good times return.  Our current tax system is a 75-year-old improvisation, hurriedly constructed in the wake of a controversial court decision that overturned a voter-approved income tax, and it has long since proven itself to be outdated, inadequate and grossly unfair.

Now is the time to start a real discussion about how to modernize our tax structure to meet the needs of our modern economy.  And if the Times is willing to put aside the rhetoric and seriously join this debate, I’ll be more than happy to join them.