Tax cut plan is proposed

By Paul Guppy

Tax collections continue to soar. In the 30 days from mid-December to mid-January, the state gathered over $1.1 billion from its citizens, representing an increase of $53 million more in tax money compared to revenue estimates. At the current rate, the people of Washington are paying about 9 percent more in tax money to Olympia compared to the same period last year.

At the same time, Governor Christine Gregoire's proposed budget includes no general tax relief for citizens. Instead, the governor proposes spending all of the surplus, by using most of it immediately to boost state spending some 12 percent over two years and by placing a small part ($262 million) in an easily-tapped reserve with the intention of spending it in the future.

In one sense the governor's plan to spend all of the surplus is not surprising. There is constant political pressure in Olympia to increase spending and expand the business of government. A wide array of special interests that benefit from government growth, from public sector unions to political activists, are already gathering in the capitol with their wish lists of higher spending.

Some lawmakers like having extra revenue too. Legislators work in a world of unending spending requests, because government unions and other interest groups have full-time lobbyists in Olympia, while the average taxpayer does not. Controlling more public money allows legislators to say "yes" to these requests more often.

Washington is one of the most heavily-taxed states in the nation. In all, residents pay over 50 different kinds of taxes at the state and local level. The sales tax and the excise tax on home sales are particularly lucrative cash sources for the state. The large number of taxes, combined with a growing economy, is why a record level of revenues is flowing from the people to the treasury in Olympia.

There is a point when elected leaders impose such a high financial burden on citizens that it shows an insensitive disregard for the real-life needs of the average working family. Instead of spending all of the surplus, legislators should consider returning some or all of it to their constituents, that is, the people who earned it in first place.

It is a simple principle of fairness: the governor and legislators should not take more money from the people than is needed to pay for government programs. While it means resisting special interest calls for higher spending, returning the surplus to taxpayers would allow elected leaders to reduce the financial burden they place on their fellow citizens.

The $2 billion surplus would allow the Legislature to authorize the treasury to mail a check for $644, or $1,288 per couple, to every owner of a primary residence in the state. A rebate would provide immediate, visible relief.

The state collects the single largest portion of total property taxes, roughly one-third of every property owner's tax bill. Property tax relief would help people across the state, especially the elderly and families living on fixed incomes. Even renters benefit when the yearly cost of owning and managing property goes down.

An across-the-board property tax cut benefits everyone who pays property taxes, businesses and homeowners alike. Plus, each property owner would receive relief in proportion to the amount of tax he or she paid in the first place.

A full tax rebate would equal $416 for every adult, $832 per couple, in the state. The advantage of a rebate is that it is immediate and transparent. It also brings rapid stimulus to the economy, spurring jobs and investment. The downside is that people who receive a rebate are not always the same people who paid higher taxes in the first place.

Reducing the state sales tax rate, currently 6.5 percent, would return the surplus and reduce the cost of living for everyone in Washington, while not impairing the state's ability to pay for current public services.

Increasing how much a firm can earn before paying taxes would improve the business climate for all businesses and especially help start-ups and small enterprises. It would also help workers by spurring investment and job creation, again, especially among small enterprises. Almost half of working Washingtonians own or work for a small business.

Paul Guppy is vice president for research at the Washington Policy Center