Don C. Brunell: Lawmakers Must Consider Costs of All Taxes

As lawmakers in Olympia inch toward adjournment, they must keep in mind the total added costs of new taxes on our state’s economy. It is not just about the taxes and fees they impose.

They are working against an April 23 deadline to enact a two-year financial plan and find sufficient funding for it. Unlike Congress, states must balance their budgets.

While the funding decisions are generally contentious, this year’s legislative tension is high because Gov. Jay Inslee (D) and lawmakers must find ways to pay for our K-12 public schools as mandated by our state’s Supreme Court under the 2012 McCleary decision.

The governor is pushing $8 billion in new taxes to plug the budget hole. His proposal is the highest tax increase in state history.

Inslee’s plan consists of four parts.

First, it would increase the business-and-occupation (gross receipts) tax on services provided by accountants, attorneys, real estate agents and others from 1.5 percent to 2.5 percent.

Second, it would add a carbon tax that would charge the state’s emitters $25 per metric ton starting in 2018. CO2 emissions from vehicles, buildings and power plants would be taxed.

Another first-ever tax would be a 7.9 percent tax on capital-gains earnings above $25,000 for individuals and $50,000 for joint filers. Retirement accounts, homes, farms and forestry would be exempt.

Finally, Inslee would roll back several tax exemptions, including one on bottled water.

Majority Senate Republicans are calling for a different, less costly alternative which redefines the state’s approach to K-12 education.

Stay tuned.

However, the battle over McCleary is resolved, it is imperative that the governor and legislators carefully consider the cumulative impact of all taxes and fees on people and businesses. That includes accounting for federal, state and local assessments.

When a family or business adds up its bills, the total tax load are often “budget busters.”

Consider the added impact of local tax levies on Vancouver property owners, as an example.

Last November, voters approved “Proposition One” to fund low income housing and in February they supported a $458 million bond levy to rebuild crumbling schools. With those approvals, property taxes for homeowners and businesses will increase.

On top of that, Vancouver’s City Council voted to add 61 people to the police department. It will increase spending by $5.1 million this year and jump by $12.5 million in 2020. The funds will be collected from a series of taxes on utilities, buildings and multiple family dwellings and hikes in fees.

The point is not to single out Vancouver because many communities across our state face revenue shortfalls and spiking needs. It is to say that Gov. Inslee and lawmakers in Olympia need to be mindful of tax collections at all levels of government. They quickly add up.

Because of our state’s unique tax structure, business feels the initial brunt of taxes.

According to the Washington Research Council (WRC), our state has the sixth highest percentage of business taxation in the U.S. In Washington, businesses are the source of 62 percent of all state tax revenues, and 52 percent of local taxes.

In contrast, Oregon employers pay just 35 percent of all state and local taxes, Idaho employers pay 40 percent. Oregon and Idaho have income taxes and Oregon has no sales tax.

Taxes, regulations and fees impact decisions on where people live, where companies locate, and whether small start-up businesses survive, particularly in border communities. Hopefully, our elected officials at all levels will consider the total tax loads before acting.

(Don C. Brunell is a business analyst, writer and columnist. He retired as president of the Association of Washington Business, the state’s oldest and largest business organization, and now lives in Vancouver. He can be contacted at theBrunells@msn.com.)