Washington Policy Watch

News and perspective on public policy issues affecting Washington's economy and quality of life, brought to you by the Economic Opportunity Institute.

February 17, 2012 • 8:02 am 2

Washington’s sales tax: Older than this guy’s mustache

WA Gov. Clarence Daniel Martin signed the Revenue Act in 1935, the last comprehensive overhaul of Washington's tax code

While short-term fixes to backfill +$10 billion in budget cuts since 2009 are essential to avoid further damage to Washington’s economy (62% of state spending goes to the private sector), the state faces some long-term structural problems with its tax code that also need to be addressed.

For example, consider the source of half of all state revenue: the sales tax. It applies only to goods, not most services. It’s a swell deal for attorneys, accountants and stock brokers (to name a few) whose services are exempt from the sales tax – but not so good for everyone else.

See, services are becoming a much larger part of Washington’s economy, and because we exempt them from taxes, it means a) the tax base is shrinking, and b) consumers who buy more goods effectively subsidize those who buy more services.

A ”goods-only” sales tax was a fine idea for Washington’s 1930′s agrarian economy (the last time Washington’s tax code was seriously updated) – but today it’s a relic that’s holding back public investment in a modern service-based economy.

To solve these kinds of problems, state lawmakers need to look for solutions to the short-term revenue shortfall that lay the foundation for long-term tax reform. Here are a few ways to accomplish that.

Filed under: tax and budget, , , , , , , ,

February 15, 2012 • 8:16 am 2

The closer you get, the smaller it looks: Washington’s budget is shrinking

02/14/12 4:08 p.m. Updated to clarify the distinction between the state “general fund” and “operating budget”.

Yesterday’s post illustrated how to get comparable state budget numbers by accounting for inflation and population growth. Today I’ll look at three other ways we can put state spending in context.

The first is to compare the general fund budget to the state’s gross domestic product (GDP), to see whether spending is increasing or decreasing as a portion of the overall state economy. To do that, we’ll divide yearly general fund expenditures* by the state’s GDP for that year, after adjusting for inflation using the appropriate Implicit Price Deflator (IPD):

By this measure, state spending has declined from 6.0% of the state’s economy in 1997 to 5.3% of GDP in 1999, then climbed to 6.0% in 2002 before declining and leveling off at about 5.0% of GDP from 2005-09, then declining again to 4.1% of GDP in 2011.**

Of course, economic output is just one way to measure economic prosperity; another is income. So let’s also take a look at state spending versus personal income. As with the previous chart, we’ll get inflation-adjusted numbers first; then we’ll divide per-capita state general fund spending by per-capita income for each year to get the percentage:

The trends are very similar to the state GDP comparison; the general fund is trending downward overall, from 8.3% to 4.9% of personal income between 1991 and 2011, with similar (but less pronounced ups and downs) along the way.

So let’s go a different direction, and take a look at state employment. We’ll compare the number of residents per state employee over time using state government employment and population data.

First, the raw numbers. In 2001 (the first year data for which I have data available), there were 99,439 FTEs (full-time equivalent positions) employed in state government and 5,974,910 people living in Washington. In 2011, there were 103,996 FTEs and Washington residents.

That works out to 16.6 FTEs per 1,000 Washingtonians in 2001, and 15.4 FTEs in 2011. So relative to a decade ago, today there are 1.1 fewer state employees for every thousand people living in the state:

The take-home point: Whether you use economic growth or personal income as your yardstick, Washington’s general fund budget is smaller than it’s been in 20 years. If state government employment is your measure, it’s at a decade-plus low relative to the state’s population.

—–

*The general fund is the principal state fund supporting the operation of state government. All major state tax revenues are deposited into the general fund, making it the largest single fund in the state operating budget. The operating budget constitutes the majority of all state spending and pays for most of the day-to-day operations of state government. Total operating budget revenue comes from a variety of taxes and fees, as well as federal funding, such as Medicaid and the Social Services Block Grant. Capital projects and transportation are not part of the state’s operations budget. Learn more in the Citizen’s Guide to the Washington State Budget.

**Comparable state GDP data available only from 1997-2010; 2011 state GDP is author’s estimate based on national GDP figures.

Filed under: tax and budget, , , , , , , , , , , , , , ,

February 14, 2012 • 8:15 am 1

Honey, I shrunk the budget: An honest look at Washington state’s spending

02/14/12 4:10 p.m. This post edited to clarify the distinction between the state “general fund” and “operating budget”.

Policy issues like marriage equality, paid sick days and the minimum wage have dominated the news from Olympia so far – but with the next state revenue forecast due on Thursday and cutoff dates looming, it’s time to get some perspective on Washington’s budget.

You can download state expenditures over the past decade on the state’s ever-handy fiscal website. But to get the long view, let’s go back even further and look at the state general fund* since 1991. Here’s a chart showing the raw numbers:

This chart is very pretty – but it has some problems, like the fact that it doesn’t account for inflation.

Inflation means that when prices go up, budget numbers look bigger even if you’re just buying the same stuff – or in Washington’s case, providing the same public services – as you did the year before. (If you happen to encounter these budget numbers in the wild,  remember that you’re not getting an honest comparison.)

So how do we get numbers we can compare year to year? One way is to use a price index like the implicit price deflator (IPD). The IPD is calculated yearly by the Bureau of Economic Analysis – there’s even a price deflator specifically for state and local governments, which I’ve used here to get inflation-adjusted spending figures:

Now we can see that in comparable dollars, state spending increased from $13.1 billion in 1991 to $17.4 billion in 2002, declined to $16.3 billion in 2005, increased and leveled off at just over $17 billion from 2006-09, and since then has been in a steep decline, to $14.8 billion in 2011.

By this measure, state general fund spending hasn’t been this low since around 1997. But this chart is still missing something: population.

Washington’s population is growing, and that cuts both ways in the state budget. On the one hand, more people can mean more public services are required (more kids in schools, more public safety officials, more health inspectors, etc.) which can equate to increased costs. On the other, new residents are in some cases new taxpayers who will contribute to increased revenue.

The state uses caseload forecasts and demographic studies to anticipate expenditures for agencies and departments (and economic projections to account for increased revenue). But since we’re looking at total general fund expenditures here, for now I’ll just keep things simple and use overall population as a proxy.

According to the state Office of Financial Management, Washington’s population grew by more than 1.74 million between 1991 and 2011 (from 5,025,624 to an estimated 6,767,900). If you divide the inflation-adjusted numbers above by Washington’s population for the corresponding year, you’ll get this:

In inflation-adjusted per-capita dollars, general fund spending was more or less flat from 1991 to 1999 (at around $2610 per capita), then increased by about 10% to $2,869 per capita in 2002. Four straight years of declines followed, taking spending back to pre-1999 levels; after a small (4.2%) upturn in 2006, spending declined slightly every year, then fell more precipitously to $2,181 per capita in 2011.

By this measure, the general fund budget has declined by 24% since 2002, and by 16% since 1991 – in other words, it hasn’t been this low in at least 20 years. Tomorrow we’ll look at three other ways to get context for Washington’s budget.

—–

*The general fund is the principal state fund supporting the operation of state government. All major state tax revenues are deposited into the general fund, making it the largest single fund in the state operating budget. The operating budget constitutes the majority of all state spending and pays for most of the day-to-day operations of state government. Total operating budget revenue comes from a variety of taxes and fees, as well as federal funding, such as Medicaid and the Social Services Block Grant. Capital projects and transportation are not part of the state’s operations budget. Learn more in the Citizen’s Guide to the Washington State Budget.

Filed under: tax and budget, , , , , , , , , , , , ,

February 6, 2012 • 3:37 pm 1

Players and refs say minimum wage is a winner – but a few rich owners want a replay

By many accounts, the 2012 Super Bowl was a close game – but there’s still another big (political) football kicking around: the minimum wage. The players workers actually on the field job say it’s a clear winner – and so do the referees researchers who are closely watching the effect of this important rule. But a few rich owners are calling for a replay.

The Politics

On Wednesday, presidential hopeful Mitt Romney confirmed to the Associated Press his support for raising increasing the federal minimum wage automatically each year to keep up with the rising cost of living. (It’s currently fixed at $7.25 an hour, or about $15,000 a year for a full-time worker.) Newt Gingrich, now the GOP’s 2nd leading aspirant for the nation’s highest office, blasted that position on Meet the Press the following Sunday.

Romney’s position looks moderate – until you look at the stats. Tying today’s minimum wage to inflation would effectively pin a family of three under the poverty level. It’s just too little, too late. Regardless, the eventual Republican nominee will face a tough go on the issue against President Obama, who in 2008 endorsed raising the minimum wage to $9.50 in 2011 and then indexing it to inflation. (There’s still room for an even better rule: if the federal minimum had been indexed to the Consumer Price Index in 1968, it would be more than $10.30 today.)

Locally, Washington’s best-in-the-nation minimum wage was a big issue in the 2008 race for governor. In 2010, backed by a legal opinion issued by state AG Rob McKenna, it was the subject of an unsuccessful lawsuit by business groups seeking to block a 12-cent minimum-wage increase. But so far in 2012, neither McKenna nor Rep. Jay Inslee have had much to say on the issue – save for Inslee tweeting his approval of opposition to three Republican bills in the Washington legislature that proposed weakening the state’s minimum wage.

The Policy

The political debate centers on whether the minimum wage is good for jobs – which is an odd question for two reasons: 1) you’d be hard pressed to find any worker earning minimum wage now who thinks a pay cut will make their job better, and 2) in study after study, there’s no debate at all: higher minimum wages boost incomes without reducing employment or slowing job creation.

That’s true even for teens, who make up less than a quarter of low-wage workers directly affected by the minimum wage – but are often the poster children for proponents of a minimum wage cut. Today’s high teen unemployment is driven by the aftermath of the Great Recession and macroeconomic trends shaping the labor market, not by the minimum wage.

This and other research published over the past twenty years has largely discredited the studies generally relied on by those who support minimum wage cuts. Those studies failed to control for basic differences in population and job growth trends across regions of the country, like population migration from the Rust Belt to the Sun Belt. Control for that – by focusing on neighboring counties, which by their nature have similar economies) with different minimum wage rates – and any correlation between higher minimum wages and slower job growth vanishes.

Is Momentum Shifting?

It’s possible we’re watching a minimum wage increase move into the playoffs, if not the big game (a substantial federal increase plus indexing to inflation) quite yet.

Last Monday New York Assembly Speaker Sheldon Silver introduced a bill raise the state minimum wage to from $7.25 to $8.50 and then index it to inflation. Tuesday, Connecticut House Speaker Chris Donovan introduced a bill to raise the Connecticut minimum wage from $8.25 to $9.75 and then index it to inflation.  New Jersey Speaker Sheila Oliver is pushing legislation to raise the minimum wage to $8.50 and index it to inflation. Last week the Delaware Senate passed legislation to raise their state minimum wage from $7.25 to $8.25.

Similar proposals are already pending in Illinois, Massachusetts, Hawaii and California. Community members in Missouri and San Jose, California are gathering signatures to put measures to increase the minimum wage on the ballot in November. Eighteen states and the District of Columbia have raised their minimum wages higher than the federal level of $7.25 per hour.  Ten states have enacted measures to annually adjust their minimum wage to keep pace with the rising cost of living.

Filed under: minimum wage, , , , , , , , , , , , , ,

All Posts: Budget and Taxes »
All Posts: Social Security »
All Posts: Family-wage Jobs »
All Posts: Government »
donate
All Posts: State Economy »
All Posts: Paid Sick Days »
All Posts: Paid Family Leave »
All Posts: Early Learning »

Twitter Updates

Follow

Get every new post delivered to your Inbox.

Join 437 other followers