State Senator Jeanne Kohl-Welles (D-Seattle) would like to create what she calls a "millionaire's tax" on high-income people living in Washington. This is exactly what happened in 1913 when the federal government created the income tax. The first income tax started at 1% and it applied only to the wealthiest people. Back then supporters of the tax said that most people would never have to pay it. As we know, within a short time paying the federal income tax became an all too common experience for Americans. Even if Sen. Kohl-Welles' "millionaire's tax" at first applied only to Bill Gates, you can be sure that in no time we would all be paying it.
I’ve been schmudgeted. An author at the schmudget blog takes deep umbrage at my contention (as well as my math) about whether all 28 signers of a recent Washington State Budget and Policy Center letter are economists.
He says I’m “off-base” when I say that 39.2857% of the people who signed the letter calling for a tax increase - “Economists Urge Lawmakers to Consider All Options in Addressing State Deficit” - are not economists.
Some of the signers are highly respected, indeed at the top, in their academic fields, but I think it is legitimate to question whether they can be described accurately as “economists.”It all depends on what being an “economist” means.
Schmudget objects I didn’t name names.I didn’t list names in order to keep things from becoming personal, but since he asks, consider the following:
Melissa Ahern is Associate Professor at the Department of Health Policy and Administration at WSU.Is she an economist?(Schmudget says yes).
Denny Brewster is a respected historian at the U.W.Is he an economist?
Hubert Locke is a respected historian and Dean Emeritus of Public Affairs at the Evans School at the U.W.,Is he an economist?
James Gregory is a Professor of History at the Center for Labor Studies at the U.W.Is he an economist?
Jeff Chapman is Research Director at the Budget and Policy Center.Is he an economist?
Marieka Klawitter is an Associate Professor of Public Affairs at the Evans School of Public Affairs at the U.W.Is she an economist?
Margaret Levi is a professor of International Studies in the Political Science Department at the U.W.Is she an economist?
Robert Plotnick is a Professor of Public Affairs at the Evans School of Public Affairs at the U.W.Is he an economist?
Hector Saez is a Value-Added Research Associate at the Center for Sustaining Agriculture and Natural Resources at WSU.Is he an economist?
Kathleen Painter is a Sustainable Systems Analyst at the Research and Extension Center at WSU.Is she an economist?
Jennifer Romich is an Assistant Professor at the School of Social Work at the U.W.Is she an economist?
Most people think of an economist as a professional who spends his day studying the economy.Maybe some people on this list fit that description, or at least the letter’s sponsor think they do based on college degrees, but I think reasonable people can question whether these 28 letter signers can all fairly be described as “economists.”
I have a graduate degree from the London School of Economics.Am I an economist?Who knows.But then I’m not being represented as one in an effort to get the legislature to pass a tax increase.
On February 19, the left-leaning Washington State Budget and Policy Center caused a flurry of attention when it issued a dramatic press release calling for a tax increase: “Economists Urge Lawmakers to Consider All Options in Addressing State Deficit.” The group has long advocated tax increases and a state income tax.
The press release resulted in the desired media coverage:
“Economists urge Legislature to raise taxes to deal with budget,” The News Tribune, February 19.
Further investigation, however, reveals that nearly half of letter signers, eleven of 28, are not economists. The non-economists include:
an associate professor of public health administration
a sustainable systems analyst
an assistant professor of social work
a research associate in sustainable agriculture
a public policy researcher
four professors of public affairs
In addition, nearly all the letter signers have a vested interest in urging the public to accept a higher tax burden to support larger government budgets; they either are directly employed by tax-funded institutions, such as a public university or community college, or they otherwise gain from public spending.
It is not unusual for people to promote public policies that benefit themselves, that is standard lobbying, but lawmakers should not give special weight to a letter claiming to give expert economic advice that does not come from economists.
Joe Copeland’s criticism (Sunday P-I, 2-8-09) of our recent study of the state-mandated home warranty bill misses the main conclusion of our analysis. The bill’s primary effect would be to create a new way for trial lawyers to file lawsuits against homebuilders, exactly the opposite message state lawmakers should be sending to the depressed housing market. All builders, even the most scrupulous, will have to buy more insurance to guard the increased legal threat, and pass the cost on to homebuyers. Increasing the potential for lawsuits introduces more uncertainty among buyers and sellers, at a time when the real estate market desperately needs greater predictability and confidence. Besides, if the purpose is to protect consumers, passing a bill!
to boost business for trial lawyers won’t help. The consumer complaint rate against building contractors is only 1.5%; the consumer complaint rate against lawyers is 7%.
There's a smart, well-reasoned editorial today in the Yakima Herald-Republic on the minimum wage - a topic that is usually debated with more emotion than common sense. The Herald-Republic editors talk reasonably about the economic effect of tying minimum wage policy to an automatic escalator, increasing it by formula every year no matter what is happening with the economy. Despite a softening job market, the law will force Washington's minimum to go to $8.55 an hour on January 1st.
Most people don't know that the minimum wage is a price control. Like all price controls, it reduces supply; in this case, resulting in fewer jobs. Naturally the burden of job loss fall disproportionately on the most vulnerable; low-skilled and minority workers. A Cornell University study found that, "a 10% increase in the minimum wage causes four times more employment loss for employees without a high school diploma and African American young adults than it does for more educated and non-black employees."
The poor, the homeless, teenagers, young workers and low-income families are the first to be hurt by rising unemployment. When the law artificially increases the cost of creating jobs, low-skilled workers are the first to be priced out of a shrinking job market. The minimum wage is not meant to support a family; 85% of people earning the minimum are either single or bringing a second income to their household. Losing a minimum wage job is like imposing a pay cut on low-income working families. In good times the high minimum wage is not noticed so much, since its job-killing effects are overwhelmed by rising prosperity, but as the country slides into recession, we can expect it to hit harder and last long in Washington than in other states.
The state faces a budget deficit of $3.2 billion. Olympia's usual prescription to solve the budget mess would be to implement a mix of tax increases and spending "cuts." This approach is misleading because it ignores the fact that the state will collect $2.4 billion MORE in tax revenue in the next budget cycle than in the current budget. So here are few constructive ideas to help lawmakers balance the state budget, without raising taxes:
1. Slow down the rate of spending growth. If lawmakers simply increase General Fund spending to $36 billion in the next budget, up from the current $34 billion, there would be no deficit. 2. Eliminate the new entitlement that will send a check from the state treasury to everyone in the state below a certain income level. 3. Eliminate the $160 million in wasteful spending identified in the Washington State Piglet Book. 4. Ask state public employees to again contribute 16% to the cost of their health benefits, as was standard a few years ago, instead of the current 12%. They would still get a great deal - the average in the private sector is 28%. 5. Delay implementation of the new all-day kindergarten entitlement. 6. Delay implementation of the new family leave entitlement. 7. Use the Priorities of Government process to slow down the rise in low-priority spending. Each year state agencies rank their programs by importance: one!
-third top priority, one-third mid-priority, and one-third low priority, but lawmakers usually ignore their recommendations.
That last one, initiated under Governor Locke, would be enough to solve the deficit on its own - in combination with other ideas, its a sure-fire winner. But whatever approach they take, when they convene in January state lawmakers should do two things. First, say "thank you" for the taxes we're already paying, and second, show they mean it by balancing the budget without adding to our financial woes.
State finances are a shambles. Olympia leaders have racked up a $3.2 billion deficit and unlike Wall Street, Congress is not going to bail them out. How did we get in this mess? It is not for lack of money. Tax revenues have increased every year, and today the people of Washington send more money to Olympia than ever before. The cause of the deficit is overspending. Tax revenues are up - by $2.4 billion according to the latest forecast - but state elected leaders have spent it even faster. Permanent spending is up 34% in four years, and this doesn't count a new entitlement that is due to kick in next year. One group is pushing for a sales tax increase. Boosting taxes is wrongheaded for three reasons:
1. It is not fair for state leaders to turn to working citizens and businesses that already shoulder a heavy tax burden and make them pay even more to fix Olympia's budget mess. 2. Tax increases depress economic growth, so raising the sales tax would only make a dire situation worse. 3. It doesn't make sense to reward the very Olympia leaders who created the deficit in the first place by letting them ratchet up the state's financial commitments. If we raise taxes lawmakers and the governor would say to themselves, "Wow, we spent all the money people pay in taxes and what happens - they send us MORE money!
Right now a tax increase doesn't look likely. The governor says she has no plans to raise taxes at this time. There are ways to solve the deficit without raising taxes - ways that do not require cuts in any programs and provide increases where they are needed. I'll provide the details in a future post.
The Seattle Times today correctly points out that when it comes to dealing with the $3.2 billion deficit people are in no mood for a tax increase, but they get it wrong when they say Gregoire and Rossi should talk more about what they want the government to do less of. That's because no matter who is governor, the state is going to spend more next year. Lost in the reporting about the deficit is the fact that Olympia lawmakers will have $2.4 billion more to spend next year compared to the current budget. Of course this is less than the $5.6 billion more they were hoping to get, resulting, to the disappointment of lawmakers, in a $3.2 billion deficit.
To folks in Olympia a slowing in the rate of revenue increase FEELS like a cut, even though we taxpayers are providing them with more money than ever. This paradox explains why politicians talk constantly of chronic budget crisis and painful spending "cuts," while taxpayers never feel any actual financial relief.
Sure, some state programs will need more money next year, while others should get less (like the $160 million in waste we identify in our Washington State Piglet Book), but the bottom line is Olympia lawmakers are going to control considerably more of our money next year than they do now. Lawmakers and the governor (whomever he or she is) will have to set firm priorities within a rising budget - after all, that's their job - but there is no question overall spending is going to go up. Of course, if Olympia hadn't cranked locked-in spending by more than 34% over the last two budgets, we wouldn't face this problem in the first place.
Once again, the media is describing the state's $3.2 billion budget deficit as a "shortfall" that will require "cuts" in the budget, leading the public to think painful reductions in current programs are coming. What political reporters often neglect to tell us is that state tax collections will be $2.4 billion higher next year than in the current budget. State spending will go UP, just not as much as lawmakers were expecting. The most accurate way to report on the state budget is to say: "The latest forecast shows Olympia lawmakers will have $2.4 billion more to spend next year, instead of the $5.6 billion they were expecting, resulting in a $3.2 billion deficit compared to the planned increase in spending." Sure it's a mouthful - but it's more informative than saying the "shortfall" will lead to difficult "cuts." State and local tax revenues are constantly rising, yet when was the last time !
you heard a governor, a legislator or a local official say, "Thank you"?
In a recent interview with The Stranger editorial board Governor Gregoire denounced criticism of her policy toward Indian gaming, saying, "I think this whole thing is racist, and I'm totally offended by it." she is obviously reacting against her political opponents, but the phrase "this whole thing" is pretty sweeping. Much of the numbers and analysis in the debate over Indian gaming policy comes from a study we published earlier this year - "Washington State Compacts with Tribal Businesses," written by one of our policy analysts, Brandon Houskeeper.
The governor probably wasn't thinking specifically of our study, but for the sake of openness we need to be clear: Indian gaming policy is a completely legitimate area of research and debate. There is nothing racist about publishing facts and analysis about a policy that has so much impact on the economy and the state budget. Indian gaming is a multi-billion dollar industry. Indian-owned businesses have a special tax status -- they do not pay state or federal taxes -- and the lack of an agreement to pay part of Indian casino profits into the general fund, which other states have, costs Olympia about $140 million a year.
If race is involved, it is not the fault of policy researchers at nonprofit think tanks. Under federal law Indian tribes set their own membership rules. Most tribes enforce a blood quantum requirement. The Snoqualmie tribe expelled 60 people this year because they didn't have the one-eighth tribal blood to be members. The fact that ownership of an Indian casino is based on race comes from the tribes, it isn't imposed by non-Indians.
Sure it's an election year, but outside political forces do not determine what studies the Washington Policy Center publishes. I do. I can't ask one of our policy analysts to spend months researching an important issue, struggle to understand the numbers and their implications, write it all up in an understandable way, and then worry that his work will attract an ugly label from a powerful government official. To pull back out of fear of being called something unpleasant would have a chilling effect on our entire research program, and would be a disservice to our supporters and to the reporters and policymakers who read our studies. The fiscal impact of Indian gaming speaks for itself. There is no reason an open public debate, informed by the facts, should somehow be placed off-limits.
In a recent newsletter to constituents, Sen. Margarita Prentice touts her vote in support of re-instating the voter-passed 1% property tax limit, which was struck down two years ago by a poorly-reasoned court decision (see my brilliant analysis of that decision here). Sen. Prentice assures hard-pressed homeowners that the re-instated limit "...means your property taxes cannot be raised more than 1% a year no matter how much the value of your home increases." This is a common mistake, although it's surprising to hear it from chair of the Senate Ways and Means Committee. The 1% limit applies only to total yearly tax collections by each taxing district. A homeowner can be tapped by elected officials in as many as ten districts, each one a!
dding 1% to its tax burden. A typical tax bill now exceeds $4,000 a year - real money, especially for people on fixed incomes.
Lawmakers could provide real relief by enacting a property tax cut. With the recent 31% boost in spending, all they'd have to do is slow down the rate of spending growth to free up plenty of money for lowering taxes. But given Olympia's in-grained habit for big-spending (often called "investments"), I'm not holding my breath.
The left-of-center Economic Opportunity Institute today, in a column in the Everett Herald, proposes a state income tax for Washington residents, followed by the quick assurance that, really, only a few people would have to pay it.
The first federal income tax started at 1% and only applied to the wealthiest 2% of people in the country. The first 1040 tax form was one page long. With 98% of the people exempt (at first), it’s not surprising that the idea was popular at the time (making OTHER people pay more in taxes has always had political appeal.) Today the top rate is 35% and, as we know, the federal income tax now applies to far more than just the wealthiest 2%. The folks at EOI would like to start a Washington state income tax at a 3% rate, rising to a 5% rate on yearly incomes over $1 million, and impose it on the wealthiest 4% of households.
If you are among the 96% who wouldn’t get hit by the new tax at first, don’t get too comfortable. Once Olympia takes a drink from the new money pipeline, you can be sure they will start looking for ways to open the tap wider.
In response to the wounding of two people at the Northwest Folklife Festival, Seattle Mayor Greg Nickels wants to ban legally-owned guns from city property. There are three reasons why this won’t work.
1) people who seek to hurt others don’t obey gun laws, so adding more laws won’t help. The shooter at Folklife had a history of drug abuse and mental illness, so the Snohomish County Sheriff’s office shouldn’t have issued him a gun permit in the first place.
2) Guns are used three to five times more often to prevent crimes than to commit them. There are thousands to would-be crime victims breathing today because at the right moment they had a gun to protect themselves. In 1990, a group of gang members pulled a Seattle man from his bicycle and beat him.He used his legally-registered handgun to shoot one of the assailants and stop the attack.In 2002, a West Seattle woman shot an intruder who had broken into her home and was beating her roommate.In 2003, an elderly Tacoma man confined to his bed shot an intruder who had kicked in his door and attacked him.In 2004, a Spokane woman awoke one morning to discover an intruder in her house, whom she held at gunpoint until the police arrived.
In 2006, a man walking across Westlake Mall downtown was kicked and beaten to the ground by a homeless man who said, “I’m going to kill you.”The victim used a concealed handgun to end the attack.Westlake Mall is city property.If Mayor Nickels’ ban had been in effect, the innocent citizen in this case would have been in for a trip to the intensive care ward, or to the city morgue.For a gazillion more examples, see www.nraila.org/ArmedCitizen/.
3) A gun ban is cynical posturing.Since the research is overwhelming that legal gun ownership prevents crime, calling for a gun ban is just positioning by politicians.They want the public to think they are “doing something” about gun violence, when their policy recommendations will make zero difference in the real world.Particularly in Seattle politics, checking the right liberal issue box is far more important than practical outcomes.
Barring citizens from legally carrying a gun in parks, streets and other city property sounds great to gun-ban activists, but it won’t change anything for the better.Legal gun ownership is not only a civil right, it is a proven way to reduce crime and save lives.After all, violent criminals do not have a right to safe working conditions.
Seattle P.I. columnist Joel Connelly criticized the Washington Policy Center in his column this morning. Here's the note I sent him in response.
Joel, I read with interest your column today. I assume your mention of "Washington
Policy Institute" refers to us. Not surprisingly, I don't share your view that public officials have had
to starve essential services because of I-747. Our research into the numbers simply doesn't back this up.
Even with the 1% limit on one type of property tax revenue,
our research has found that the state and most local governments have plenty of
money to pay for their core services. For example, state general fund spending has increased from $22.5
billion in 2001 to $29.6 billion today, more than inflation plus population
growth. Property tax revenue alone has
increased 15%, sales tax revenue is up 45%, B&O tax revenue is up 47%; all
in only six years. We've found the same
trend at the city and county level; i.e. Seattle's general fund spending is up
36%, 2001 to 2007, even though the city's population has been essentially flat
for decades; King County's spending is up more than 30%.
Since the hard-working people of our state are already
providing ample financial resources, don't they have a right to expect elected
officials to manage their money a little more wisely, by funding top-priority
services first, and using long-term planning to tackle lower-priorities? Instead, the people seem to get exactly the
opposite - elected officials fund routine, low-priority programs first,
especially those that benefit powerful interest groups, then turn to the people
and ask for yet more money. Seattle Mayor
Nickels' promotion of the special street repair levy is a good example of this
trend. I think that until state and
local leaders become better stewards of the large amounts people are paying
now, Eyman's limit-taxes message will always find an eager audience in this
state. Alternatively, any believable
signal from elected officials that they are willing to ease up on the financial
burden they place on citizens every year would take a lot of the steam out of
Eyman's message. - Paul.
Council president Nick Licata says a 1% limit on property tax increases means
“...important service like police, fire, transportation and human services are
at stake” (Seattle Times guest op-ed today, "Capping property-tax increases at 1% is a bad idea,") This is a common threat made
by public officials who oppose limits on increases in their annual
budgets. Six years ago, tax-relief
opponents said voter approval of I-747 “could cost lives.” In reality, Seattle citizens are providing
ample tax revenue for city coffers, paying core taxes on top of a dozen special
levies. Under our current leaders the
tax burden only goes up – it never goes down, even though the city’s population
has been flat for decades. As a result,
city spending is up 36% since I-747 passed, with the largest public payroll
ever. If the 1% limit is passed and
city officials follow through on their threat to cut vital public services, it
will not be for lack of money. The
public will suffer only if the Mayor and the City Council choose to starve
these services by diverting current revenues to lower-priority programs.