Replacing one tax with another won't help Spokane

December 19, 2011

Spokane City Councilman Richard Rush is introducing a plan that, on the surface, appears to be a net positive for citizens. He will ask the city council tonight to put a proposition on the February ballot that would repeal the city’s utility tax.

The utility tax is one of the main revenue sources for Spokane. It is collected on sewer, water and garbage fees. Getting rid of it altogether would force the city to reduce future spending by some $30-35 million.

However, the soon to be former City Councilman Rush has suggested replacing the utility tax with a city income tax or a business and occupation tax.

The city B&O tax idea is nothing new, but it is perhaps the most devastating for businesses. In Washington state, B&O taxes are paid on all revenues, not profit. In other words, if a Spokane business owner made $50,000, but paid out $50,000 in business operating costs, they’d still owe the tax. Washington Policy Center has long recommended the state replace its B&O tax. One idea is to adopt a revenue-neutral gross receipts margins tax, as WPC Government Reform center director Jason Mercier pointed out in the linked study.

As for the income tax idea, Washington state law prevents the implementation of an income tax by a city. Councilman Rush’s idea would give the state two years to change that and allow the city to adopt an income tax before the utility tax expired. Once again, this is a bad idea for citizens. One advantage a business in Washington has to attract high-skilled workers is no income tax.  If Spokane had its own income tax, it runs the risk of losing many of its workers. Those workers are the very ones who already pay property, utility and sales taxes. Nearly 65% of Washington voters rejected the idea of an income tax last year.

Spokane has one of the highest utility taxes in the state. WPC supports reducing the tax burden the city places on its citizens. Replacing it with an income or B&O tax, however, is not needed and poor planning. In 2011, the City of Spokane will spend more than $793 million.  WPC’s Policy Guide for Washington State contains dozens of ways governments can reduce their budgets by $35 million.