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.
There are a couple of great articles on taxes this morning discussing why voters should pay closer attention to the tax increase requests of elected officials. The first is in the Seattle PI (Time for Seattle to say no to taxes) quoting WPC's Paul Guppy:
Seattle voters have shown a remarkable willingness to tax themselves, even in the face of folly.
Not even President Bush, in his oil exploration days, managed to drill as many dry holes as elected officials operating out of Seattle's arid new City Hall.
We spent $444 million on the downtown bus tunnel, only to find that light rail tracks were the wrong size. A $45 million retrofit was required.
The monorail was a bust that cost local motorists $110 million. After investing $5 million in self-cleaning, high-tech toilets, the city ended up selling them on eBay for $12,500.
With a passive public -- and no political opposition -- city fathers and mothers have continued to pile on parking taxes, head taxes, bag taxes and various costs associated with politically correct garbage disposal and food recycling.
Paul Guppy, vice president for research at the conservative Washington Policy Center, offers up a provocative argument that every liberal Emerald City voter ought to ponder.
"Seattle leaders have learned that when they shape public funding choices in a certain way, voters will almost always go along," he writes. "From an elected official's point of view, this funding strategy makes perfect sense. After all, as long as voters continue to say 'yes' to paying more taxes, why not keep asking them for more taxes?
"One would expect this pattern to continue until city officials see voters express an unwillingness to go along and, because of economic worries or awareness of the accumulating tax burden, reject a special levy."
In short, just say no.
The second article is in the Seattle Times (Can we tax Peter, pay Paul?) highlighting the prospect of "intergovernmental cannibalism" on taxes:
OK. So I have a dumb question. It came to me when I realized last year's tax increases by coincidence almost equal this year's draconian cuts.
Why not use that money to solve this "crisis?" Why not, at the least, cancel those ridiculous foot ferries?
They are the old Mosquito Fleet walk-on ferries, between Kirkland, Renton and Seattle on Lake Washington. And Shilshole to downtown Seattle on the Sound. The council raised property taxes to reincarnate them last November.
None of these cities are on islands — a large part of why the last such ferry petered out in 1939. Each run today will carry maybe 300 riders. Yet we're steaming ahead with it. Even as we cut 59 cops. And call it all "a recipe for disaster."
The sheriff liked my dumb question.
"We can't tax people for all these special projects and then allow core functions of government, like public safety, to go down and down," she said . . .
On my way out, I ran into Scott Noble, the county tax assessor. I said this seems like no way to run a government. You have no idea, he said.
"There are 160 taxing districts in this county, all overlapping and competing," he said. "In tough times, you're going to see every one hard after the same buck. Something's got to give, but nothing's giving. So many are responsible that no one is accountable.
"I predict intergovernmental cannibalism."
He said that last part like he was looking forward to it.
It looks like now more than ever policymakers need to agree to a set of guiding principles of taxation to help keep taxpayers from being at risk of intergovernmental tax cannibalism.
With Washington facing a projected $3.2 billion budget deficit (the difference between growing revenues and even faster projected spending growth), the temptation exists for elected officials to close the budget gap with tax increases. Already policymakers are being encouraged to enact a “temporary” sales tax increase. Before any conversation about raising taxes can occur, however, state officials should first agree to a set of guiding principles on taxation.
The proper function of taxation is to raise money for core functions of government, not to direct the behavior of citizens or close budget gaps created by overspending. This is true regardless of whether government is big or small, and this is true for lawmakers at all levels of government. Many lawmakers think of the tax code as a way to penalize “bad” behaviors and reward “good” ones. They have sought incessantly to guide, micromanage and steer the economy by manipulating the tax laws.
Taxation will always impose some damage on an economy’s performance, but that harm can be minimized if policymakers resist the temptation to use the tax code for social engineering, class warfare and other extraneous purposes. A simple and fair tax system is an ideal way for advancing Washington’s economic interests and promoting prosperity for its residents.
Recommendations for tax reform:
Adopt guiding principles based on equity and economic neutrality to shape changes in Washington’s tax system, so the tax system is focused on raising needed revenue for core functions of government, not directing the choices and behavior of citizens. Basic to the concept of a fair tax system is that the state should take no more from citizens than it needs to pay for the core functions of government. This consideration goes beyond the need to balance the budget; it is a matter of fundamental respect and trust between citizens and their government.
Policymakers should seek to lower the overall tax burden to promote prosperity and opportunity in the economy for the benefit of all citizens. Washingtonians require and expect basic government services, and taxes must be collected to pay for these services, but government revenue should be limited to real public needs, so the tax system itself does not become one of the major problems of life. A fair and efficient tax system is a matter of having respect for the citizens of our state.
Embrace tax transparency by creating an online searchable database of all state and local tax rates. Policymakers should build on the state’s transparency reforms and help citizens learn more about what government decisions mean to their pocket books.
The people of Washington work hard for what they earn. Money paid in taxes is by definition not available to meet other needs. As a matter of respect to citizens, policymakers should work to keep the overall level of taxation to the absolute minimum needed to pay for the core functions of government while being transparent about the total tax burden being imposed.
SEATTLE (AP) - Union leaders say striking Boeing workers should apply
for unemployment compensation but concede they have little chance of
collecting....The Machinists union strike has shut down Boeing's aircraft assembly plants since Sept. 6.
As the story says, union leaders concede there is little chance of collecting the benefits. Under current state law, striking or locked out workers are not eligible for UI benefits.
But make no mistake that efforts have been underway for awhile to make it so that workers involved in a labor dispute could, in fact, collect taxpayer-funded unemployment insurance benefits.
SB 6327, introduced earlier this year, would have taken steps to make this a reality. It died in committee, as did its companion bill in the House, but expect it to rise from the ashes in 2009, particularly if the Boeing SPEEA dispute is still going.
A new report out by the Cato Institute shows that the effect of cutting the United States' corporate tax income would have a significant effect on GDP. This policy recommendation should be seriously considered given everything that is happening in the world credit markets.
Just today it was announced that new housing construction is at its lowest level in decades and that consumer confidence took a historic hit in the last month. So it should be incumbent upon policymakers to ramp up GDP growth through incentives such as lowering the corporate income tax.
Of course, this will run against canards that businesses in the United States don't pay taxes, which is nonsense. First of all, businesses pay taxes (or should anyway) on their profits and the last couple of years have seen wild swings in various industries -- particularly industries with low profit margins. Secondly, the government continues to collect more tax revenue every year than the previous year.
The Cato piece, written by Dr. Jack Mintz, demonstrates that every percentage point the U.S. cuts its tax rate on capital will result in increased direct foreign investment by about 0.1% GDP. A 10 percent rate cut? A resulting 2% growth in GDP -- or about $300 billion. That's real money.
Mintz also addresses concerns that cutting the tax rate too much will result in further budget deficits by pointing out that statistical analysis shows that cutting the rate by 10% will actually bring in more revenue to the federal government. He says that the revenue-maximizing corporate rate is about a 28% effective tax rate (or about a 25% corporate tax rate).
The trick is finding the bread-and-butter rate for encouraging investment and economic growth while capturing increased tax revenue. It turns out that the current 39% combined U.S. federal and state rate is too high -- particularly since it is the third highest combined rate in the world.
It appears the University of Washington is hoping a "liberal" Legislature will be sympathetic to its quest to receive tax revenue to renovate Husky Stadium. The Seattle PI reports (UW votes to advance stadium work):
The nation's slumping economy and the state's budget woes won't stop the University of Washington from pressing forward with plans to overhaul crumbling and badly outdated Husky Stadium.
University regents voted Thursday to authorize negotiations with a contractor for the stadium, moving a giant and potentially expensive step toward the project's design phase. But regents acknowledged that it could be a risky move for the university, since funding for half of the project has yet to be obtained.
The UW wants to finance half of the $300 million project through private funding and the rest through public tourist tax revenue -- the same revenue that funded Qwest and Safeco fields. But the Legislature shut the tourism-tax idea down earlier this year, and it's not yet clear if lawmakers will be more receptive to the proposal in 2009 when they'll be staring at a projected $3.2 billion spending shortfall . . .
"It is a tough sell, but the Legislature is pretty liberal, and I'm preaching Keynesian economics now," Woodward said, referring to the theory that the state can stimulate economic growth by means of -- among a long list of other things -- government spending.
Conversations with staff in the Governor’s budget office today indicate that the UW’s share of these reductions is $9.6 million, which represents about two percent of our total FY 2009 state funds appropriation. It’s important to note that this is not an “automatic” budget reduction, but will be included in the Governor’s budget recommendations t!
o the Legislature. Ultimately, it will be up to the state legislature to decide whether these reductions are implemented and how much will be cut from each agency’s current biennial budget.
So will what the UW calls a "liberal" Legislature slow the growth of the UW's budget while approving a tax increase for its stadium renovation? Talk about mixed signals.
In a 5-4 ruling the state Supreme Court today ordered the Port of Seattle to treat health care benefits for its employees like pension benefits and pay them into retirement. The case is Navlet v. Port of Seattle. The majority ruled:
. . . the Port is obligated to provide retirement welfare benefits for life to Appellants who have satisfied the eligibility requirements to receive such benefits . . . The trial court held that Appellants had no vested right to receive retirement welfare benefits because the [Collective Bargaining Agreement] CBA did not “unambiguously” vest the welfare benefits beyond the duration of the CBA itself. The court misconstrued our precedent regarding the creation of a vested right to retirement benefits. The conferral of compensatory retirement welfare benefits through a collective bargaining agreement creates a vested right for eligible re!
tirees absent express language in the agreement specifically limiting the right to such benefits.
I have great sympathy for the workers in this case, but the fact is that their contractual agreement with the Port does not authorize the benefits they seek. The unfortunate result of the majority opinion is that many employers will cease providing any health care benefits at all to employees in order to avoid the possibility of incurring an obligation to provide benefits for life -- at the least they will cease providing retiree health care benefits. The majority opinion is likely to affect a great many employees who, although not before us in this case, will suffer loss of health coverage and possibly loss of jobs before they acquire vested rights under the majority opinion.
. . . Ultimately, in the absence of anything in the parties’ agreement that states that a vested right to health care benefits for life is intended by the employer, the court is asserting itself as a super-legislature. The court should refrain from overstepping its constitutional role in this way.
This case is yet another example of a 5-4 ruling leaving the minority questioning whether the majority understands its constitutional role.
Nov. 4, voters in King, Pierce and Snohomish Counties will again decide
on whether to expand Sound Transit's regional mass transportation
system. The new Sound Transit proposal (ST2) would add 36 miles of
light rail, expand the Sounder commuter rail by four daily round trips
between Tacoma and Seattle and expand the Express bus system by 17
Sound Transit estimates the cost would be about $22.8 billion over the next 30 years.
The agency's officials also estimate that if ST2 passes, it will
carry only 0.4 percent of all daily trips and 2.4 percent of all daily
work trips by 2030. Sound Transit officials also show ST2 would only
reduce the region's carbon-dioxide emissions by about 1 percent.
There is no doubt mass public transportation is part of the solution
to reduce traffic congestion, especially in dense population centers.
But Sound Transit's plan would disproportionally spend large amounts of
public resources on a transit program that will serve less than 1
percent of all trips.
Public-sector spending decisions typically are based on perceived
value and whether taxpayers believe they are receiving a proportional
benefit for the money spent. In other words, the social value of $22.8
billion should be equal to its economic costs. The difficulty is
defining the social value. Is a transit system that carries less than 1
percent of all daily trips worth more or less than doing something else
with $22.8 billion?
In Sound Transit's case, there is a large space between costs and
benefits because the agency's goal is not to reduce traffic congestion
or to reduce carbon-dioxide emissions. In fact, Sound Transit's only
official objective is simply to collect taxes and build a mass-transit
system, regardless of costs or performance.
In other words, there are no performance measures or benchmarks as a
condition to Sound Transit's taxing authority. Oh sure, Sound Transit
officials do have some limitations on how taxes can be spent, but in
terms of measuring success, they are only judged on building and
operating a transit system. It doesn't matter to Sound Transit how few
people they serve or how few pounds of carbon dioxide are reduced. So
it is not surprising that Sound Transit's own analysis shows how poorly
it would perform in these areas.
Spending billions of dollars in public money on a transportation
system that has no relationship to market demand or other performances
goals is only a public construction and employment program. In fact,
supporters tout job creation as a benefit of passing the measure.
As with any public-works project, spending public money to create
jobs is not economically efficient and does not lead to a net social
benefit. Sound Transit officials would only shift $22.8 billion from
one sector of the economy to another.
In economic terms, offsetting the temporary growth in the
construction industry and the permanent expansion of government with
the losses in other sectors would not simply be a neutral shift of
resources. It is well understood that the value of money is always
worth less in the hands of government because public-sector costs are
generally higher and the spending is not based on economic forces.
Either way, while Sound Transit officials are spending $22.8 billion
in the name of transportation policy, traffic congestion will continue
to double or triple over the next 20 years.
Whether or not Sound Transit's ballot proposal passes, policymakers
should change the current system in which transportation spending is
based on other agendas and instead apply a performance-based policy
where value and effectiveness determine where spending takes place.
In business, measuring performance is a way of life. It is viewed as
an indispensable tool that shapes decisions about how resources are
distributed. In the public sector, however, performance measures are
treated as an inconvenience, because they can oppose how policymakers
want to distribute resources.
In Sound Transit's case, the agency exists only to build a
mass-transit system, regardless of objective public need, costs or
While the legislative process should have the final authority,
basing transportation decisions on anything other than measurable
outcomes inevitably leads to a fragmented collage of spending that has
no relationship to relieving traffic congestion.
Performance-based policies that tie spending to specific benchmarks,
like traffic-congestion relief, is the key to allocating transportation
resources in a strategic and efficient way. Otherwise, government
agencies such as Sound Transit will continue to propose plans that have
no relationship to the one solution citizens want most,
The Judicial branch is arguably the most powerful branch of government yet it receives the least amount of attention of the three. Thankfully groups like the Federalist Society are doing their part to highlight the decisions judges are making that impact our lives.
The state Supreme Court cases reviewed from 2007/2008 fall under six headings:
The Initiative/Referendum process;
The public’s right to know through the public disclosure/open records laws;
Freedom of political speech;
Private property rights; and
The right to earn a living.
Speaking of the Federalist Society, WPC is co-sponsoring an event with them on October 24 to discuss the Economic Bail-Out of 2008. Here are additional details:
October 24, Washington Athletic Club in downtown Seattle, 11:30am registration and seating, program begins at noon. Cost is $25 per person. Please RSVP by Wednesday, October 22 by email to Sonya Jones at redraider2x [at] yahoo [dot] com, or by phone at 425-753-0984.
In the study, we conducted a comparative analysis of the six existing light rail systems on the West Coast that have been operating for at least ten years. The cities include Los Angeles, Portland, Sacramento, San Diego, San Francisco, and San Jose.
As it turns out, operating light rail is more expensive than buses in some cities and less in others. On average:
The total annual operating costs (not including capital) for the six light rail systems on the West Coast was about $439 million in 2005.The total trips for the same systems in 2005 were 167.6 million.
This means the operating cost for the six light rail systems on the West Coast was $2.62 per trip.
The total operating costs for traditional bus service in the same six agencies was about $1.5 billion and annual trips were about 642 million. The operating cost for traditional bus service in 2005 was about $2.34 per trip.
When accounting for passenger demand, light rail on the West Coast is
12 percent more costly to operate than buses in the same six cities.
Niles looked at some other cities, substantiated our findings, and made the following conclusion:
Light rail in big cities like LA, San Francisco, and Dallas is more expensive to operate than buses in the same city.
This is the counterpoint to the Prop 1 Yes campaign and Sound Transit observation that in Portland, light rail operates at lower cost per boarding than buses.
To improve citizen access to public information, we recommend cities publish their annual impact fee reports online. Currently, cities that collect impact fees are required to prepare an annual impact fee report per RCW 82.02.070:
“Annually, each county, city, or town imposing impact fees shall provide a report on each impact fee account showing the source and amount of all moneys collected, earned, or received and system improvements that were financed in whole or in part by impact fees.”
It was noted that citi!
es are preparing these annual reports; however the information is generally not published or available online. Requiring the cities to publish these annual reports online would help to facilitate the State of Washington’s initiative to increase transparency and accountability of government agencies and programs.
The main conclusions from the performance audit are:
Lack of clarity in state law may be causing some cities to calculate and spend impact fees in a manner that could be inappropriate.
One city is charging builders higher impact fees than they should and their fees are not supported by a capital facilities plan as prescribed by law.
New developments in some cities are receiving questionable benefits for the impact fees paid.
Last year, Congress promised to shed light on the secretive process. But the lists of earmarks are still buried in obscure documents that are difficult to find and search. Until Congress put them online a couple of weeks ago, the House disclosure letters, linking lawmakers to companies, were thick volumes of paper kept in a cabinet in the offices of the House Appropriations Committee.
When a reporter for the Congressional Quarterly pointed out how difficult it remains to pull all the information together, Rep. John Murtha, D-Pa., chairman of the committee that drafts the defense bill, had a quick answer: "Tough shit."
The never adopted 2005 Spokane Tribal gaming compact continues to be a hotly contested issue in this year's gubernatorial election. Unfortunately there is a lot of misinformation regarding claims of what the compact would have done in terms of expanding gambling in our state.
The Governor says that she rejected the proposed 2005 compact in part because it would have meant an expansion of gambling into ordinary neighborhoods. This is not actually what the compact said.
According to the proposed 2005 compact, the Spokane Tribe would have been allowed to operate up to five casinos, only one of which would have been allowed at an off-reservation location. Even that one casino would have been allowed only if the off-reservation location were located on U.S. trust lands and received approval from Spokane County.
The provisions in the 2005 compact, allowing for one off-reservation casino, is a far cry from gambling popping up in neighborhoods like Starbucks.
For those that want to read the actual language of the proposed 2005 compact I have included it below:
"The Tribe may establish as many as five (5) gaming facilities for the operation of any Class III games authorized pursuant to this Compact. Except as provided in subsection 1 (B) below, the gaming facilities shall be located on trust lands within or contiguous to the boundaries of the Spokane Indian Reservation… The Tribe may establish, as one of its five (5) facilities, an off-reservation gaming facility on certain lands currently held in trust by the United States for the benefit of the Tribe in Spokane County, Washington, as further described in the legal description attached to and incorporated i!
n this Appendix Spokane as "Attachment B", and the Governor agrees to concur pursuant to 25 U.S.C. Section 2719(b) (1)(A) if the following conditions occur:
(1) The Department of the Interior determines that the off-reservation site is in the best interests of the Spokane Tribe and not detrimental to the surrounding community pursuant to 25 U.S.C. Section 2719(b)(1)(A); and
(2) The County Commission of Spokane County adopts a Resolution that it does not object to gaming on the off-reservation site and authorizes the County to enter into a cooperative intergovernmental agreement with the Spokane Tribe; and
(3) The development of the gaming facility is treated as a non-exempt “project” in the context of compliance with the National Environmental Protection Act.."