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Thursday, January 19, 2012

Money / Olympia Important Reminder: Washington Is a Wealthy State

Posted by Goldy on Thu, Jan 19, 2012 at 12:18 PM

John Burbank has created a lot of useful things over the years, including the Economic Opportunity Institute and a former Stranger news intern. But as legislators attempt to close yet another billion-dollar-plus budget gap, his latest column is a must read:

Our state will become $25 billion wealthier over the next two years (that’s how much our economy will grow). And yet for some reason, we can’t seem to find enough funding to keep up with public priorities. So we will likely see tuition at Everett Community College break the $4,000 mark, and the University of Washington will probably charge over $12,000. Class sizes in elementary school will top 30 kids or more. More people will be kicked off of Basic Health, right at the time when even more low-wage working people need health insurance.

Because of our over-reliance on the sales tax, we are hurting the vast majority of middle-class and low-income families, and we are leaving a lot of money on the already overflowing table of riches of the wealthy.

I've discussed it before, but it's worth repeating. No state relies more on the sales tax than Washington, a tax that cannot keep pace with economic growth. And since we continue to rely on a tax base that represents an ever shrinking portion of the total economy, state and local government continues to shrink relative to the total economy too, and with it, government's ability to maintain services at current levels.

It's simple math. And there's no reversing or even slowing this trend without substantive tax restructuring.

Comments (16) RSS

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And yet, the ever growing tax exemptions for Corporations and Millionaires continue to grow ...

Posted by Will in Seattle

on January 19, 2012 at 12:27 PM

John "latte tax" Burbank?

I thought he'd gone the way if the dodo.

Posted by Sugartit on January 19, 2012 at 12:28 PM

What are "public priorities"? Burbank does not say.

Posted by Sargon Bighorn on January 19, 2012 at 12:28 PM

No no no! It's always waste, fraud and abuse! Waste, fraud and abuse are the only things to blame. No taxes at all, none, nothing new, no tax raises. We'll get everything we need from cutting waste, fraud and abuse.

Posted by Zebes

on January 19, 2012 at 12:28 PM

"maintain services at current levels" means that spending must grow as fast as inflation plus population growth, not as fast as economic growth. The exact same road does not cost more just because richer people drive on it.

Now over the past few years of the great recession, the normal order has been inverted, economic growth was smaller than inflation/popgrowth, and state spending in those terms has actually has fallen a bit. But over the long term, the trend is clear: Washington state has increased its spending faster than inflation/popgrowth.

Posted by David Wright on January 19, 2012 at 12:38 PM

John Burbank created a former Stranger news intern? He's just like Pete Holmes that way!

Posted by gloomy gus on January 19, 2012 at 12:49 PM

yeah; it's simple math. If you can't afford kids; don't have them. The dumb people are reproducing faster than the smart people. Throwing money at the downward spiral is only going to compound the problem.

Posted by mountain dew on January 19, 2012 at 1:12 PM

@5, No, counter-intuitive as it may sound, growth in demand for public services closely tracks growth in aggregate personal income, because many of the services government provides are commodities, and as we become wealthier, we consume more commodities.

Also, because the cost of government services inflates faster than the CPI (services provided by well-educated professionals, and for which there are fewer opportunities for productivity gains via automation and outsourcing than in the economy as a whole), population plus inflation would not maintain services at current levels.

Posted by Goldy on January 19, 2012 at 1:33 PM

@5: Inflation plus population growth is a ridiculous indicator of how much it costs to provide government services.

I would love to transport you back in time to a place where the public schools taught your children math with log tables and the emergency room at the public hospital let your wife croak because there was no such thing as an EEG.

What a moron.

Posted by the idiot formerly known as kk on January 19, 2012 at 1:51 PM

Explain how sales tax is unequal, someone, anyone. Everyone pays the same percentage, are there some odd forms we can fill out to get exemptions from it?

Posted by KittenKoder

on January 19, 2012 at 2:05 PM

@8: "Maintain at current levels" is practically the definition of inflation/popgrowth. What you are describing is not "maintain at current levels" but "increase in accordance with increasing demand as income increases".

The word for a good that people choose spend a larger fraction of their income on as their income increases is luxury good. Historically, government has indeed been a luxury good: poorer countires spend not just absolutely less but also a smaller fraction of the GDP on government compared to rich countries. But recognize: (1) That is a definition based on consumer choices, not prices, so you if voters choose to spend less that is not "too little" under this metric; whatever they choose to spend is simply right under this metric. (2) The flip side of selling a luxury good is that demand falls faster than income when income contracts; don't tell me that government is a luxury good in good times, so we should extect it grow then, and a necessity in bad times, so we should expect it to grow then, too. (3) No good can continue to act like a luxury good over all income regiemes; if it did, we would eventually spend 100% of our incomes on it; if the good is government services, that would be paradise for Charles, I'm sure.

@9: It's fine if you and Goldy want your kids to have calculators instead of log tables; just don't describe that upgrade as "maintaining current services".

Posted by David Wright on January 19, 2012 at 2:25 PM

@10: A poor man and a rich man both have to pay $X in order to put food on the table and a roof over their heads. If such commodities are taxed at T%, both of them pay $XT/100 in sales tax every year. If the poor man makes $N per year and the rich man makes $10N per year, they pay respectively XT/N% and XT/10N% of their incomes in sales tax. This means that the poor man pays 10 times more of his income, percentage-wise, than does the rich man.
TL;DR: sales tax is essentially a flat fee rather than an equal rate, since the cost of living doesn't vary too much. Therefore, the poor pay relatively more than the rich.

Posted by venomlash on January 19, 2012 at 3:54 PM

@10 - Because someone who makes $20K a year spends 100% of their income; they have no choice in the matter. But someone who makes $500K has the luxury of spending maybe a quarter of it and investing the rest.

So yes, it's an equal percentage for everyone, but not everyone spends an equal percentage of their income. In this scenario, the former pays 4 times more of their income on sales tax than the latter does. This is not true for an income tax, even if it were assessed uniformly rather than progressively.

Posted by Free Lunch on January 19, 2012 at 3:58 PM

Look up Baumol's Cost Disease or the Baumol Effect:

http://en.wikipedia.org/wiki/Baumol%27s_…

As productivity in certain jobs drives economic growth, many jobs do not (and cannot really) achieve those gains. You still have to pay those people more effectively to compete with those working the more productive jobs.

Posted by decidedlyodd on January 19, 2012 at 4:14 PM

I don't mind paying more taxes than the poor but could they at least show some gratitude?

Posted by Sugartit on January 19, 2012 at 4:55 PM