public finance notes

							public finance notes
                                                                                                                        The
                                                                                                                   Evans
                                                                                                                        of
                                                                                                                             School
                                                                                                                             Public Affairs
                             February 27, 2001

                                                  Despite Budget Crisis, Legislators
                                                  Propose $977.9 Million in Tax Cuts
For seven consecutive years,                                   Cost of Proposed Tax Reductions
the Legislature has reduced                               Non-Duplicative Aggregates, Legislation introduced as of February 15
                                                                              Millions of Current Dollars
taxes on an unprecedented
scale. Faced with the worst
revenue shortfall in two                                      (385.8)
                                                                                                                   (490.0)
decades, legislators show little
sign of losing their appetite
for additional tax cuts.
                                                              (592.1)
P ENDING L EGISLATION
Several thousand bills are introduced
each session, but only a handful are                                                                             (1,040.1)
enacted into law. This session nearly
a h u n d r e d b i l l s h ave b e e n
introduced reducing general fund
revenues. They range from efforts
to phase out the state property tax
t o t a x ex p e n d i t u r e s fo r l o c a l             2001-2003                                            2003-2005
government (credits against state
                                                                            General Taxes
taxes for undertaking local spending
on public facilities).                                                      Targeted Business Taxes

E xc l u d i n g c o m p a n i o n b i l l s –
duplicate legislation introduced
simultaneously in the opposite                    Current Taxes                             77.3%                                   22.7%
house – a total of $1.8 billion in
general fund reductions have been
proposed for the 2001-2003
biennium.

Aggregating tax proposals (to avoid
double-counting the revenue loss                  Proposed Cuts                       60.5%                                    39.5%
from overlapping cuts) reveal a non-
duplicative impact of $977.9 million
for 2001-2003 and over $1.5 billion
for 2003-2005. Experts downplay                                    Sources: 2001 Fiscal Notes (including some preliminary data) and Fiscal Policy
the likelihood of passage of most of                                          Center estimates. Tax data is initial incidence excluding general taxes
                                                                              (Property and Sales/Use).


http://depts.washington.edu/fpc
                        Cumulative Impact of Tax Changes Enacted Since 1994
                                 General Fund, Millions of Current Dollars, Fiscal Years
                       1995         1996         1997       1998       1999       2000        2001         2002         2003
               -
                         (51)
         (200)
                                     (237)
         (400)
                                                  (391)
                                                             (429)

         (600)
                                                                        (621)

         (800)
                                                                                   (856)
      (1,000)

                                                                                              (1,113)
      (1,200)                                    2001-2003 Impact:                                         (1,173)
                                                 $2.406 Billion                                                         (1,233)

      (1,400)


these bills, but new momentum has                pre-tax prices, and thus is partially     Since passage of Initiative 601 in
emerged with the ruling against                  borne by businesses. Washington           1993, the Legislature, ballot
Initiative 722.                                  is one of only six states that does       initiatives, and referendums have
                                                 not tax corporate profits; to the         collectively slashed a host of taxes.
B USINESS T AXES                                 extent profits are significantly taxed,   Constrained by the 601 spending
Over half of the tax proposals and               it is through the business and            limit, lawmakers have reduced the
39.5 percent of the 2001-2003                    occupation and property taxes.            size of government in real per capita
r evenue impac t is specificall y                                                          t e r m s , f u n d i n g p ro p e r t y a n d
targeted at businesses. Relief                   T AX I NCREASES ?                         business tax reductions.
proposed is close to double the                  Washington’s poor fiscal outlook,
proportion of current taxes – only               made bleaker by recent caseload           The 2001-2003 revenue cost of tax
22.7 percent are levied solely on                projections, has nonetheless done         changes since 1993 is $2.4 billion.
businesses. The vast majority of                 nothing to spur consideration of tax      Enacting further tax cuts will
these bills involve exemptions and               increases. As of February 22nd, only      increase the budget deficit.
rate reductions to the business and              a proposal to change the method of
occupation tax.                                  taxing electricity producers would
                                                 boost general fund revenues – by
It is important to distinguish                   roughly $300 million. Nonetheless,
between the initial and ultimate                 the legislation (which establishes a
incidence of taxes. Although the                 planning commission) is unlikely to                fiscal
business and occupation tax is                   produce new revenues for non-                          policy
assessed on businesses, much of it               energy purposes.                                        center
is simply passed along to consumers
i n t h e fo r m o f h i g h e r p r i c e s .   At the same time, Washington’s                      University of Washington
                                                                                                   Parrington Hall, Box 35360
Similarly, the sales tax, collected              present revenue shortfall reflects the          Seattle, Washington 98195-3060
from consumers, tends to depress                 impact of seven years of tax cuts.                Telephone: (206) 543-0190