Comment: State won ‘economic lottery;’ it doesn’t need new taxes

With the recent boost in revenue, lawmakers shouldn’t seek to increase taxes so they can splurge.

By Kris Johnson and Steve Mullin

For The Herald

Imagine winning the lottery tomorrow. You’d have $10 million to spend on whatever you wanted in an instant.

Of course, the prudent thing would be to get a financial adviser and plan for the future. Ensure you have a strong foundation and adequate savings, then decide what you can splurge on. This scenario is not unlike the position our state finds itself in after years of economic recovery and expansion.

Economic and tax revenue growth in Washington state has been extraordinary over the last decade.

So much so that state and local tax growth in Washington was the highest in the nation from 2015 to 2016. The state expects tax collections will top $50 billion for the first time during the next two-year budget cycle. That’s $4 billion more than the last cycle and nearly $11 billion more than it had in 2015-17.

Washington has leveraged this growth to invest in important programs, dramatically increasing state funding for public education, for example.

But we need to recognize that this lottery-like period of growth is far from normal. And it has come at a time when Washington also steadily increased the cost of doing business here.

Washington’s state and local business taxes per employee are the seventh highest in the nation and are 16 percent higher than the state average. This as Washington has raised the state minimum wage, which is now tied with Massachusetts for the highest in the nation, and recently became the fifth state to require employers to provide paid family and medical leave.

As it stands now, the state could not sustain current program levels if another recession were to hit. The Legislature spent almost all of the state’s extraordinary revenue growth during the past few budget cycles.

Because these substantial increases in state spending have not been matched with a commitment to build strong reserves, it will put recent investments in education and other state priorities at risk when a downturn does come.

Nearly half of U.S. chief financial officers believe that the U.S. will be in recession by the end of this year, and 82 percent believe that a recession will have begun by the end of 2020. Trade wars, federal government shutdowns and geopolitical risks only add to the uncertainty.

Plus, outside of the central Puget Sound, unemployment remains well above the national average in most of the state; and it’s steadily ticking up.

Yet legislators are considering proposals that could lead to even more dramatic spending increases in the next two-year budget cycle and beyond. Many of those proposals come with new and higher taxes on employers. Reliance on new revenue that’s underpinned by assumptions of permanent growth could present a painful cliff when the expansion finally slows or stops.

Washington has experienced this boom-bust cycle before. Lawmakers increased spending by almost 18 percent in the 2005-07 budget and by almost 12 percent in 2007-09. Even after enacting a $774 million tax increase, lawmakers had to cut more than $3 billion from state programs in response to the Great Recession.

Layering on additional, unsustainable spending and further burdening employers could prove short-sighted when the economy slows and Washington is left with inadequate reserves, unable to pay for what was promised, attract new investment or spur job creation.

Let’s use our lottery winnings wisely. The Legislature should look beyond just the next two years and work to protect against an economic slowdown that is sure to come.

Kris Johnson is president and CEO of the Association of Washington Business, the state’s chamber of commerce. Steve Mullin is president of the Washington Roundtable, a statewide association comprised of senior executives from major private sector employers.

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