Washington state relies heavily on a sales tax for state revenue. More than 40 states in the union rely on both a sales tax and an income tax. Now there is fresh insight about what that means for Washington state compared to its neighbors.
An unofficial calculation by Department of Revenue indicates that if Washington state had Idaho’s tax system, it would be making double the revenue from taxes.
According to the document, Washington would bring in $21.9 billion in a biennium, instead of $11.7 billion, if it used Idaho’s mix of low-income and sales taxes. The document also looks at Oregon’s income-tax based system and finds almost the same result: Washington would make $21.3 billion if it used Oregon’s tax model.
State Senator Reuven Carlyle asked the Revenue department to run the numbers. KUOW learned of the document in an interview with the state treasurer, James McIntire.
There is long-standing public concern that government wastes money unless it is kept on a tight revenue leash. Carlyle said his conclusion from the calculation is that Washington state’s revenue picture goes beyond that. Washington, he said, has “the most economically and structurally inefficient system … just doesn’t pass the straight face test.”
Washington's revenue is low partly because of a trend affecting all states with a sales tax. Starting in the mid-1990s, businesses began to purchase on the internet to control costs – often avoiding state sales tax. Sales tax revenues started slipping, failing to keep up with growth in the state’s economy. Consumers soon followed, and the slide continued.
Senator Carlyle said he does not conclude that Washington needs an income tax from the three-state tax comparison. He said it indicates that small changes in a state’s tax structure can have significant revenue effects. And he raised concerns about the adequacy of the state’s revenue.
“Are we meeting the needs of 7 million people? Are we meeting the needs of a 21st century community?” he asked. “I think given that we are under court order for failing to fund public education, there's a very compelling argument to be made that we are not.”
Washington's Treasurer James McIntire said fully paying for public education to comply with a Supreme Court order could cost the state $3.5 billion per biennium. Some or all of that amount could be stripped out of current government spending. That would crowd out other functions of the state, such as the corrections system or Medicaid.
Or new revenue could be found. The Revenue Department figures indicate that if Washington had Idaho's tax system, or Oregon’s, the money would be there.
Explore the graphic to see how taxes in Seattle stack up against other cities.
(Note: A negative number under income tax means the state offers a tax credit to low-income earners.)
Source: Government of The District Of Columbia, 2014