Washington Taxpayers Lose Economic Freedoms under Ruling Class, Inslee
March 28, 2013 -
Washington state’s ruling class is at it again. After less than four months in office, Gov. Jay Inslee has already violated a major campaign promise he made on taxes to get elected in 2012.
“After a year of pledging that higher taxes won’t be needed to fix Washington’s budget woes, Governor Inslee has broken his campaign promise with his budget that would raise $1.2 billion in new revenue to pay for increased government spending,” wrote Erin Shannon, director of the Center for Small Business at the Washington Policy Center (www.washingtonpolicy.org).
Moreover, she wrote “Inslee’s budget proposes the largest increase in government spending” in several years. That’s an 11 percent increase – the largest since 2005 when Gov. Gregoire’s proposed an 18 percent hike just after she was elected.
Governor’s disingenuous claim
At the least, Gov. Inslee is disingenuous. He claims extending the tax hikes are not tax increases.
“Part of Inslee’s budget would roll back a series of tax breaks for businesses and individuals, and would make permanent tax increases that were supposed to be temporary and set to expire this year,” wrote Ms. Shannon.
“Those temporary taxes were part of SB 6143, an $890 million tax package passed by the Legislature in 2010,” she explained. “Included in the bill were increased Business & Occupation taxes and an increased tax on beer, among other tax increases (increased taxes on soda and bottled water were subsequently repealed by voters via I-1107).”
Legislators’ broken promises
Voters were told the tax increases wouldn’t be forever. Lawmakers claimed the taxes would end June 30, 2013.
“When debated, lawmakers promised the controversial tax increases would be temporary increases in revenue. Then Senate Majority Leader Lisa Brown gave rousing floor speeches on March 7, 2010 and April 12, 2010 promising the taxes would be temporary,” Ms. Shannon remembers.” Senator James Hargrove is also on record reassuring opponents the tax hikes would not be permanent.”
Are you amused? There’s more.
“By extending these taxes, Governor Inslee would impose an additional $661 million tax increase on Washingtonians in 2013-2015,” observes Ms. Shannon.
“When Inslee first indicated he might extend the tax increases (his second day in office) he explained that allowing those temporary tax increases to continue is not breaking his no-tax campaign promise because it is not an actual tax increase…”
Sure. And the reasons for the tax increases have nothing to do with over-spending.
My question is: How long will it take for voters to realize they’re responsible for continuing to elect a ruling class.
From the Coach’s Corner, as it is, in a ranking of economic and personal freedoms, Washington residents languish 29th in the nation, according to an academic study.
The study’s data range from fiscal policy and regulatory policy to personal freedom in the Freedom in the 50 States 2013 study by the Mercatus Center at George Mason University.
To bring Washington in line with national norms, researchers recommend several policy improvements:
- The state should stop over-spending (spending is too high in proportion to tax revenue).
- Reduce government employment.
- Reduce spending on unemployment and workers’ compensation.
- Protect the property rights of landowners by with eminent-domain reforms and either “repealing or amending the Growth Management Act and the Shoreline Management Act.”
- Stop relying on sin taxes.
THE RULING CLASS…now even the deviancy of the old nobility is becoming more commonplace…as once they were given land by the sovereign, upon which to live well…now they are given government pensions and benefits.
-Frequent Biz Coach Reader
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Author Terry Corbell has written innumerable online business-enhancement articles, and is a business-performance consultant and profit professional. Click here to see his management services. For a complimentary chat about your business situation or to schedule him as a speaker, consultant or author, please contact Terry.
‘Ruling Class’ Beats Voters – Thanks to Washington Supreme Court
Feb. 28, 2013
“The Ruling Class — now, even the deviancy of the old nobility is becoming more commonplace…as once they were given land by the sovereign, upon which to live well…now they are given government pensions and benefits.”
-frequent Biz Coach reader
Washington state businesspeople and consumers, alike, have been dealt a blow by the state Supreme Court. In a 6-3 ruling, the court threw out the voter-approved mandate requiring a two-thirds legislative vote in order for lawmakers to raise taxes.
The court dubiously ruled such voter-approved initiatives are unconstitutional. The ruling followed a lawsuit by left-leaning Democrats and groups opposing the will of the taxpayers. So, the “ruling class” won.
Washington’s “ruling class” — including many lawmakers, bureaucrats and public employee unions — marches forward with deficit spending and lucrative pensions for state workers. Washington state’s unfunded pension liability is $52 billion, according to Retirement Benefit Solutions (http://www.usrbs.com/unfunded.html).
The two-thirds requirement was passed by voters to require the Legislature to honor voters’ wishes in five elections:
- 1993
- 1998
- 2007
- 2010
- 2012
But each time the Legislature circumvented the voter-approved wishes. Under state law – if legislators wait two years – they can violate the will of the people by changing the initiatives with only a majority vote.
“Our holding today is not a judgment on the wisdom of requiring a supermajority for the passage of tax legislation,” the majority opinion said.
“Such judgment is left to the legislative branch of our government. Should the people and the legislature still wish to require a supermajority vote for tax legislation, they must do so through constitutional amendment, not through legislation,” added the majority opinion.
The bad news: So once again, tax increases can be imposed by a single vote of the Legislature’s two bodies, the House and Senate, and a signature by the governor.
Some good news
A silver lining: The state Senate is controlled by Republicans. They’re on record – vowing to oppose tax increases.
The GOP took charge of the Senate, thanks to two Democrats: Tom, D-Medina, and Tim Sheldon, D-Potlatch. This year, they began caucusing with the Republicans.
Generally, Democrats are looking forward to raising taxes according to published reports. As a result of too-much spending, Washington perennially has a budget deficit. This year, the deficit is $1 billion.
Think tank’s permanent solution
“For the past 20 years the voters have consistently made clear they want their lawmakers to reach a broad consensus on the need to raise taxes or include the voters directly on the decision,” said Jason Mercier of the Washington Policy Center (WPC), www.washingtonpolicy.org.
“Today, the Supreme Court invalidated this taxpayer protection but did not negate the fact that on five separate occasions the voters have demanded this requirement most recently with statewide passage of I-1185 with a 64 percent vote and approval in 44 of the state’s 49 legislative districts,” he added.
“With voters and lawmakers repeatedly enacting the supermajority vote for taxes requirement over the past 20 years, what could be more representative of the public will than allowing a vote of the people on a constitutional amendment such as SJR 8205 to help resolve this debate once and for all?” he asked.
“There is nothing for lawmakers to fear by sending SJR 8205 to the voters but the will of the people,” he asserted.
Sen. Don Benton, R-Vancouver and Sen. Pam Roach, R-Auburn, in joint resolutions, are calling for the state’s constitution to be amended – to stop the chicanery and violation of voter wishes. The amendment would not allow legislators to shelve the law in order to impose tax increases.
Conclusion
The WPC’s advocacy for a constitutional amendment makes sense.
In addition, here’s a common-sense question: How long will voters allow the “ruling class” lawmakers to stay in power?
From the Coach’s Corner, if you want to track the state Legislature’s bills, visit: washingtonvotes.org.
“The problem with political jokes is they get elected.”
-Henry Cate VII
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Author Terry Corbell has written innumerable online business-enhancement articles, and is a business-performance consultant and profit professional. Click here to see his management services. For a complimentary chat about your business situation or to schedule him as a speaker, consultant or author, please contact Terry.
Pension Reform: Washington Labor Leader Is Right – It Is ‘Class Warfare’
March 19, 2012
Union leader Greg Devereux is right about a debate in the current special session of the Washington State Legislature. A budget proposal to reform the lavish pension system for Washington state public employees is an indicator of class warfare – between the have-nots and the ruling class.
The have-nots: The countless stressed business owners, the financially burdened self-employed, under-employed workers, job-seekers, retirees struggling to survive, and others.
The ruling class: Washington state, county and city public employees, their union leaders and many politicians. In other words, public sector employees who profit from the system.
Mr. Devereux, who opposes government-employee pension cuts, is executive director of the Washington Federation of State Employees. He made the class warfare accusation, which was reported by The News Tribune (TNT) in an article entitled, “Are pension cuts ‘class warfare’ or ‘reform’? Lawmakers differ.”
Actually, pension reform has long been an issue. The Washington Policy Center once suggested passage of a constitutional amendment to solve the issue (See Common Sense Needed for Washington State Pension Reform).
Pension reforms were also advocated by State Treasurer Jim McIntire in 2010.
Washington state lawmakers are still getting sore toes from kicking the budget can down the road. Following an unproductive legislative session, the state Legislature is again in a special session supposedly to balance the state’s budget.
You’ll recall the recent legislative session didn’t result in a balanced budget. Nor did last fall’s special session of the Legislature.
A major stumbling block: The lucrative pensions paid to 40,000 public employees. Public employees receive on average 74 percent higher pension benefits than workers with retirement plans in the private sector.
Republicans have introduced a plan that would save $2.3 billion over 25 years. One component would omit a $143 million pension payment to reduce liability, and funds the payment after reducing benefits to future state workers.
“It’s a big net gain for taxpayers, and an excellent example of the sort of policy changes we should be making to improve the state’s long-term financial outlook,” TNT quoted Sen. Joseph Zarelli, R-Ridgefield.
TNT reports the proposal includes these provisos:
- Creates future savings by eliminating an early retirement benefit for state government and school employees hired after July 1.
- Leaves intact the law that requires new state workers, teachers and school employees to pick from second- and third-generation pension plans.
- Earmarks any savings to pay down the $3.2 billion of unfunded liability in the older Public Employees’ Retirement System Plan 1 and Teachers’ Retirement System Plan 1 that closed years ago to new workers.
As expected, Gov. Chris Gregoire doesn’t like the skipped payment component of the proposal.
But here’s the irony: You’ll recall she has signed such budgets in previous years.
The good news is that Gov. Gregoire supports Sen. Zarelli’s ideas that would leverage savings to pay older pension plans. She also warns she’ll veto or won’t sign many of the recently passed bills into law until lawmakers compromise on a balanced budget.
Not to pick on the Washington state lawmakers, go to Google News. You’ll see countless stories about public employee pension plans that are plagued by overgenerous benefits and chronic underfunding.
You’ll also see the Zarelli proposal did not originate in Washington state. New York gets it and will reduce benefits for new public employees. The lawmakers recently passed pension reforms saving $80 billion over the next three decades.
This is the Washington State Legislature’s third shot at balancing the budget. Will the third time be the charm?
Mr. Devereux needs a cup of coffee. A strong cup. Otherwise, in his class warfare, he won’t get his wish. There isn’t enough tax revenue among the have-nots to fund his members’ lavish pensions.
From the Coach’s Corner, here’s a public policy question: Will State Lawmakers Heed New SBA Data, Small Business Concerns?
“Ancient Rome declined because it had a Senate, now what’s going to happen to us with both a House and a Senate?”
-Will Rogers
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Columnist Terry Corbell is also a business-performance consultant and profit professional. Click here to see his management services (many are available online). For a complimentary chat about your business situation or to schedule Terry Corbell as a speaker, why don’t you contact him today?
Will State Lawmakers Heed New SBA Data, Small Business Concerns?
Jan. 26, 2012
There’s more evidence that small business plays a pivotal role in creating jobs in Washington and other states, according to the Office of Advocacy in the Small Business Administration (SBA). The Office of Advocacy released small business data for each of the 50 states.
SBA believes the new data is “an invaluable resource for small businesses, legislators, academics, government officials, and policymakers in each state.”
Why?
“Small businesses are the foundation of economic growth in Washington and in our nation” said Dr. Winslow Sargeant, Chief Counsel for Advocacy. “By supporting policies that promote innovation and entrepreneurship, we help small businesses tackle these challenging economic times. These statistics are a resource for a path to economic growth.”
As for Washington state, the report explains “small business employment; business starts and closings; bank lending; business ownership by minorities, women, and veterans; and firm and employment change by major industry and firm size.”
Salient data about small business:
- There were 532,162 small businesses in Washington in 2009. Of these, 142,854 were employers and they accounted for 53.3 percent of private sector jobs in the state. Small firms made up 98.1 percent of the state’s employers.
- Throughout 2010, the number of opening establishments was lower than closing establishments and the net employment change from this turnover was negative.
- Washington’s real gross state product increased 0.7 percent and private-sector employment decreased 1.8 percent in 2010. By comparison, real GDP in the United States decreased 1.3 percent and private sector employment declined by 0.8 percent.
- Self-employment in Washington surged over the last decade. Female self-employment fared the best compared with other demographic groups during the decade.
To promote entrepreneurship, this week the Washington Policy Center sent state lawmakers in the 2012 legislative session these recommendations:
- Revisit the voluntary settlement agreement as passed by the state Senate in 2011 – $1.2 billion
- Reform the displaced worker retraining program
- Simplify sales taxes by using an ‘origin based’ tax (as opposed to a ‘destination based’ tax) and creating a flat rate for out-of-state businesses
- Review regulations to ensure that Washington rules don’t exceed federal regulations
- Enact Tort Reform
- Do no harm in transportation policy – do not reduce road lane capacity
- Do not follow Seattle in enacting statewide paid sick leave
In addition, Gov. Gregoire suggested her strategies to aid small business — business and occupation tax relief.
How has the Legislature responded? Lawmakers have ignored their $1.5 budget-deficit crisis.
Instead, lawmakers are considering other matters – mandating paid sick leave and safe leave, banning plastic bags, abolishing the death penalty and gay marriage.
When will Washington’s Legislature demonstrate wisdom?
From the Coach’s Corner, also read:
WPC Hits Target, but Will Washington State Legislature?
Washington: A Balanced Budget Is No Longer Enough
Does the Federal Reserve Understand Small Business?
Knowledge is knowing a tomato is a fruit. Wisdom is not putting it in a fruit salad.
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Columnist Terry Corbell is also a business-performance consultant and profit professional. Click here to see his management services (many are available online). For a complimentary chat about your business situation or to schedule Terry Corbell as a speaker, why don’t you contact him today?
Washington: A Balanced Budget Is No Longer Enough
Updated Jan. 11, 2012
A Seattle Times headline is perplexing. True, the headline –“Lawmakers open session, try to close $1B gap” – is a fairly accurate assessment of Washington state’s budget. Not to be laboriously repetitive, but the headline is worrisome. Once again the Legislature faces a budget crisis.
“The economy is the focal point of this year’s legislature as state lawmakers attempt to close a $1.5 billion shortfall in a $34 billion budget at the state capitol in Olympia,” blogged Don Brunell, president of the Association of Washington Business (AWB).
Mr. Brunell is known for his pragmatic reasoning.
“As they deliberate, they must be mindful that Washington is in the midst of an anemic economic recovery which is very fragile,” the AWB president added. “New costs to employers, especially those along Main Street, have a dampening effect on our ability to increase consumer confidence and bring people back to work.”
That’s my sense, too. But the Legislature routinely fails to prioritize first things first. The short-term priority is to balance the 2011-2013 budget. But as a priority, it’s secondary to a bigger quandary – government and budgeting reform, which are needed immediately, as well.
Instead, all budget discussions are about the short-term and relatively insignificant issues grab a disproportionate amount of attention.
Gov. Gregoire wants to focus on a new $3.6 billion transportation package, gay marriage, shorten the school year, abolish social services, release some prisoners before the sentences expire, and increase the state’s sales tax. House Speaker Frank Chopp, D-Seattle, also says same-sex marriage is a top priority.
A significant number of citizens wants to legalize marijuana. Some lawmakers want a statewide ban on plastic grocery bags.
Most of us in business agree education is a priority. But increasing taxes even for education isn’t productive as long as government/budgeting reform is ignored as a priority.
In addition to Mr. Brunell, another thoughtful pragmatist is Jason Mercier. Mr. Mercier is director of the Center for Government Reform of the Washington Policy Center.
Worth consideration is Mr. Mercier’s list of recommended reforms:
- Enact a constitutional tax and spending limit (with two-thirds requirement to raise taxes) modeled after the original 1993 I-601 formula.
- Remove as many of the restrictions on lawmakers’ ability to set spending priorities as possible (collective bargaining restrictions on compensation, federal mandates, assumption of auto-pilot budgeting on programs).
- Reform competitive contracting. Allow agencies to make performance-based contracting more proactive (create a Competitive Contracting Council).
- Provide the governor discretionary authority to cut spending.
- Repeal unaffordable programs instead of suspending them.
- Require at least a 5 percent reserve when adopting the next biennial budget.
- Require updated four-year budget outlooks to be published after each state revenue forecast or budget adoption.
- Require completed fiscal notes before bills can be acted on.
- Phase in a defined-contribution retirement plan that gives state workers benefits that can never be taken away.
Amen. Yes, the Legislature should soberly balance the budget. However, unless the Legislature concomitantly reforms government and the budgeting process, uncertainty will never be alleviated for the state’s businesses and consumers.
From the Coach’s Corner, you might want to consider other public policy columns.
“There is an important sense in which government is distinctive from administration. One is perpetual, the other is temporary and changeable. A man may be loyal to his government and yet oppose the particular principles and methods of administration.”
-Abraham Lincoln
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Columnist Terry Corbell is also a business-performance consultant and profit professional. Click here to see his management services (many are available online). For a complimentary chat about your business situation or to schedule Terry Corbell as a speaker, why don’t you contact him today?
WPC Hits Target, but Will Washington State Legislature?
Dec. 7, 2011
The clock is ticking. The state government spends $41 million each day but the Washington State Legislature has made little, if any, progress in its 30-day special session to solve a $2 billion deficit. Meantime, Office of Financial Management Director Marty Brown sent an email to lawmakers warning them action is needed – now.
No floor votes. Nada. Nothing.
At the request of Gov. Chris Gregoire, the special session started Nov. 28. The state is scheduled to spend more money than it will have for policies, programs and salaries.
Earlier, the governor proposed a half cent sales tax increase to raise about $500 million. The events prompted this Biz Coach piece: Budget Debate: Will Legislature Read Seattle News Media Headlines?
Actually, more than balancing the budget, the state needs to reform government for a healthy economic environment.
“While it’s true that state revenues are projected to grow by $2 billion over the previous budget cycle, this time there’s no federal bailout to prop up past overspending,” said a WPC press release. “Some in Olympia are talking tax increases, yet our state’s fragile economy, and especially small businesses, are struggling to survive as it is.”
The Washington Policy Center (WPC) has some ideas worth adopting – the suggestions were sent in a letter to Governor Gregoire.
WPC’s recommendations:
- Provide the governor discretionary authority to cut spending. Adopt performance-based Priorities of government budgeting to control the rate of spending growth.
- Restore the legislature’s ability to amend collective bargaining agreements.
- Direct state managers to use more competitive contracting.
- Repeal unaffordable programs instead of suspending them.
- Bring state employee health care premium contributions in line with those of the private sector.
- Ask state lawmakers to set aside a 5 percent reserve when adopting the next biennial budget.
Following its statewide conference to discuss small business issues, WPC sent the legislature these recommendations:
- Revisit the voluntary settlement agreement as passed by the state Senate in 2011 – $1.2 billion
- Reform the displaced worker retraining program
- Simplify sales taxes by using an ‘origin based’ tax (as opposed to a ‘destination based’ tax) and creating a flat rate for out-of-state businesses
- Review regulations to ensure that Washington rules don’t exceed federal regulations
- Enact Tort Reform
- Do no harm in transportation policy – do not reduce road lane capacity
- Do not follow Seattle in enacting statewide paid sick leave
From the Coach’s Corner, see WPC’s Coverage of the special legislative session here.
Here are related columns:
- Why the Sales Tax Debate Erupts in Washington State
- No Lame Duck, Washington Official Enhances Economic Public Policy
“There’s no trick to being a humorist when you have the whole government working for you.”
-Will Rogers
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Author Terry Corbell has written innumerable online business-enhancement articles, and is a business-performance consultant and profit professional. Click here to see his management services. For a complimentary chat about your business situation or to schedule him as a speaker, consultant or author, please contact Terry.
Former Washington Auditor Who Championed Good Government, Wins National Honor
April 13, 2013
The man had a vision and now he’s being recognized for it.
Former Washington State Auditor Brian Sonntag, who is in retirement this year after superb performances in five terms, has won a prestigious national honor. That would be induction into the “Heroes of the 50 States: The State Open Government Hall of Fame.”
Mr. Sonntag stood out as the epitome of state-government transparency. Yes, as an elected official, he had an unparalleled vision.
Count me as a fan – not only as a citizen and business consultant, but as a columnist who interviewed him on multiple occasions as the “Biz Coach” on KING5.com and two other Washington media Web sites; as well as the host of “Washington Business Weekly,” the Association of Washington Business radio program.
It can’t be over-stated. He was a conscientious public servant dedicated to doing the right thing for taxpayers.
WPC weighs in
His award drew praise from a state public-policy think tank, Washington Policy Center (WPC).
“Sonntag has also been a strong advocate for Washington Policy Center’s proposed legislative transparency reforms,”said Jason Mercier, director, for WPCs Center for Government Reform. “NFOIC’s acknowledgment of Sonntag’s long-time support for open government is well deserved.”
His selection was announced by the National Freedom of Information Coalition (NFOIC) and the Society of Professional Journalists (SPJ).
The State Open Government Hall of Fame is a joint venture by SPJ and NFOIC. It was developed by leaders in both organizations as a way to recognize long-term contributions of individuals to open government in their states.
Induction into the State Open Government Hall of Fame recognizes “long and steady effort to preserve and protect the free flow of information about state and local government that is vital to the public in a democracy.” The award is intended to honor individuals – living or dead – whose lifetime commitment to citizen access, open government and freedom of information has left a significant legacy at the state and local level.
When Mr. Sonntag announced his intention to retire, it was a sad day for the state.
To review history and a record of his achievements, here’s what I wrote here on this portal:
No Lame Duck, Washington Official Enhances Economic Public Policy
Oct. 20, 2011
Like all inspiring great leaders, he and his staff are tenacious in delivering value for all of Washington. Who? State Auditor Brian Sonntag.
Mr. Sonntag is a favorite on this portal, a sagacious Democratic, who has consistently delivered value to state residents, and has always been available to answer questions. Admittedly, I was a bit melancholy about Mr. Sonntag’s announced retirement in 2012.
He has served constituents well, particularly, with his agency’s performance audits and initiatives in improving state-government performance.
And to the end, he continues to do what’s best for the state. He’s working to enhance entrepreneurship, which will help put the state on sound economic footing.
Another favorite entity is Washington Policy Center (WPC). The think tank also provides noteworthy analysis and timely updates.
A blog by Jason Mercier is how I learned Mr. Sonntag has been focusing on business regulations to enhance Washington’s economic environment for the creation of jobs.
Mr. Mercier cites a salient assessment of the state’s regulatory processes in the state auditor’s March 2011 report.
A few highlights:
The complexity of Washington State’s regulatory system creates costs for governments and businesses alike. Not only are there many regulations, but many requirements change every year or two based on new legislation or state agency amendments to existing rules. The Office of the Code Reviser reports that in 2009 alone, state agencies proposed more than 14,000 pages of new or revised rules.
- Many regulatory costs to business are fixed, with larger firms able to spread those costs over a greater number of employees, meaning that small businesses bear a disproportionate part of the regulatory burden. A 2007 Department of Revenue study on the business survival rate in Washington found that ‘taxes and costs of complying with government regulations are factors that contribute to business failure because most small businesses are not profitable in the early years.’ (BSSUG, 2007
This is a noteworthy conclusion:
- Improving the effectiveness of Washington’s regulatory regime through streamlining, clear rule writing, reducing the administrative burden, and other innovations will benefit businesses, state government and taxpayers in general. Clear, fair and efficient regulations will keep Washington competitive in the global economy.”
In his blog, Mr. Mercier indicates we can look forward to five Sonntag performance audits:
- Agency efforts to streamline their administrative rules
- Agency permit process time
- State regulations in excess of federal regulations and the value added for the extra regulation
- Agency inspection process and coordination amongst agency inspections
- Effectiveness and opportunities for improvement for the state’s one-stop portal for business regulations.
As a result of WPC’s September 2011, the Legislature is getting feedback from small business (What Do Small Business Owners Need from Washington State Policymakers?).
The state’s small businesses want the following:
- Review environmental regulations to ensure that Washington rules don’t exceed federal regulations
- Legislature should not grant general rule making authority to agencies, but rather be specific about rules to be put in place
- Legislature should listen to and follow up on State Auditor Office reports on regulatory reform (tie)
- Sunset provisions for regulations (tie)
So a Biz Coach tip of the hat to Mr. Sonntag and his team, as well as to WPC. It’s past time to evolve from an adversarial state government-business relationship to one of effective public policy for economic development.
Frustration is trying to find your glasses without your glasses.
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Author Terry Corbell has written innumerable online business-enhancement articles, and is a business-performance consultant and profit professional. Click here to see his management services. For a complimentary chat about your business situation or to schedule him as a speaker, consultant or author, please contact Terry.
Common Sense Needed for Washington State Pension Reform
Updated March 19, 2012
It’s no secret that Washington state has a nightmarish budget deficit. Lawmakers have consistently failed to solve the red ink, which is exacerbated by lavish public-employee pensions.
My two salient concerns:
1. Public-sector pensions are on average about 74 percent higher than the private sector.
2. The Legislature has been delinquent in funding them in the billions of dollars.
But lawmakers aren’t exactly shy about high spending and taxes.
Fortunately, I’m not alone in sounding the alarm. Concerned analysts also include Jason Mercier of the Washington Policy Center, www.washingtonpolicy.org, in a 2010 Op Ed in The Seattle Times.
“According to the state actuary, two of Washington’s nine pension plans are already in the red with unfunded liabilities totaling nearly $7 billion,” he reminded readers. “This does not include an additional $8 billion in unfunded post-retirement benefit liability, primarily for retiree health care. Unlike pensions, however, these other retirement benefits are not a contractual right, meaning the Legislature has the ability to make changes as necessary.”
He, too, understood the adverse pension impact on the state’s budget.
“Already our state is facing nearly a $6 billion projected budget shortfall for 2011-13. Included in these projections is the need for additional pension contributions” Mr. Mercier wrote. “The state’s Office of Financial Management projects that an additional $700 million in pension payments above the base will be required in the 2011-13 biennium.”
The forecasts proved to be accurate.
He further stated that pension costs will continue to grow – to $1.2 billion during the 2013 to 2015 budgeting cycle.
“To help avoid kicking the pension liability can further down the road while putting the state’s credit rating in jeopardy, it may be time to pass a constitutional amendment that forces state officials to make the required pension payments and creates a higher threshold to provide enhanced benefits,” he observed. “While funding these past pension promises may crowd out other spending, the alternative puts taxpayers in a worse position.”
He offered another vital solution:
“Meanwhile, legislators must stop enhancing retiree benefits until all the state’s pension plans return to healthy status,” Mr. Mercier explained. “Exacerbating taxpayer exposure while billions in unfunded liabilities exist is the height of irresponsibility. It may also be time for additional reforms to help minimize future pension liabilities.”
It’s also worth noting that constitutional pension reforms were advocated by State Treasurer Jim McIntire.
Amen.
From the Coach’s Corner, here’s another piece on pension reform: Washington Labor Leader Is Right – It Is ‘Class Warfare’.
“Pension reform can be hard to talk about. In the long run, reform now means fewer demands for layoffs and less draconian measures in the future. It’s in the best interest of all Californians to fix this system now.”
-Jerry Brown
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Columnist Terry Corbell is also a business-performance consultant and profit professional. Click here to see his management services (many are available online). For a complimentary chat about your business situation or to schedule Terry Corbell as a speaker, why don’t you contact him today?
I-1098’s Impact on Economic Development in Washington?
Sep. 22, 2010
You’ve heard the rhetoric. Initiative 1098 , the controversial income-tax proposal, has become one of the most divisive issues in Washington state.
It would impose a 5 percent tax rate of $200,000 on individuals and $400,000 on couples with a 9 percent tax rate on $500,000 for one person and $1 million on families. The state’s share of the property tax would be lowered by 20 percent and the business and occupational tax would exempt 118,000 more companies.
Bill Gates, the c0-founder of Microsoft, joined his father Bill Gates Sr. in advocating passage of I-1098. Notable opponents include Microsoft CEO Steve Ballmer and Amazon.com founder Jeff Bezos.
Ironically, as an economic development tool, the state’s Department of Commerce has a Web site (www.chooseWashington.com) that states Washington has a “Favorable Business Environment.” One of the advantages: “No income tax in Washington.”
So what’s the impact of I-1098?
The Citizens’ Guide to Initiative 1098 is a policy brief by written by Paul Guppy. He’s the vice president for research at the highly respected think tank, Washington Policy Center. It’s voluminous and thought-provoking with heavy documentation.
To summarize, here are Mr. Guppy’s 10 salient conclusions:
1. Initiative 1098 Creates a New Way to Tax. Essentially he believes it does nothing to fix the inequities of the state sales tax, which is regressive for businesses and low-income families.
2. The Income Tax would Likely be Extended to More People. Is this a surprise? No.
“Unlike past efforts, Initiative 1098 is drafted as an ordinary law, not as an amendment to the state constitution, Mr. Guppy writes. “This makes it easier for the income tax to be extended to more people in the future. The legislature could change Initiative 1098 in the short-term with a two-thirds vote, and after two years could change it by a simple majority vote, just like any other part of the legal code.”
3. Income Tax Revenue May Not Go to Promised Purposes. He cites Washington Secretary of State’s data that indicates the Legislature has over-ridden 30 voter-approved initiatives.
“Lawmakers often divert tax revenues from their intended purposes,” he explains. “This year the legislature transferred tax revenue totaling more than $1 billion from 33 dedicated trust accounts, some created by voter initiative, and spent those funds on general programs.”
4. More Money Will Not Help Public Schools. He points out school children will not learn more.
“Taxpayers contribute over $10 billion per year toward the education of slightly less than one million public school students in Washington,” he writes. “Public school districts currently spend an average of $10,100 per student per year, the highest level in state history.
“The largest budget item, comprising 83 percent of spending, is devoted to salaries and benefits. The statewide average for teacher pay with benefits is $79,200,” he asserts. “Average pay with benefits for school administrators is $117,000.”
He adds Seattle’s school spending of $12,746 per student annually has increased more than a third since 2005.
“In Seattle average teacher pay with benefits is $92,100. Average administrator pay with benefits is $106,900,” he adds.
5. Initiative 1098 and the State Economy. He lists numerous examples how the initiative would hinder the state’s economic climate.
“By enacting an income tax, Washington would be giving up a significant competitive advantage in relation to other states,” he advises. “Washington has a high sales tax. Adding an income tax means Washington would join the states that impose all the major forms of tax on their citizens.”
6. Some Residents would Leave Washington to Avoid the Income Tax. He points out a new income tax would be the fourth-highest in the U.S.
“High-earners targeted by the tax would suddenly have a strong financial incentive to move out of state,” he writes. “A change in residence would include pulling investments out of the state as well, since Initiative 1098 would tax non-residents who derive income from Washington businesses. In a survey of business owners and their views of Initiative 1098, 1.8 percent of respondents said they planned to leave Washington if the income tax measure passes, even though this was not one of the survey questions.”
He cites New Jersey and Minnesota as examples where high-income residents felt compelled to leave for greener pastures.
7. Initiative 1098 would Reduce Charitable Giving. Because the controversial proposal would be higher than the federal tax and would be applied to adjusted gross income, he writes the affluent would fewer funds for charity.
“Adjusted gross income includes wages, salaries, tips, interest income, rental income, capital gains, income from pensions and retirement accounts, and alimony payments received by divorced spouses,” he suggests. “Adjusted gross income is calculated before the taxpayer is allowed to lower his reported income by claiming deductions such as the federal standard deduction, the child tax credit, the dependent care credit, local property taxes, motor vehicle taxes, mortgage interest payments, contributions to retirement accounts and donations to charity.”
That means that $2.2 billion next year and $11.1 billion over the next five years would not be available for nonprofit giving.
8. Initiative 1098 and Tax Fairness. He writes, contrary to proponents’ claims, the proposal is unfair – 98 percent of the state’s population would escape an income tax.
“Initiative 1098 is not unbiased or impartial in its treatment of Washington citizens,” he explains. “It specifically targets a minority, as defined in economic terms, to shoulder the full cost of a new tax, while using state power to redistribute the benefits to others.”
9. State Income Taxes Do Not Lead to Fiscal Stability. He points out Oregon, New Jersey and California all have major budget woes despite an income tax.
“Oregon’s personal income taxes – based on 2009 returns due on April 15, 2010, were down by $472.3 million, or 16.4 percent less than the previous year,” he writes.
“During the strong economy lawmakers increased state spending by over 33 percent in a single four-year period,” he reminds us. “Access to a new revenue stream would likely encourage Washington lawmakers to return to enacting large, permanent spending increases in each budget cycle. When economic activity slows or declines in recessionary years, personal incomes fall accordingly, and leave income tax states like Oregon and California with far less revenue than officials expected to receive.”
10. Initiative 1098 is Unconstitutional under Current Case Law. Opponents argue passage of I-1098 would be thrown out by the courts.
From the Coach’s Corner, you can visit the Defeat 1098 campaign here.
Tax Increases Will Cost Washington Businesses, Consumers $6.7 Billion Next 10 Years
July 15, 2010
The well-documented lack of transparency and suspension of voters’ rights by Washington state lawmakers in the 2010 legislative session will soak taxpayers an additional $6.7 billion over the next 10 years, according to a new study by the Washington Policy Center (WPC).
“State lawmakers raised taxes at the worst possible time – in the midst of a recession with record-high unemployment levels,” says Dann Mead Smith, WPC President. “We compiled this report to help give taxpayers a clearer picture of the details and cost for each tax increase.”
The respected think-tank’s study is comprised of 12 pages of data, which includes an explanation of each tax increase and details of how each tax increase encumbers businesses and consumers for the next 10 years.
As it has done repeatedly over the years, the Legislature suspended the protections voters passed in Initiative 960, which required transparency and a two-thirds legislative majority vote in order to hike taxes. The Legislature passed SB 6130, which suspended the voter protections against unwanted new taxes.
“The bill temporarily repeals provisions of voter-approved Initiative 960 until July 1, 2011,” states WPC’s report at www.washingtonpolicy.org. “Washington voters passed Initiative 960 on November 6, 2007.”
The $800 million in new taxes include:
- Business and Occupation taxes
- Canceling Real Estate Excise Tax exemptions
- Increasing taxes for Public Utility Districts
- Hiking the 911 excise tax
- Hospital Bed taxes
- Bottled water, soft drink, beer, candy and gum taxes
- Tobacco taxes including a 500 percent increase on cigars
“Lawmakers increased total state spending by 43 percent in the last five budget cycles, a period in which state population grew only 11 percent, and inflation increased just 19 percent,” states the Report on 2010 Tax Increases in Washington State.
“By repealing the non-binding advisory votes, lawmakers expected their names would not appear in the official voters’ pamphlet for 2010 next to a description of the tax increases they had enacted,” the study notes. “The purpose of this report is to provide much of the information the public would have received in the official voters’ pamphlet if the legislature had not repealed the public disclosure provisions of Initiative 960.
Well, if you’re unsure how your legislator voted on taxes and other issues, visit: www.washingtonvotes.org.
Meantime, here’s a tip of the Biz Coach cap to Washington Policy Center for its usual fine work.
From the Coach’s Corner, you might be interested in the results of these polls:
- More Voters Say Washington State is Headed the Wrong Way
- Big Surprise in Washington State Race for U.S. Senator
If you want to do something about these tax increases, you might also want to consider these organizations:
- Association of Washington Business, www.awb.org
- Enterprise Washington, www.enterprisewashington.org