Washington State Spending, Taxes – ‘Katy Bar the Door’


Updated March 7, 2010

Watch out. A desperate situation is at hand. The 19th century phrase, “Kay Bar the Door,” is applicable to the 2010 Washington legislative session. The Legislature is creating tax bills and is spending at a dizzying pace.

You mean it isn’t helping to create a strong, state economy and environment for job-creation while facing a $2.8 billion shortfall? No efficiencies anywhere? What about the reports of mismanagement, poor results revealed in performance audits, and hundreds of thousands of dollars in state-employee bonuses?

Well, let’s consider:

  • At least one formal hearing has been scheduled sans a 24-hour notice.
  • Sen. Rosa Franklin, D-Tacoma, introduced an income tax bill, SB 6250.
  • A ghost tax bill was introduced (that’s right, no text – it was blank).
  • The Senate wants to raise $918 million with a sales tax increase of three-tenths of a cent to 6.8 percent.
  • Senate Majority Leader Lisa Brown’s income-tax proposal on the fall ballot and would reduce the proposed new sales tax by one cent. It would put an income tax of 4.5 percent on many job-creators – individuals earning $200,000; heads of households making $300,000; married couples would face a new tax if they earn $400,000.
  • Imposing a sales tax on out-of-state businesses and consumers who buy Washington products.
  • Imposing a surcharge on auto insurance.
  • Hitting out-of-state financial institutions with a business and occupation (B&O) tax.

But that’s not all – not by a long shot.

Of course, you know Gov. Gregoire signed into law the bill that “temporarily” repealed The Taxpayer Protection Act, Initiative 960. That’s a clear rejection of voters’ wishes. Three times voters have formally stated their wish for tax protections. But again, the Legislature does not have to pass tax bills by a two-thirds margin. It also removes transparency for voters about taxes they’re forced to pay.

Personally, I don’t mind taxing out-of-state credit card companies with a history predatory interest rates and fees for bogus reasons. They’re domiciled in states permitting predatory behavior that was not retroactively rectified in a credit-card protection bill passed by Congress. The predatory practices are a major reason small businesses have poor credit.

However, it appears an income tax that only hits the wealthy is unconstitutional. It would require approval by voters and a two-thirds majority in the House and Senate. But a Seattle Times report indicates Senate Democratic leaders are hoping to bypass the required two-thirds vote in the Legislature because they know they can’t overcome the Republican opposition. If they’re successful in another end-run around legal checks-and-balances, of course, lawyers will get involved.

The Democrats’ idea is patterned after a 2010 voter-approved measure in Oregon, which hiked income taxes on individuals earning $125,000, households making $250,000, and on businesses.

However, unlike Washington, Oregon does not have a sales tax.

Lawmakers lax on major revenue source

Considering Washington relies heavily on sales taxes from vehicles, the Legislature is incredibly uninformed.

For example, a sales tax on Oregon and Alaska businesses and consumers will discourage commerce in Washington and threaten the livelihood of the state’s businesses and will worsen the state’s already-weak jobs situation.

Secondly, when buyers stop shopping in Washington, state businesses will pay reduced B&O taxes to the state.

A new tax will especially impact the sale of big-ticket items. Ask any Washington commercial-truck dealer if they have out-of-state customers. Their answer will be yes.

They’re already concerned their sales are down. What’s worse, relatively few have the cash flow to advertise now – ask any media advertising salesperson. During good times, the auto sector is the No.1 advertiser on radio and television. Even Honda dealers have had to lay off employees. (Disclosure: I’m very familiar with the auto sector. My firm formerly had auto dealer clients who advertised on radio and television. A regional truck dealer has an ad on this site.)

Out-of-state businesses come to Washington to buy fleets of trucks because the quantity and selection is superior. Privately, one dealer confides that some buyers travel 3,000 miles to Washington to buy commercial trucks. So they patiently wait for the economy to improve.

However, it’s also well-known that Washington state car buyers journey to Idaho for savings and to avoid paying high sales taxes by buying from Dave Smith Motors – a high-volume car dealer who advertises heavily in an in-your-face style on Seattle radio stations.

The dealer’s slogan: “Serving the Pacific Northwest and Beyond Since 1965,” and on its Web site it boldly states: “We cannot sell any NEW vehicle for Export or Resale.” The hint being that Washington car dealers could get a better deal in Idaho, too.

In fact, the dealer is the world’s largest Dodge, Chrysler and Jeep dealer, and is a leader in sales of General Motors cars and trucks.

The sales tax for the metropolitan King and Pierce counties is 9.6 percent.  Idaho only charges a 6 percent sales tax, which is shared with cities’ coffers, and the state affords a lower cost of doing business.

Bad planning

Moreover, the budget ramifications for Washington state:

  • No B&O taxes are collected
  • Reduced sales taxes because after making a purchase, motorists drive over the state line to Washington where they can register their vehicles in less-populated counties to save 1 to 3 percent on their vehicle’s sales tax.

The Legislature is behaving unproductively in another matter. Adversely affecting dealers and consumers, alike, the Senate wants to halt another major car-buying incentive – the long-time tax deduction for used-car trade-ins. In other words, the Senate wants to tax motorists at both ends – when buying and when selling a vehicle.

Incredibly, lawmakers insist on staying in the liquor business – is liquor a core state service? The state employs 1500 liquor employees and taxpayers are saddled with their costly pensions.

At best, the surcharge on car insurance is disingenuous. “Perhaps if the Legislature hadn’t raided the account the funds would be available for the use intended – preventing auto theft,” says Jason Mercier of Washington Policy Center.

FYI, if it weren’t for the tireless efforts of Mr. Mercier, much of the Legislature’s chicanery would not come to light. It’s a full-time job making sure there’s transparency. Many lawmakers are doing their best to make certain Washington does not have an open government.

The Legislature also wants to heavily tax candy – in the aggregate, a big state employer. Simply consider just one heritage state company, Brown and Haley, an employer of 250 workers but is in the midst of financial woes even without a burdensome sales tax.

Other sin taxes include a 500 percent increase on cigars, but gives favored documented treatment to Tribal smoke shops.

Let’s not forget the stifling new tax on bottled water.

Some lawmakers want to double the death tax.

And others want to triple the tax on gasoline and diesel as hazardous or toxic but they won’t use the revenue for badly needed road repairs or construction. Meantime, Washingtonians will undoubtedly pay even more for fuel.

Meantime, nothing has been done about the state’s bloated payroll and associated costs. Ask any employer if they are able to pay 88 percent of health insurance, or if their retirement plans can compete with the state pension system. The answer will be no. Don’t forget the Legislature is tardy in plans to fund $7.9 billion in retiree health benefits.

That sums up the debacle pretty well – continued spending, boundless chicanery in violating transparency standards, unsatisfactory performance audits, mismanagement and stifling taxes. Nothing has been accomplished that will strengthen the state’s economy or create jobs. In fact, it can be easily concluded that the 2010 legislative session has resulted in a sharp decline of voters’ economic and political freedoms.

From the Coach’s Corner, to stay informed, here are other sites you’ll find helpful:

Washington State’s Last Chance for Good Government

Feb. 18, 2010

Instead of focusing on economic growth and the creation of jobs, the 2010 Washington state legislative session has largely been a huge disappointment and insulting to business and consumers. That’s mainly because of the bills to increase taxes and violate standards of transparency as disingenuous ploys to balance the budget.

One of the few bright spots: Rodney Tom, a Washington state senator (D-48, Bellevue) understands it’s possible to save money by eliminating an unwarranted state service and going green, too. He’s introduced a bill to eliminate the state printer.

Buried in his bill is this statement: “…printing is not a core state service and would be better handled within the private sector.”

There are other examples of non-core state services, such as the liquor-selling agency that employees nearly 1500 state workers.

Click here for other examples of a bloated state workforce and non-essential services. Per capita, Washington has more employees than California.

A $2.8 billion shortfall is a lot of red ink. The state spending in recent years greatly exceeded the potential revenue pie. There were red flags everywhere. Administrators and lawmakers ignored repeated valid suggestions in order to be good stewards of taxpayer assets. I’ve cited numerous solutions.

Washington’s unemployment rate of 9.5 percent should be a deterrent for tax increases. But it isn’t. Ask the Association of Washington Business (AWB), www.awb.org, about the impact of a proposal to hike unemployment insurance taxes.

Here’s more about the Washington State Legislature’s spending and taxes:

There was a Washington Supreme Court case in recent years over incriminating e-mails in the shell game to circumvent the state’s spending limit.

So, this year we’ve seen a blank, ghost tax bill. That’s right, no text.

We’ve been aghast at the elitist suspension of the transparency safeguards in the Taxpayer Protection Act, Initiative 960, which was passed by voters in 2007.

We’ve seen proposals for sin tax increases as high as 500 percent and a tax on candy, which adversely impacts a heritage employer, Brown and Haley, which has been struggling.

There’s a tax on oil companies that will hurt businesses and consumers. Supporters of the 300 percent increase are either naïve or disingenuous in their claims that oil companies will not pass the tax to purchases at the pump.

And Gov. Chris Gregoire promoted her $605 million in tax increases.

My apologies if there are any omissions. But you get the picture.

The bottom-line: The tax proposals are unwarranted and Gov. Gregoire has an opportunity to exercise a line-item veto of the legislature’s repeal of the two-thirds vote requirement for tax increases.

Language in I-960 includes:

“Our state constitution guarantees to the people the right of referendum. In recent years, however, the legislature has thwarted the people’s constitutional right to referendum by excessive use of the emergency clause . . . The people find that, if they are not allowed to vote on a tax increase, good public policy demands that at least the legislature should be aware of the voters’ view of individual tax increases. An advisory vote of the people at least gives the legislature the views of the voters and gives the voters information about the bill increasing taxes and provides the voters with legislators’ names and contact information and how they voted on the bill. The people have a right to know what’s happening in Olympia.”

In all candor, reporting on the legislature’s excesses is a full-time job – precious time I don’t have in writing business-coaching columns.

Fortunately, the Washington Policy Center (WPC), an authoritative and trusted non-partisan think tank does an excellent job of tracking bills and feeding valuable information to reporters and columnists like me.

“By repealing for two years the non-binding advisory votes, lawmakers that vote for a tax increase will be spared from having their names show up in the voter’s pamphlet next to a description of the tax increases they supported as required by RCW 29A.32.070,” says WPC’s director for government reform, Jason Mercier.

“Short of a change of heart in the Senate, the only thing that can ensure the non-binding tax advisory votes as intended by the voters remains in effect is the governor’s veto pen,” he adds. “The Constitution provides the governor line-item veto authority which means she could approve the two-year repeal of the two-third’s vote requirement while maintaining the non-binding tax advisory vote provision.”

Otherwise, businesses and taxpayers will only have one option – the November elections – which has a precedent in Washington state. That’s the massive voter rejection of incumbents in 1994.

Following widespread protests over massive business-tax increases in 1993, the Washington State Association of County Assessors invited me to advise the 60 assessors on how to get legislative approval to reduce property taxes.  I conducted a special seminar for the assessors. 

It was unprecedented and gratifying when assessors persuaded state lawmakers to reduce property taxes by 4.7 percent in the ensuing 1995 session.

Let’s hope, it won’t get to that point again. You can make a difference by contacting your lawmakers (http://apps.leg.wa.gov/rosters/).

Economic and political freedoms are at-risk.

From the Coach’s Corner, a nonpartisan organization is working behind the scenes and doing something positive – very positive – to insure businesses have a voice:

Enterprise Washington, www.enterprisewashington.org.

I’ve met with the Enterprise Washington folks and I believe they’re nonpartisan, effective and passionate about their work.

Seattle business consultant Terry Corbell provides high-performance management services and strategies.