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When it comes to taxes, there is value in simplicity.

May 12, 2014

taxBurden-rankdiff

Two of the leading national think tanks on tax policy from the left and right are engaged in an interesting policy and financial discussion of the merits of a state-level flat rate tax.  The Center for Budget & Policy Center looks at Illinois’ flat-rate structure and finds it contributes to income inequality in the state, while the Tax Foundation offers a rebuttal on its blog that a flat tax is the least damaging to broader economic growth.  The idea of a flat tax at the national level never seriously took hold when Steve Forbes burst on the scene with the platform in the 1996 presidential race, but the topic may be more relevant at the state level today where we can see and feel the current complexity, inefficiency and inequity up close.

In the coming years, a state-level flat tax conversation could be particularly relevant for Washington, given that our constitution requires uniform rates similar to Illinois, and that almost without exception the large number of independent state tax studies since 1921 have suggested Washington diversify its revenue structure by including some sort of related tax and in parallel reduce our sales taxes, property taxes, business taxes or some combination. Under the constitution the rate may not exceed 1%, the same limit for property taxes.

The Washington, D.C.-based think tank debate is particularly useful today for Washington State–in a post McCleary era–and raises the question of whether our sales and B&O-based structure is, in fact, so complex, economically inefficient and inequitable–so overwhelmed with political carve-outs and exceptions–that even a modest flat rate would substantially help the structure to be more efficient, equitable and beneficial.

One of the most compelling aspects of a flat rate should be the essential ingredient of simplicity–a description that would never be used to describe our system today, especially for small business.

I have long believed that the most simple, economically efficient and equitable structure would be low tax rates broadly applied (across consumption, wealth and income), with few carve-outs and exemptions, and a handful of progressive elements to off-set the equity challenges.

It would, more than anything, help to depoliticize the tax structure, offer less volatility and a better structural alignment with today’s economic activity that is based more on services than goods.

Still, all 50 states have learned the danger of a heavy reliance on any one leg of the chair–sales, property, income, business–weakens the stability and sustainability in the long run.

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Ensuring that the overall level of taxes is not an outlier in either direction–too high or too low –is vital to meet our state’s needs and maintain the quality of life our citizens expect.  That’s why reviewing the data through a personal income level matched against tax obligation or burden is a good approach.  Another viable model is per capita and both have merit.

One of the attributes of a quality tax system is that revenues match up with general growth and economic activity in the economy at large without becoming an outlier that in turn becomes a true market distortion.  The metric of tax to personal income has a particularly strong link and is thus a good measure.

Thus, on a personal income level, according to the U.S. Census, Washington ranked 36th in the nation in 2011, or 28th if the data is adjusted further by the Tax Foundation, but nonetheless down from approximately 11th in 1995.  On a per capita taxation level, we are 21st in the nation, down from 16th in the nation in 1996.

This means, in effect, that for a total of $1,000 in personal income made, a taxpayer in Washington will pay about $94 in all state and local taxes combined to fund education, universities, parks, health care, nursing home services, prisons and other essential city, county and state services. While the state portion of that level has decreased, the local portion has increased since 1981, primarily due to local school levies and local sales taxes.

Overall, it is undeniable that revenue collections are at historic lows when compared to the broader economy. If revenue collections were simply the same rate as in 1990– about ~7% of personal income–then Washington would have up to an additional $15 billion dollars in revenue this biennium, according to the Office of Financial Management, that could arguably fully fund basic education, dramatically expand access and affordability of the University of Washington and higher education, modernize our relationship with local governments statewide, and meet other critical needs.  Our current biennial budget is close to $35 billion, so the numbers are staggering.  Some would argue, of course, that our economy has grown in part because the tax rate has fallen so far, an important argument that deserves a seat at the table.

Still, given the reality of these numbers it is difficult at best to make a strong case that Washington is anything other than a modest to low tax state. And this says nothing of the fact that we are consistently rated #1 in the nation in the level of regressivity by all sides.

We could not design by choice what we’ve done by chance:  A system that is complex, inefficient and inequitable that fails to fund our 21st Century needs.

The McClearly decision by the State Supreme Court to fund public education–an additional $2.4 billion to $3.5 billion by 2018– provides us with an opportunity to rethink our clunky structure and not merely the level of revenues themselves.

The traditional approach to incremental state revenues for public education–economic growth dedicated to education, closing tax preferences, adding sales tax to business or consumer services, raising one business rate versus another, dedicating potential new sources of revenue from marijuana legalization or Internet sales, shifting obligations to local governments or between the state and local school districts–fails to capture the historic opportunity for modernization that stands before us in the years to come.

This is merely to suggest a well designed flat rate tax structure could add an important element of simplicity, equity and economic efficiency that we currently lack.  It is our consumption oriented system without balance that is so dramatically inefficient and inequitable.  As economist Thomas Piketty’s sweeping “Capital in the Twenty-First Century” indicates with impressive data, the rate of growth of income is several times larger than the rate of growth of the economy at large, including wages.  In our state, we fail on both accounts and instead tax select elements of consumption almost exclusively.

Of course, legislators and the people of Washington would consider tax modernization only with thoughtful, responsible protections to ensure any new structure wouldn’t simply be incremental to our existing complex web of sales, business and property taxes and add little in the way of balance.  Former Gov. Dan Evans frequently noted that this was the missing link in his tax modernization and reform work in the early 1970s.

Our good friends in Idaho, interestingly, have by almost any standard a more balanced, economically efficient and equitable design than outlier-neighbors Oregon and Washington.

To reach a grand compromise, the political challenge in designing a modern tax structure is likely for the left to be more sensitive to questions of economic efficiency and for the right to be more sensitive to questions of economic equity.

We need a simple, efficient, equitable and modern tax structure that meets the long term needs of the 21st Century, not just an important court case before us today.

We are so much more than what we’ve become.

Your partner in service,

Reuven.

Proud to Announce Campaign for Re-election to House of Representatives

April 12, 2014

Serving in our Legislature is an honor.  It is hard, complex, painful work for citizen legislators such as myself who maintain professional lives and busy families outside of Olympia.  But the work of civic engagement is vital to our democracy.

After much consideration and reflection, I have decided to run for re-election to the House of Representatives.  I had seriously considered running for the Senate this year but will not do so.

While I believe I could play a substantive role in the Senate toward progress on the central issues we face in Washington–the structural issues of education, tax modernization and quality of life—I accept the argument that with Democrats across the state working mightily to regain the majority, this is not the time to negatively impact swing district races that Democrats can and must win.

The 36th District, with 80% Democratic affiliation, realizes a 90% registration rate and 90% turnout rate in presidential years. We expect and deserve an open, vibrant civic dialogue. Campaigns are healthy for our representative democracy.

On a profoundly deep and personal level, I considered running for the Senate to help elevate the dialogue in that Chamber about the need for structural modernization of our tax system in order to meet our constitutional obligation to fund our paramount duty of public education. Our educational system from early learning through K-12 and higher education is reflecting the fact that we are on the march toward being a low tax, low service, low quality of life state. We are better than this as a state.  We must enable our kids to have access to the opportunity of a world class education.  We rely on tens of thousands from outside Washington to fill our best jobs, and soon we will reach a tipping point when our own children will find themselves unqualified for the best of the best and unable to achieve their dreams.

I have long expressed my personal respect for Sen. Jeanne Kohl-Welles and my consideration of a campaign was no reflection otherwise.  She is a good and caring person who works hard and cares passionately about our community.  I endorse her for re-election for another term without reservation.

We have fallen from 11th in the nation in 1995 in personal income level of taxes to 37th today and, as a result, we have hurt our quality of life.  We cannot continue to have Somalia level taxes and Denmark level services.  While the Republican Party has become addicted to an anti-tax ideology almost regardless of data, reason or qualification, our own Democratic Party has become the party of government, too often willing to defend only equity, and not efficiency and legitimate reform.

We must confront these systemic challenges and seek a more entrepreneurial, energetic, moderate and responsible path together between the parties.

A grand bargain of policy is possible to fund and improve education but only through collaboration and consensus.  We can move from an embarrassingly low level of  high school graduation rate toward the top.  We have it within us as an engaged, progressive, civically alive community.

Like so many others around the nation, I worry deeply about our addiction to campaign money and the impact of special interests on all sides.  It is unfortunate that campaign financing now stands as a barrier to a healthy dialogue about real issues in even legislative races.

Our state is at a crossroads between mediocrity and greatness, and we are consumed with an attachment to the status quo of fear of change. We need citizen legislators who are impatient for big thinking, big improvements and real steps forward in quality of life.  State government is lethargic and afraid of systems change. I will continue to fight to make major structural improvements that help real people living real lives everyday as I have since my first election.

I am honored to represent the people of the 36th District and look forward to continuing to do so.

Thank you!

Your partner in service,

Reuven.

(This blog post discusses campaign activity but is normally reserved for non-political topics.)

“We came to a draw” in the 2014 Legislative Session.

March 17, 2014

Pat Sullivan, Ross Hunter, Reuven Carlyle

Post session analysis of the performance of the 2014 Legislative Session has generally landed with a thud.  It has been faint praise at best and, in most cases, seem at least a fair reflection of the Legislature’s 60-day status quo standoff that I have described as a draw.

Rep. Ross Hunter’s always-thorough, straightforward budget analysis with some key victories is here.  Crosscut’s take on a ‘largely unproductive session’ is here.  The Seattle Times weighed in with “Olympia failed” here and here.  “Unremarkable” was the Washington State Wire’s assessment.

Here’s some of what we got right:

  • $58 million investment in K-12 supplies, books and technology, a modest part of our McCleary obligation.
  • Significant steps on mental health beds at the community level.
  • 5000 new slots for services to our developmentally disabled community, taking a big bite out of the “no paid services” wait list.
  • We added ‘extended foster care services’ for a large number of foster youth who turn 18, are working close to full time, and still have nowhere to turn so they can stay in housing until age 21. Thanks to the Mockingbird Society for unrelenting leadership on that front.
  • We passed the Dream Act, enabling all students who attend Washington K-12 schools regardless of immigration status the opportunity to access college scholarships.
  • The 24 credit bill requires higher graduation credits (up from 20) matching a more rigorous standard, although the bill could have been stronger still.
  • We invested $25 million in the Opportunity Scholarship Fund, a public private partnership to invest in college scholarships for high potential low income youth.

Our list of unfinished business for 2014 and even the 2015 session is painfully long:

  • The state may lose a No Child Left Behind waiver, and flexibility in how to spend about $40 million, due to lack of agreement. It may lead to nearly 2,000 state schools being declared ‘failing’ and notice sent to parents.
  • The Senate’s push for more tax preferences and the House’s advocacy of closing tax preferences resulted in a draw, and was a challenge from the beginning.  No more exemptions created (a first!) but no new revenue to invest in public education.  This sets the stage for a serious discussion going into 2015 about how to fund McCleary, the Supreme Court’s education ruling.
  • We took a run at closing tax preferences to fund long-overdue cost of living increases for teachers, but failed to budge Senate negotiators.
  • The lack of a statewide transportation package continued despite much posturing from a Senate that couldn’t muster the votes.  In a parliamentary system, their government would have fallen over the issue.
  • We failed to reach agreement on a medical marijuana package despite a bill receiving an impressive 2/3 vote in the Senate.  The House GOP locked up against the bill leaving the system prone to federal intervention.  Hopefully a compromise package will surface in 2015 once we can reach consensus and have sufficient data from which to determine our state’s direction.
  • We failed to adopt a supplemental Capital Budget to invest in our public infrastructure.

My hope is that we can come to better appreciate the strength of each party, each chamber, each individual legislator as we move into elections and the 2015 Legislative Session next year.  It is time, simply, for many in Olympia to accept that we live a time of divided government and consensus must follow if we are to move forward together.

As Chair of the Finance Committee, I have worked hard to elevate the level of analytical, financial and intellectual rigor around our state’s tax  and budget policies.  While we made meaningful progress on a number of initiatives, I’m genuinely disappointed that the Senate failed to even consider my major tax transparency legislation House Bill 2201 that passed off the House floor.  I ensured most Senate GOP tax bills at least received a public hearing and committee consideration.  My tax transparency legislation would have allowed the public, for the first time, to see the details and value of approximately 120 tax preferences (of the 650-plus total exemptions) that are specifically designed around economic development.  Who benefits and for how much?  Which companies receive which tax preferences and at what cost to the public?  Today, we are not allowed to know the answers.

Why?

We are so much more than what we’ve become.

Your partner in service,

Reuven.

The moral hazard of tax preference secrecy

January 26, 2014

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With political pressure from industries to “match” Boeing’s state tax preference package rippling through the 2014 Legislature, many on the left and right are asking larger structural and systemic questions: How much do Washington state taxpayers spend on tax preferences, how much financial value in tax preferences does a company receive, and how much do these companies actually pay in state taxes to put it all in context?

The uncomfortable reality is that we do not know how many tax dollars are being spent or not collected—because that information is, if assembled by the state Department of Revenue, almost completely inaccessible and hidden from legislators and the public.

The inside story gets worse: Under state law, for the vast majority of tax preferences, the basic information about what companies, organizations and industries receive how much money under most tax preferences is considered confidential and proprietary information and expressly hidden from legislators, media and the public.

As chair of the tax-writing Finance Committee, I am granted confidential access to the limited corporate tax information that is collected by the state.

This year, it has reached a point where the weight and moral hazard of this information burdens me, on a deep philosophical level, because I believe it is unethical for my colleagues to make fiduciary decisions about tax preferences–to draft bills, debate legislation and vote on behalf of the people–without knowing the true financial value or tax context of those preferences.

If I speak publicly about financial or technical details of who is claiming tax exemptions and how much they pay as a context to those dollars, I would face 90 days in jail, get ejected from the Washington State Legislature and be banned from holding public office for two years.

I’m not making this up. Telling the truth about this basic but vital tax data–even to other legislators–could cost me my elected position and land me in jail.

That’s because the strict interpretation of state law is that the chairs of the respective tax committees in the House and Senate are entitled to this important contextual tax data, but rank-and-file legislators are not. This means two of 147 legislators know the truth of how the money flows.

The old fashioned idea that the value of a tax preference must remain confidential is out of date and philosophically out of step with our state.

Since 1972 our state has been a national leader in public disclosure about who funds campaigns, how state budgets are written and how tax dollars are spent whether it’s the salary of a local elementary school teacher or how much a vendor is being paid to build a tunnel along the Seattle waterfront. A 2012 investigation by the widely respected Center for Public Integrity ranked Washington #3 of 50 states in its “Integrity Index” based on the strength of the disclosure laws when it comes to campaign financing, lobbying reporting, state budget process and public access to information.

However, in contrast to campaign data and budget expenditures–which can be searched on line down to the individual check on www.fiscal.wa.gov, the actual beneficiaries of tax preferences are public for just 32 of the state’s 650+ tax preferences, less than 5%, and the financial value of the value of the tax preferences claimed is public for only 19 categories–less than 3% of the total.

Last year, I partnered with Senate Majority Leader Sen. Rodney Tom (D-Medina), to shine a light on tax preference transparency through ESSB 5882 so the public can more effectively understand the scale and scope of the value of a tax preference created by the Legislature.

Under the new law, all new tax preferences must disclose the basic financial value of a tax preference at the individual firm level, so we can together assess whether there is a return on investment and better study whether a new tax preference achieves the policy goals established or is simply evaporating into the mist.

While this is true for new tax preferences, there are more than 650+ existing tax exemptions, credits and preferential rates on the books that cannot be easily analyzed in depth because the information is confidential or not reported at all.

Transparency and disclosure is a policy foundation that often unites limited-government and progressive think tanks, left and right, Democrats and Republicans. From the Sunlight Foundation to OpenSecrets.org examples, Washington has long embraced the right of the people to know how the money flows in and out of government.

This year, I have introduced a modest step forward in tax transparency legislation–House Bill 2201–that would: 1) consolidate and streamline the multiple annual reports and surveys from businesses into a single, easy to understand “Tax Accountability Report.” 2) Increase the availability, quality and consistency of tax preference data reported internally to the state Department of Revenue–including the value of the tax preferences. 3) Authorize the the public disclosure of certain tax information for publicly traded companies annually claiming one or more tax preferences in excess of $10,000, with a two year lag time to avoid any real-time competitive concerns. Publicly traded companies already provide much of this information at the national level through the Security and Exchange Commission.

How can a legislator realistically be expected to vote on a tax preference bill for a company or industry if she or he does not know the context of whether a tax proposal is small, massive or in-between relative to the overall tax obligation of that firm?

For example, under the state’s extracted fuel tax preference for the oil companies with refineries in Washington, the aggregate public value of this preference is $59 million between 2015-2017. There is no public disclosure, however, of how much British Petrolium, Shell, Tesoro and the other beneficiaries pay in taxes so it is literally impossible for legislators to know whether that $59 million is small, medium or large relative to their overall tax obligation. Given that I have introduced House Bill 2465 to close this tax preference, you can assume I feel strongly there is a painfully obvious answer to this question.

If a tax preference is working–and can make the business case to the public with solid data, facts and evidence as well as political support–we should keep it working to build our economy and quality job growth.

I am not opposed to tax preferences that work and add measurable value, but I struggle with the lack of intellectual, financial, political and analytical rigor applied to our state tax preferences. Specifically, I have stood firmly and publicly in support of tax preferences that can clearly prove with hard data—such as the Boeing package—that they achieve a compelling return on investment for taxpayers and our quality of life.

If a tax preference cannot justify its continued existence with data, metrics and facts and must retreat into brute lobbying force, then we should probably close the tax preference and instead invest those precious dollars into public education from early learning through K-12 and higher education.

The responsible next step is to pass HB 2201 and open the books in a careful, measured way and let citizens–and 147 legislators–know the truth of how the money flows.

Your partner in service,

Reuven.

Here are the results of my 36th District constituent poll

December 12, 2013

The good folks of the 36th District are fully engaged, educated, deeply passionate and civically alive. In my five years in office I have attempted to be a thought leader in the use of online tools and social networking to give people an even stronger sense of connection to state government. Recently I distributed a constituent survey touching on a handful of key issues.

The response was simply overwhelming.

Within days, hundreds of people of had participated. Astoundingly, the current count is more than 400. And the respondents went way above and beyond, as nearly 87% wrote a long-form answer to spell out their thoughts on transportation, the Boeing package and/or their legislative concerns in the coming year. Thank you to everyone who participated. Thank you for graciously taking the time out of your busy lives to share your ideas, opinions and your concerns on some of the most important issues facing our state.

Statistically, the sample size is large enough to be relevant for the district. According to the 2010 census there are 133,901 people in the 36th. To lend some perspective, a sample size of 384 would be needed to achieve a 5% margin of error with a 95% confidence level. There may be some sampling bias because the responses came from my own list. And to be clear, this survey is not meant to be confused with a scientifically conducted, randomized poll. Nevertheless, many of the answers are overwhelming, and  the nuance, detail and insight from the individual responses cannot be dismissed.

The 10-question survey was split into three parts: 1) Transportation 2) The Boeing Package and 3) 2014 Legislative Priorities. The graphs from the 7 multiple-choice questions are below, and the answers to the open-ended questions are bundled together as a PDF:

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transportationPackageSupport transportationComponents boeingBanner boeingPackageSupport boeingPackageAccountability legBanner corporateTaxTransparencySupport openDataSupport deathPenaltySupport

The Metropolitan Revolution Comes to Puget Sound

December 3, 2013

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As legislative negotiators work tirelessly behind the scenes to seek common ground on a statewide transportation package, profoundly important philosohical questions are on the table. The tension in the air can be sensed over what strategic direction our state’s transportation system will take in the decades to come.

Will a modern, sophisticated, win-win grand bargain between the Republican-led Senate and Democratic-led House be achieved, or will our infrastructure continue to slide into mediocrity?

On a deep level, the questions are substantial: Will we continue down a traditional path of a restricted 18th Amendment (use of gas tax for roads and highways) instead of multi-modal uses? Will metropolitan strategies–from Bruce Katz author of The Metropolitan Revolution with smart cities, urban environmentalism, responsible growth, transit to city-oriented regionalism itself–find support from the business community and Republicans? Will the Senate Republican leadership provide the majority of votes to lead their chamber through the sweeping policy questions or simply expect a majority of Democrats to vote for taxes while Republicans vote ‘no’ yet quietly bargain for transportation spending in their own legislative districts? Will Seattle and King County voters, who for years have been net contributors of taxes to state government, reach a tipping point of frustration at cuts to local transit and deteriorating roads and support a “Plan B” or ‘King County-only’ approach? Will King, Snohomish and Pierce county residents take the initiative, for the first time in years, to think strategically about the post-modern infrastructure needs (ports, ferries, highways, transit, bike paths, stormwater, public waterfronts, etc.) as a Puget Sound region?

Recently I stopped by a major bus stop in my district to speak with Metro riders about the situation. After reviewing the policy background provided by Metro, and learning more about the current Senate proposal on the table, one rider said to me: “I’ve been thinking about this, let me get this straight, here’s the deal as I understand it: We raise our gas tax by 11.5 cents which, in turn, gets us the honor of voting for a new Motor Vehicle Excise Tax (MVET), and we cut spending on public schools–and environmental cleanup–all in exchange for ‘buying back’ our current level of bus services. Seems like a ridiculously bad deal to me. Let’s just raise fares and our own MVET and pay for our own services and at least keep the money here.”

The state’s thought leaders in the business community are fighting hard to find a compromise. They argue, rightly, that public infrastructure should maintain a special place in political discourse given how vital it is all a healthy and robust quality of life. And yet those same organizations led the charge to fully fund the business-backed candidate in a recent open state senate seat who is categorically opposed to new transportation taxes. It is difficult to reconcile those competing values.

Our old model of transportation funding and spending is ending. More than that, our radical addiction to decentralization of authority and allocation of resources based on yesterday more than tomorrow is unsustainable. The gas tax itself is, of course, imploding virtually before our eyes as vehicles become more fuel efficient, and competing over a declining resource is hard enough under the best of circumstances. Add to the mix the need for a bold approach at living the Metropolitan Revolution and it simply does not seem realistic to expect Seattle and King County voters–and others throughout Puget Sound–to enthusiastically embrace a stereotypically static model.

What would make sense?

Courageously stepping together into the 21st Century of transportation innovation.

Let’s take the risk of truly experimenting with new approaches such as opening the 18th Amendment to meet the transportation needs of communities; taxation of vehicle miles travelled (privacy remains a big issue); wide spread use of regional tolling and variable and usage-based systems; healthy funding of transit in well planned regionalism; exploration of an authentic carbon tax; meaningful reforms that go to the heart of the need for efficiencies and truly save money; more focus on maintenance and operations and repairs of our existing infrastructure rather than new ‘greenfield’ construction; and acknowledging what the data proves–that the Puget Sound is the heart and soul of our globally competitive infrastructure.

Let’s recognize that when you eviscerate the ability of start up companies to attract employees, students to get to universities, Boeing to transport aerospace parts, Microsoft to shuttle employees from Seattle to Redmond and more, you lose part of the soul of what makes Metropolitan thinking an authentic strategy. You lose the benefits of “Rise of the Creative Class,” and you lose affordability and social justice for those who are left behind.

None of this is to disrespect or disengage from our rural communities and their interests. None of this is to imply that all the resources should be redirected to the cities of Puget Sound. None of this is to disrespect our historical ‘social contract’ between Democrats and Republicans, urban and rural.

All of this is merely to elevate the dialogue toward regional thinking economically, socially, politically, environmentally and culturally and to recognize together that our old approach is ending not because we want it to but because the status quo is imploding. In a handful of years more than 75% of the world’s population will live in cities. We’re not ready. We are so much more than what we’ve become.

Your partner in service,

Reuven.

The political pressure valve and tax reform

October 27, 2013

The political history of Washington’s struggle to design an intelligent tax structure reads like a Steinbeck novel–or a graduate school thesis.  The fierce urgency of the radical, unstable politics of the 1930s united land-rich but cash-poor rural farmers–unable to pay heavy property taxes– with low-wage workers in the city to successfully push for a state income tax against the powerful financial interests generally in control of the politics. The electoral success was short lived due to court and political interventions, and the status of the most regressive system of taxation in the nation–50 out of 50 states–stands unmolested in the corner like an uncomfortable Civil War statue in the South.

Since the Washington Grange led our state into battle for a progressive income tax, the tide of history has washed over our collective consciousness about economics, elections and policies. It is as if the political subculture decided it was ‘too close for comfort’ and they had better rethink whether it is safe or wise to allow such coalitions because real change could happen.

How did the big tent coalition of activist small business, labor, organized poor rural farmers and city workers–that at one time seized control from both big business and big government–become but a dusty footnote in history books?

Perhaps one answer lies in the romance and mystique–authentically, powerfully and emotionally rooted in Jeffersonian history–that political support for ‘America’s family farms’ requires absolute fidelity to the notion that agriculture is a particularly special class of economic interests. The image of the multi-generational family farmer alone is sufficient to silence critics or prevent the dialogue from surfacing in polite company that perhaps we should modernize our approach. The wave of industrialization and urbanism that defines our nation since Alexander Hamilton and Thomas Jefferson first fought the intellectual battle is as if a dream when it comes to the mystique of the farmer.

And so, not without a rational basis in understanding politics we, like many states, have effectively and figuratively carved out most agricultural interests from paying any meaningful or measurable level of taxes in Washington.

The political pressure valve that represented at least 50% or more of that old coalition–the agricultural heartland of our state–was released.

Yet the story goes deeper. The structural challenge begins to grow as we reflect upon the fact that we as a state have also embraced these romantic notions of industry in the areas of timber, aerospace and key elements of information technology.

The pressure valve released further pressure.

Thus, whether we are comfortable acknowledging it or not, these four industries and elements of others of our economy–notably ‘services’ rather than ‘goods’–are essentially released from the standard taxation model. Many of the preferential tax exemptions, rates and credits in the state have the effect of carving our one or more of these industries to some extent.

I have long believed that the most effective tax structure is one that has low rates, broadly applied, with few exemptions, that can have the effect of ‘depoliticizing’ tax policy. Instead, we have the opposite: A highly politicized system that rewards powerful interests with the ability to seek exemptions.

Each and every year interests descend upon Olympia to seek additional tax exemptions, credits and rates because our current system does, in fact, punish many industries in economic inefficient ways. And so their ‘business case’ is strong when they ask for relief from the negative impacts and externalities of high sales taxes and high B&O rates.

But the ‘cost shift’ from those with the ability to be carved out to those unable to make the case grows year after year.

I maintain hope and genuine optimism in the sense that many traditional economists share a view that low rates, broadly applied with few exemptions has a better chance of mirroring our state’s economic growth and structure as it changes and evolves. The tipping point of pressure is nearing because we have so little room to continue to carve out additional industries. Those businesses and individuals who feel the impact of that cost shift are restless.

The political coalition of the 1930s that seized control of our state’s political discourse demanding equity and efficiency in our economic system imploded and exists no more.

Low wage, low skill, service-oriented workers in the city had no one to release the political pressure valve for them.

These workers in the service sector enjoy no such romantic image as high tech workers, aerospace employees or of course family farmers. There is no elevation of their unique role in history or society. Low wage, low skill service workers are the untouchables who seem in popular lore to offer less than they can contribute–despite the fact that so many in each generation are ambitious immigrants who work tirelessly to build a better life for their families.

Today, Washington stands alone atop the regressive pyramid with a wildly inefficient system of revenue that taxes goods not services and shifts the burden to small businesses and low income individuals without political might. It is not the fault of farmers, high tech workers, aerospace employees or timber workers that they have managed to carve themselves out of a full tax obligation as anyone would want to be a part of a better system.

But it is incumbent upon all of us to acknowledge that our system today is bad economics–and unjust social policy– because it shifts the burden to small business in politically weak industries and to the poorest of the poor individuals. It is unsustainable and, at some point, it will likely implode.

We are now in the bottom quartile in the nation in the per capita level of taxation in combined state and local taxes. Is that too high or low? It really is a question of whether we can build the level of public services our citizens require. So the more meaningful question is: Do we have the level of services and quality of life that we seek together?

I believe we are on the march toward being a low tax, low service, low quality of life state. The goal is not more taxes but a smarter system of taxation and revenue collection that accurately mirrors our 21st Century economy and does so in a socially just manner.

One day–perhaps soon and perhaps in many years to come–Washington will build a smarter tax structure that better maps to the 21st Century because it’s good economic policy.

The authentic answer: A modern, globally competitive structure that lowers rates, broadens the base, eliminates exemptions and depoliticizes our political system of carve-outs.

We are so much more than what we have become.

Your partner in service,

Reuven.

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