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Finance Committee: Philosophical consistency between taxes and spending.

December 25, 2012

Washington State ranks 28th in the nation in combined local and state tax obligation. At 9.3% of income, according to the generally conservative but well respected Tax Foundation, it is easy to make a policy case that this is not a wildly unreasonable burden. In 1977, Washington ranked 31st in the nation with a 9.6% of income level of taxation. A never-ending, parallel political question, of course, is whether citizens are receiving value for their precious tax dollar.

Tackling these policy and political questions with honesty, transparency, rigor and data-driven objectivity is my new gig as chair of the House Finance Committee.

As we prepare for the 2013 Legislative Session that begins January 14, we find ourselves at a transformative intersection where tough public policy challenges push us beyond the normal chatter of politics.

The state Supreme Court is bearing down on the Legislature to meet the constitutional responsibility to ‘fully fund’ the paramount duty of public education, while their parallel silence about the I-1053 supermajority case continues; Gov.-elect Jay Inslee is assembling a new team operating under a construct of a campaign promise to veto any ‘new’ taxes; business leaders and many Republicans are clamoring for legislative passage of a lucrative new transportation funding package; the Senate is tightly bound by partisan constraints; and the biennial operating budget faces a projected $900 million to $1.2 billion deficit.

Here are some of my hopes and expectations for the year ahead. First, I am immensely pleased that my colleagues recognize the value of an independent Finance Committee. I am, of course, profoundly honored and humbled to have been selected for the chair role. I didn’t expect it and I was candidly caught off guard by the invitation.

Regardless of politics, I believe most legislators share a view that it is vital to elevate the dialogue in our state about the larger economic and financial trends facing state government.

Do we have a structural deficit or a short-term glitch in this recession? Do we pay too much in taxes or too little? Do we spend our taxes wisely or foolishly? Can we sustain this level of on-going budget cuts without eviscerating higher education and other treasured services? Our tax burden is at historic lows yet why has the public consistently rejected efforts to increase funding? Are businesses over or under taxed? Is there value in a public dialogue about how taxes flow into and out of state government? Is the state’s normal economic growth sufficient or not to fund public services?

Legitimate questions all.

My primary goal as chair is to bring a rigorous, robust and bold sense of equality of analysis to our spending and taxes.

I want tax policy to be on equal footing as spending not with a preconceived goal of increasing taxes but with a businessman’s eye toward a more fiduciary management of the public’s resources. No business in the country would vigorously analyze spending but allow a quick wink at the revenue side of the equation. It’s irresponsible and we need to do better. There is no malice or failure in this picture only a sense of delayed maintenance that has crept into the Legislature’s workplan around taxes.

Today in Olympia, legislators understandably focus substantial time and energy on spending programs. A small program (such as Passport to College Promise Scholarship Program that sends foster youth to college) might receive multi-year studies, analysis and independent reviews before being reauthorized. It is required to prove that there is a measurable return on investment for taxpayers.

In assuming this position, I argue that major tax policy (whether structural issues such as gross receipts tax on business or modest like a data center tax exemption) receives a fraction of the time and energy that even a modest spending program receives. Whether it is because of supermajority voting rules of I-1053 and I-1185 to close a tax exemption or raise taxes, or because of political fear of even honestly discussing taxes, it is unsustainable for the Legislature to figuratively ignore one side of the ledger.

The House of Representatives recreated the Finance Committee because Washington, as a $65 billion, 100,000-person enterprise cannot responsibly and effectively manage the public’s resources without ensuring a more open and transparent public review of tax policy on every level.

The New York Times’ bold series about state and local tax exemptions is in many ways a symbolic model of transparency. Whether right or wrong on various details, it elevated the national dialogue in dramatic fashion. State and local government reporters need to help continue this public dialogue.

For example, the state has created 640 tax exemptions, credits and preferential rates. We have done so over the years in large part because our structure is economically inefficient by most independent reviews, making sales tax or B&O tax carve-outs more important than usual. I have argued that we should periodically allow those exemptions to expire and force a ROI analysis of whether they are achieving their objectives. I intend to work closely with the Joint Legislative Audit and Review Committee, the Citizen’s Commission on Tax Preferences, state auditor, governor and many others to continue to tackle important ‘systems questions’ about these exemptions and how they relate to our larger tax framework and economic clusters.

My goal is not to close tax exemptions. My goal is to close tax exemptions that don’t have quality, justified and solid data to show lawmakers, reporters, advocates and even companies themselves that there is a ROI for taxpayers. My goal in this area is to rejuvenate legislative oversight, policy analysis and action with regard to fundamental policy questions of whether they work or not for taxpayers.

Republicans rightly insist that the mere existence of a government spending program is no longer justification for its continued existence. The same philosophical consistency must be true for tax exemptions and tax policy. Some will criticize me for introducing ‘uncertainty’ into our tax discussions, a euphemism for fear that a treasured tax exemption will need to prove it works. Others will criticize me for not immediately articulating a need for new revenues to fill the budget gap as well as fully fund the McCleary decision. Anyone in this role should expect no less than arrows from both sides.

Moreover, 41% of taxes collected in our state go to local and county governments and the pressure is on to allow even greater flexibility. It is a constitutional responsibility of the Legislature to grant taxing authority to cities, counties and special purpose taxing districts, yet we rarely review such authority once granted. Are cities managing this authority effectively or not? Are special purpose taxing districts, as evidenced by the Wenatchee default last year, receiving sufficient oversight?

We have taken some small steps in this area but as pressure grows by King County and Pierce County and other jurisdictions for more flexibility, I would like us to look even more closely at what works and what does not.

As I said in a recent news story:

“It is philosophically inconsistent to be in favor of a rigorous, objective data-driven review of spending but to not be in favor of that same independent examination of our tax policy. And my central goal is to bring that same level of philosophical consistency to both sides of the equation.”

The Seattle Times has engaged in a multi-year effort to educate the public about what they consider spending inefficiencies and burdensome tax levels. The Stranger counter attacks in an effort to highlight what they consider inconsistencies between calls for increased spending on education and a strong anti-tax sentiment. These blog-fueled skirmishes are not merely about campaigns, personalities and public debates, they are visceral to the public’s view of our state’s future.

I intend to freely reach out to a wide range of our state’s best think tanks, researchers, special interests and advocates for high quality data and policy assistance in this journey. Washington Policy Center, Budget and Policy Center, Sightline, Economic Opportunity Institute and many other state and national thought leaders will be called upon to help our committee understand the data and make the business case for and against a variety of big policy ideas.

My goal is to lead a cooperative, fair, relationship-based committee that brings the best data into the open and helps everyone–Democrat and Republican, legislator and activist, special interest, media and the general public–engage in a courageously honest battle of ideas about how tax policy impacts our budget, our future and our quality of life.

Finally, I intend to challenge the public to engage with us in elevating the dialogue. I welcome your thoughts, insight and counsel.

Your partner in service,

Reuven .

21 Comments leave one →
  1. January 1, 2013 5:41 pm

    The Washington Policy Center?

    They have been pushing for the privatization of our public schools for as long as I have been aware of their existence. They dispute climate change, see their recent article, “Is Climate Change Already Here? Seattle Times ‘Science’ Article Ignores Actual Data”, and arguing against green school buildings, see “Washington State Brags About It’s Failed ‘Green’ Building Standards That Other States Are Abandoning” posted on their website.

    Do you really want to seek advice from this group?

    Dora Taylor

  2. January 10, 2013 11:28 am

    A little bit more about the Washington Policy Center.

    “The Washington Policy Center, or should I say ALEC, and the future of our children”:

  3. Bruce W. Nichol permalink
    February 28, 2013 7:14 am

    I agree that it is philosophically inconsistent of the Republicans to challenge all government spending and not rigorously examine tax exemptions. Republicans have been screaming, “It’s a spending problem” for years. Well, it is my opinion that it is a revenue problem. Those of us who can’t fight back get taxed. Thank you for your efforts.

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  1. U.S. Government Accountability Office Tackles Tax Exemptions | NW Daily Marker
  2. The Washington Policy Center, or should I say ALEC, and the future of our children | Seattle Education

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