State Budgets

Washington State of the State: Governor Inslee Repeats Demand for Destructive Carbon Tax

Big government agenda would impede the business climate and economic growth of the state.

Beware, taxpayers of Washington state, your governor wants to hike your taxes by another $3 billion. In a State of the State address packed with a range of legislative demands, Washington Governor Jay Inslee renewed his push for a carbon tax (defeated in the state Senate weeks later) to speed up the fix for the K-12 school system mandated by the McCleary v State of Washington court case. In addition to a massive carbon tax, he called for workforce development initiatives, healthcare regulations, and myriad new social regulations. In aggregate, this big government agenda would impede the business climate and economic growth of the state.

Although the Rich States, Poor States ALEC-Laffer State Economic Competitiveness Index ranks the state 2nd place for economic performance over the past decade, this is largely due to the state’s avoidance of an income tax. Generating strong domestic in-migration, job growth, and resultant GDP growth, being a no-income-tax state is a huge draw to individuals and small businesses, especially in a region surrounded by some of the highest taxes in the nation. Sadly, this robust performance is threatened by several factors. Washington’s economic outlook is ranked 40th nationally by this same index. Washington’s sales tax burden ranks 9th highest nationally. The state’s $11 per hour minimum wage is second highest in the country. Worse, the state levies an economically destructive and unfair death tax. Long-term economic results in states with similar policies—such as New York, California, and Illinois—should serve as a warning to Washington.

The governor prodded lawmakers to pass a capital budget that fully funds his requests for school construction, affordable housing, and mental-health initiatives. These proposals were just a prelude to his primary agenda: enactment of a carbon tax. “Now is the time to join in action and put a price on carbon pollution,” advised Gov. Inslee. As summarized in The News Tribune, “The plan would tax carbon emissions generated by transportation fuels and power plants at $20 per metric ton starting in July of 2019. After that, the tax would increase by 3.5 percent each year, plus inflation.” The would generate an estimated $1.5 billion in higher taxes in just the first two years.

The governor proposed spending the gusher of carbon tax revenue first on education but also for a variety of environmental programs, including grants for people to add energy-saving insulation to their homes, tax incentives for electric vehicles and buses, subsidies for building more solar panels, and a myriad of other incentives for development clean energy systems.

Unfortunately, the proposed carbon tax will drive up the costs of energy for residential consumers and also for businesses. According to the Washington Research Council (WRC), the petroleum industry adds an estimated $1.85 billion to the state economy annually. Washington’s refineries already pay substantial amounts in state and local taxes, which according to the WRC, are three times higher than those in California! Fortunately for taxpayers, carbon taxation failed to garner sufficient support to advance in the legislature this session. Voters already rejected ballot Initiative 732 in November 2016 by a 16 point margin which would have levied a carbon tax. Another similar proposal is likely to appear on the fall ballot again this year.

Between accelerated economic growth and the benefits of the federal tax reform, the baseline General Fund-State revenue forecasts for The Evergreen State jumped compared to the prior quarter’s forecast by $647 million for the 2017-2019 biennium and an additional $671 million in tax revenue for the 2019-2021 biennium. Rather than saddling Washington’s hardworking taxpayers and businesses with billions in new taxes to pay for misguided spending initiatives and an inefficient education system, Governor Inslee and lawmakers would be better off if they pursued priority-based budgeting and reforms to education that link funding with outcomes and performance. Should Washington choose, it could chart a course for pro-growth, broad-based tax cuts, enhancing economic prosperity and job opportunities for all.

In Depth: State Budgets

Smart budgeting is vital to a state’s financial health. The ALEC State Budget Reform Toolkit offers more than 20 policy ideas for addressing today’s shortfalls in a forthright manner, without resorting to budget gimmicks or damaging tax increases. One way to stabilize budgets over time is to embrace…

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