Washington Research Council Blog

Remembering Washington's Birthday

Just a brief note that today is the 280th anniversary of the birthday of George Washington. It's the subject of my column this morning. 

Why it's a mistake to increase capital gains taxes

In an earlier column, I pointed out that several problems with proposals to tax capital gains in our state. With key legislators, including the Senate Ways and Means chair, still promoting the idea, I wanted to call attention to a recent blog post from the American Enterprise Institute. Some very effective debunking of prevalent myths.

 As a new study from Ernst and Young shows, taking into account both the corporate and investor level taxes on corporate profits and state level taxes, the United States has among the highest integrated tax rates among developed countries. 

RTWT

Cities continue to block B&O tax simplification backed by business, governor

For years, business groups have sought a way to simplify the state's myriad municipal business and occupation tax regimens. AWB president Don Brunell devoted his column this week to the issue, indicating support for Gov. Gregoire's tax simplification proposal.

B&O taxes are assessed on a business’ gross income, regardless of profit. The state imposes a B&O tax, but local jurisdictions do as well. The amount of the local B&O taxes, as well as how they’re calculated, varies from one jurisdiction to the next.

...Under the governor’s proposal, the state of Washington would be the single collector of all local and state B&O taxes, and the state would rebate to each local jurisdiction their share of the tax -- similar to how the state currently handles state and local sales taxes.

Five major cities opposed the plan. AWB's Jason Hagey writes at the Olympia Business Watch blog that the opponents so far are unwilling to compromise. He reports that the cities' objections have been solidly rebutted.

Early in the session, cities were complaining about the governor's original proposal, claiming it would cost them millions of dollars.

That prompted a detailed rebuttal from the Department of Revenue, knocking down virtually all of the concerns. It is clear, officials said, that the cities misconstrue the impacts from some parts of the proposal.

Regulatory reform and tax simplification are two positive steps the state can take that will boost business activity. We documented many of these issues in our Thrive Washington series and other WRC reports over the years. It's time to act.

New Brief: Nation's Seventh-Best Business Climate?

Last week, the Tax Foundation released its annual ranking of state business tax climates.  Washington--largely thanks to our lack of an income tax--ranks seventh in the nation.  In a policy brief, we discuss the ranking and what it means for Washington.  This brief builds on a post from Dick last week.

Union membership rate stayed flat in 2011

The Bureau of Labor Statistics released the 2011 union members report Friday. 

In 2011, the union membership rate--the percent of wage and salary workers who were members of a union--was 11.8 percent, essentially unchanged from 11.9 percent in 2010, the U.S. Bureau of Labor Statistics reported today. 

The number of wage and salary workers belonging to unions, at 14.8 million, also showed little movement over the year. In 1983, the first year for which comparable union data are available, the union membership rate was 20.1 percent and there were 17.7 million union workers.

Not too much surprising in some highlights:

Public-sector workers had a union membership rate (37.0 percent) more than five times higher than that of private-sector workers (6.9 percent). 

Workers in education, training, and library occupations had the highest unionization rate, at 36.8 percent, while the lowest rate occurred in sales and related occupations (3.0 percent).  

Mickey Kaus finds the major story.

Only 6.9 percent of private sector workers are in unions. That’s the same percent as last year. In the middle of the 20th century, it was 35%. … The number is significant because it suggests that labor’s much-publicized private sector organizing drives have failed. They appeared to be meeting with some success a few years ago–the private sector rate actually rose from 7.4% to 7.6% between 2006 and 2008. Those union gains have now apparently been lost, and the private sector unionization rate again asymptotically approaches zero. 

Little wonder the news out of Indiana is capturing so much attention today.

 

 

U.S. Chamber gives WA poor marks for employment laws and regulations

At Olympia Business Watch, AWB president Don Brunell writes that the latest review of state employment laws and regulations by the U.S. Chamber of Commerce again places Washington in the "poor" category, along with 14 other states. The Chamber's study assigns each state one of three grades: Good, Fair, Poor. 

As Brunell points out, there are direct negative jobs effects from excessive regulation.

If all states were to improve their regulatory climate to the levels discussed in the report, the effect would be a one-time boost of 746,462 jobs. Moreover, the rate of new business formation would increase by 12% resulting in the creation of 51,590 new firms each year across the country. In Washington State, the Chamber says 17,847 new jobs would be added and 12,167 new businesses.

A timely reminder to legislators as they consider how to spur investment and job creation.

Tax Foundation: WA has nation's 7th best business tax climate. There's more.

The Tax Foundation, a respected national tax policy research group, released its annual report ranking the business tax climate in the 50 states. As it has in the past, the group gives Washington generally high marks. This year, the state comes in No. 7, up one from last year's 8th place ranking. 

Here's the TF news release, blog post, and full study.  

Although we've been critical of the TF methodology in the past (see here, for example), we believe the study provides an abundance of good information about state tax policy and its impact on business. Moreover, they have consistently improved their methodology. Our criticism focuses on two issues:

1. It's not clear to us that it is possible to rank states fairly on a single business tax climate index. There's simply too much variation in how tax policy treats different sectors for the ranking to be as clean as most analysts would like.
2. The TF methodology gives extraordinary weight to income tax issues. The top 10 states in this year's ranking are, in order, Wyoming, South Dakota, Nevada, Alaska, Florida, New Hampshire, Washington, Montana, Texas and Utah. 

TF explictily accepts the charge of overweighting the absence of a major tax.

It is obvious that the absence of a major tax is a dominant factor in vaulting many of these 10 states to the top of the rankings. Property taxes and unemployment insurance taxes are levied in every state, but there are several states that do without one or more of the major taxes: the corporate tax, the individual income tax, or the sales tax. 

Several of these states, including Washington, have also been high growth states. As noted in our analysis of Initiative 1098, states with steep progressive income tax rates have been substantial losers in the competition for jobs and investment. In that policy brief, we cited the 2010 TF report,

No matter what the average rates are, the high marginal rates will affect the state’s position in several prominent national business climate rankings. Washington ranks 9th best in the Tax Foundation’s 2010 State Business Tax Climate Index. The overall index bends five major components indexes: corporate tax, individual income tax, sales tax, unemployment insurance tax and property tax. Washington ranked 33rd, 1st, 50th, 26th, and 21st respectively in these components. The state’s high overall ranking was largely dueto the lack of an income tax, which resulted in the “number one” ranking in that component.

This year, we rank 30th in corporate tax, 1st in individual income tax, 48th in sales tax, 18th in unemployment insurance and 22nd in property tax.

It's important to read the Tax Foundation report as one useful barometer of business tax climate. Another, complementary, approach is taken by the Council on State Taxation. We reported on the COST business tax study in a blog post last summer. The crux:

COST finds that state and local business taxes in Washington amount to 5.4 percent of Gross State Product, significantly higher than the US average of 5.0 percent. 

In my column this morning, I write about legislative proposals for a new personal and business income tax, a capital gains tax, and extending the sales tax to personal and professional services. Each of these proposals would exert a drag on our business tax climate. I'll not go into detail here. Please read the column. I should note this finding from the TF report:

States with the worst scores on the [sales tax]  are Hawaii, New Mexico, Washington, South Dakota and North Carolina. Their tax systems hamper economic growth by including too many business inputs, excluding too many consumer goods and services, and/or excessive rates of excise taxation.

Keep that in mind when you hear charges of "excessive" use of tax incentives in this state. 

We and others have been critical of business taxes here. There's room for improvement. And there are some things we're getting right. It would be a tragic mistake to use the good news to promote bad business tax proposals. 

Moving ahead with education reform despite state budget challenges

Last Friday, I noted that education reform dominated the first week of the legislative session. A good op-ed by Dean Allen, CEO of McKinstry Co. and current chair of the Washington Roundtable, explains the urgency.

By 2018, two out of three family-wage jobs in our state will require post-secondary education or training. Yet, on average, nearly 30 percent of our students don't graduate from high school. Of those who do, 50 percent can't demonstrate proficiency in math, and 50 percent of students who enroll in our community colleges need remedial training, most often in math. 

To make matters worse, Washington is one of fewer than 10 states in the country in which achievement gaps between white students and students of color are growing.

...we can all agree ... that changes are needed if we truly desire success for all kids.

He emphasizes the reforms rolled out last week, including better systems of performance evaluation and charter schools. Read the whole thing. Funding questions, he notes, should not preclude action today.

It's tempting to think that nothing can be done right now, given the budget crises hindering our state and local governments, but we can put ourselves on an aggressive path toward improvement by making certain no-cost or low-cost changes in concert with modest public investments and community and business support.

The News Tribune editorial board reaches the same conclusion.

Washington’s schools do need better funding – but their need for better thinking is more fundamental and more urgent. Especially when money is tight and every possible advantage must be wrung out of every precious dollar.

The schools need a bundle of reforms. 

See also this Walla Walla Union-Bulletin editorial supporting charter schools.

Finally, here's Superintendent of Public Instruction Randy Dorn's statement on education reforms.

Tax simplification supported by governor and business community, some major cities opposed

AWB president Don Brunell blogged recently about the advantages to businesses of the B&O tax simplification measure endorsed by Gov. Chris Gregoire. Brunell writes:

AWB has pointed out the B&O tax is different than the sales tax because at least 39 cities collect B&O taxes independently using their own rules, penalties and fees. B&O taxes are not uniformly implemented like sales taxes.This creates asignificant burden for small businesses.

The governor's policy brief makes the right point, particularly in this economy.

Small business owners should be able to spend their time growing their business, not puzzling over multiple forms and differences between state and local B&O taxes. Most businesses want to pay the right amount of tax. Simplification will make it easier for businesses to understand and comply with their tax obligations.

Still, as the Seattle Times reports, major cities oppose the measure.

Education reforms top first week of legislative session

The first week of the 2012 legislature draws to a close this cool Friday the 13th of January. Encouragingly, education reform has found substantial bipartisan support. In the Seattle Times, Brian Rosenthal has a good overview of yesterday's action.

Declaring that traditional methods have failed, a bipartisan group of lawmakers formally introduced a pair of bills Thursday that could shake up education policy in the state — if they survive what is sure to be a contentious debate.

The proposals would allow charter schools into the state, establish a process for failing schools to be taken over by outside organizations and continue an overhaul of the way all teachers and principals are evaluated.

Where Rosenthal sees "contentious debate," Erik Smith at Washington State Wire sees a new war in education. The legislators proposing the measures have substantial support from groups that have been long-time leaders in education reform.

Standing with them are the Washington Roundtable, the association that represents the state’s largest businesses; Washington Stand for Children, a grass-roots organization that urges education reform and funding, the League of Education Voters and the Partnership for Learning, among others.

 On the other side, the Washington Education Association, the state's largest teachers' union, announced its ongoing opposition to charter schools. Read Smith's story for more details. 

In the Senate, the bills have been introduced as SB 6202 (charter schools) and SB 6203 (teacher and principal evaluation systems).

For how the evaluation measures differ from the governor's proposal, here's Jordan Schrader's account in The News Tribune.

Sen. Rodney Tom, one of the sponsors of the reform measures, has an informative video discussion of reforms and the budget.

In my column on last weeks state Supreme Court ruling that the state was not meeting its paramount duty of making "ample provision for the education" of Washington children I wrote:

Increased funding cannot be easily separated from increased accountability and reform.

There's a lot of session left to go, but it's encouraging to see education reform high on the legislative agenda, with solid bipartisan support.