Editorial: Taxpayers deserve down payment on tax reforms

By The Herald Editorial Board

Reform of the state’s tax system wasn’t at the top of the to-do list for this session of the Washington state Legislature — that’s expected next year, following the expected release soon of a report from the bipartisan Tax Structure Work Group that includes state lawmakers and others who have spent the last few years looking at proposed changes to the state’s mix of taxes.

But with unexpected — and welcome — news on better-than-expected revenue and a projected surplus of $8 billion or more over the next four years, calls have been made — with generous to more modest proposals — to return some of that to state taxpayers.

Among the more generous, proposed by state Sen. Mona Das, D-Kent, and quickly supported by numerous Republicans, was Senate Bill 5932, which would make a full 1 percent reduction in the state sales tax, reducing the state’s portion of the tax to 5.5 percent from its current 6.5 percent.

A more modest proposal, House Bill 2018, sponsored by Rep. Dave Paul, D-Oak Harbor, seeks a three-day sales tax holiday that would exempt purchases under $1,000 from the state sales tax, timed around the Labor Day weekend when parents are deep in their back-to-school shopping. Items eligible would include clothing, computers and electronics, appliances, health care equipment and over-the-counter drugs. Still taxed over that weekend: alcohol, tobacco, cannabis, travel and meals out.

The Legislature won’t have the opportunity to consider more comprehensive reforms this session, even if it took them directly from the work group’s report. That will require the coming year to find a package of taxes that rebalances state revenue to resolve inequities and inefficiencies in the current mix of taxes, including sales taxes, property taxes, the business and occupation tax and proposals for new taxes that might replace others.

Even if it waits until next year, that reform is a must. Washington state has long been criticized, because of its over-reliance on the sales tax, as having the most regressive tax system in the nation. The Institute for Taxation and Economic Policy has ranked Washington last for tax fairness, based on the percentage that the state’s lowest-income families pay in taxes against how little the state’s wealthiest pay in taxes.

But if they can’t do it all this session, lawmakers can make a down-payment to taxpayers on next year’s reforms.

Das’ proposal for a full 1 point reduction in the sales tax rate hasn’t received much support from fellow Democrats; it’s been given no committee hearing. Without other reforms to make up for the loss in revenue, the state’s budget would potentially see a reduction of about $2 billion under the proposed tax rate. And Gov. Jay Inslee and Democrats have already outlined spending that has eyes on the state’s surplus to make needed investments throughout the state.

Even 1 percentage point of the sales tax represents a significant share of state revenue. Of the state’s total tax revenue for 2020 of $26.83 billion in 2020, about 45 percent — $12.1 billion — was generated by sales taxes, according to the state Department of Revenue; another 11 percent — $3 billion — came from sales tax on tobacco, alcohol and the state’s tax on gas and diesel fuel.

Still, it’s now appropriate to take some of the tax burden off state residents, Das said, last month.

“We need to get money back in people’s pockets if we’re to make a full recovery from the high public health cost and economic cost of this pandemic,” she said.

If not a full 1-point reduction, a smaller 2/10ths of a percent reduction, knocking the state sales tax down to 6.3 percent, would still return an estimated $612 million to taxpayers, as the Washington Policy Center had recommended recently in a YouTube video.

Whether it’s a three-day sales tax holiday or a more permanent reduction in the state’s sales tax, lawmakers should consider the alignment of those stars as recognition of the state’s strong economy and the part that the state’s families and businesses have played in making it strong.

This editorial was produced by The Daily Herald (Everett) Editorial Board. The Herald is a sister newspaper of this Sound Publishing title.