Surging state revenue should quell talk of raising taxes amid ongoing pandemic

Legislatures should focus their efforts on economic recovery and job creation

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Kris Johnson
KRIS JOHNSON Association of Washington Business

As state lawmakers entered the final weeks of the 2021 legislative session — and the start of the second year of the pandemic — the condition of the state budget is nothing short of amazing.

At this time last year, the economy was in lockdown and unemployment was surging. Almost overnight, thousands of businesses were forced to close their doors to slow the spread of the virus. More than 332,000 people lost their jobs — roughly one-tenth of Washington’s workforce. Unemployment skyrocketed to nearly 16%. By June 2020, the state’s chief economist was projecting a nearly $9 billion state budget shortfall.

A year later, the unemployment rate has fallen dramatically, and Washington’s tax collections are surging. So much so that state tax collections are nearly back to pre-pandemic levels even though restaurants, travel and other parts of the economy continue to struggle, and the state remained down more than 200,000 jobs as of February.

And yet, some lawmakers are still debating whether to raise taxes or introduce new taxes such as a tax on capital gains, a move that would put the state on a path toward an income tax.

It’s time for the debate to end. If it wasn’t already clear, last month’s state revenue forecast — combined with passage of the American Rescue Plan that will send a firehose of federal relief funds to state and local governments and school districts — show new taxes just aren’t necessary.

At last month’s quarterly revenue forecast, the state’s chief economist told lawmakers Washington is now expected to collect an additional $5 billion over the next five years.

As a result of all the extra money, Washington state is not facing a budget crisis. Lawmakers don’t need to raise existing taxes or create any new taxes to balance the budget.

The state’s record of uninterrupted growth in tax revenue dating back to the end of the Great Recession remains uninterrupted, despite the worst pandemic in a century.

That’s an incredible turnaround from last April and no doubt the result of many factors including unprecedented federal stimulus that injected trillions of dollars into the U.S. economy. It also shows that, while not perfect, Washington’s tax system is remarkably stable.
The latest round of federal coronavirus relief, the $1.9 trillion American Rescue Plan, will send an additional $11 billion into Washington’s economy on top of previous federal relief efforts, including $4.25 billion for state government, $1.47 billion for counties, $1.18 billion for cities, and $1.9 billion for schools.

Local governments and school districts are well taken care of too, with most every jurisdiction in line to receive anywhere from hundreds of thousands to hundreds of millions of dollars. It’s true these are one-time funds and elected officials will need to avoid using the money to start new programs with ongoing costs, but the fact remains: Money is pouring into Washington’s economy.

Unfortunately, all this unexpected good financial news does not mean that Washington’s economy has recovered from the pandemic. While some parts of the economy are doing well, other segments remain battered by the coronavirus and far too many people remain out of work. As of February, Washington was still down 232,000 jobs compared to the previous February. Rather than looking for ways to raise taxes on employers, they should be doing everything possible to help them recover.

As lawmakers close out the remaining weeks of the legislative session and work toward adoption of a new two-year budget, they should be pleasantly surprised by the condition of the state’s finances. They have enough money to do what they need to do.

Rather than searching for ways to pad an already flush budget, they should be focusing their efforts on economic recovery and job creation.

Kris Johnson is president of the Association of Washington Business, the state’s chamber of commerce and manufacturers association.


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