State’s revenue forecast shows it’s time for sales tax cut
~October 11th, 2018
Washington taxpayers continue to provide records amount of revenue. In fact, according to Washington’s September Revenue Forecast, forecasted Near General Fund-State revenue for the 2017-19 biennium is now $45.63 billion, 16.9 percent more than that of the 2015-17 biennium.
Forecasted Near GF-S revenue for the 2019-21 biennium is now $49.8 billion, 9.1 percent higher than expected 2017-19 biennial revenue, and forecasted Near GF-S revenue for the 2021-23 biennium is $53.59 billion, an increase of 7.6 percent over expected 2019-21 biennial revenue.
For the September forecast alone, the state’s economist projects nearly $800 million more in revenue for the next four years. Those numbers illustrate state revenues continue to increase substantially.
During this time of increasing revenue, however, the legislature has not provided significant tax relief to Washingtonians. Instead, a large state property tax increase—referred to as a property tax swap with local taxes reduced—was imposed in response to the K-12 McCleary lawsuit.
With the state Supreme Court having signed off on the Legislature’s McCleary plan and state revenues continuing to increase substantially, lawmakers should now provide tax relief with a sales tax cut.
When it was first imposed in 1935, Washington’s sales tax rate was 2 percent. It’s currently at 6.5 percent and hasn’t seen a rate reduction since 1982.
According to the state Department of Revenue, here are the potential 2019-21 taxpayer savings at various sales tax rate cuts.
•0.25 percent reduction to 6.25 percent: $851 million.
•0.50 percent reduction: $1.7 billion.
•0.75 percent reduction: $2.57 billion
•1 percent reduction: $3.43 billion
With the current projected increase in the state revenue forecast, lawmakers should consider a sales tax rate cut of at least 0.25 percent.
A larger sales tax cut could be enacted via a trigger mechanism tied to any large revenue increases resulting from the new U.S. Supreme Court online sales tax ruling.
Combined with federal tax cuts, this court ruling likely will have a significant impact on state revenues.
As of Oct. 1, the state Department of Revenue “will require some out-of-state retailers to begin collecting sales tax. … This is a result of the U.S. Supreme Court’s June 21 decision in the South Dakota v. Wayfair case. The Wayfair decision allows states to require out-of-state businesses without a physical presence to collect and submit the tax on sales delivered into their state.”
This U.S. Supreme Court ruling means the state has the potential to see even more growth in sales tax collections.
This court ruling, coupled with the already substantial increases in state revenue, means it’s time for lawmakers to prioritize tax relief next session with a reduction in the sales tax rate.
Jason Mercier is the government reform director for Washington Policy Center, a nonprofit research organization with offices in Spokane, Tri-Cities, Seattle, and Olympia.