Dependability in budgeting

During the Associated Press’s Legislative Preview yesterday, Gov. Inslee talked about his capital gains tax proposal:

“Whatever the concerns on the volatility of the capital gains tax, the alternative is zero,” Inslee said.

That rather misses the point. Setting aside the question of whether the Legislature needs to raise more revenue, a capital gains tax would be an especially questionable method because of its volatility. As Stateline notes,

The problem with tax stream volatility, according to Don Boyd, analyst with the Rockefeller Institute of Government, is that “it’s no way to run a government.”

“What does state and local government spend money on? K-12 education and health care for the elderly and very disabled,” he said. “When the revenue goes down, you don’t have a drop of kids in school and you don’t have a drop in elderly health treatment. You have to provide those services even when revenue falls off dramatically.”

Governments need revenues to be as predictable and stable as possible (Washington happens to do fairly well on this currently) — for the sake of clients who depend on them. Relying on a volatile revenue stream like a capital gains tax means that there could be huge swings in the amount of services that can be provided year to year.

Zero new revenues but stable provision of services might be preferable to a situation where uncertain revenue streams require periodic, unexpected cuts in services or increases in tax rates.

3 thoughts on “Dependability in budgeting

  1. Nice, succinct, reasonabe analysis. Am sure Mr. Inslee knows how volatile this tax is, and that its not something to rely upon, Perhaps its a move in a chess game to reach agreement on another revenue source? (I don;t know; I’m thankfully not involved with this anymore). We’ve of course had this same discussion for 50 years (at least). The answer we keep coming back to is a viable, workable, effective Rainy Day Fund. It never quite worked in my experience because as soon as the RDF had some real money in it, the D’s found a way to spend it; and/or the Rs found a way use it to cut taxes. Or the parties reversed rolls: R’s have their favorite budget items (higher ed?); and Ds some favorite tax cuts (sales tax rebates?) We possibly need a constitutional amendment creating a solid RDF and process behind it.

  2. “Zero new revenues but stable provision of services might be preferable to a situation where uncertain revenue streams require periodic, unexpected cuts in services or increases in tax rates.”

    The greater trouble here being, of course, that as a legal matter you can’t cut basic education. Once defined by the legislature as within basic education, programs and services within that definition may not be reduced for reasons of insufficient revenue. (Atteniont, Sen. Kastama.) So the capital gains tax seems a particularly ill-chosen way to meet McCleary requirements for basic education. I am struck by the fact that even the left-leaning Budget and Policy Center, from which the governor clearly took this proposal, recommended, in recognition of the tax’s volatility, that half the receipts go into a rainy day fund rather so there’s not the dependence on it to support the operating budget in an ongoing manner. So I find the governor’s thinking bewildering. is this just positioning on his part, as Mr. Lefberg suggests? End game stuff? I’m inclined to think not, but who knows?

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